GREEN PAPER on relations between the European Union and the ACP countries on the eve of the 21st century - Challenges and options for a new partnership
Date: 1996-11-20
Institutions: European Commission
Subjects: ACP countries, European Development Fund, European Union, Lomé Convention, cooperation policy

COMMISSION  OF THE  EUROPEAN  COMMUN! i  StTj 

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Brussels,  20.1 1.1996 
COM(96)  570  final 

GREEN PAPER 

on relations between the European  Union 
and the ACP countries on the eve of the 21st cemtui 

Challenges and options for a new partnership 

(presented  by the  Commission) 

COMMISSION  OF THE  EUROPEAN  COMMUNITIES 

•et** 

ir 

•à 

-ù 

-ie 

Brussels,  20.11.1996 
COM(96)  570  final 

GREEN PAPER 

on relations between the European Union 
and the ACP countries on the eve of the 21st century 

Challenges and options for a new partnership 

(presented  by the  Commission) 

The world is in the throes of far-reaching changes. The collapse of the Iron Curtain 
and the end of  the East-West conflict  brought  about a drastic upheaval  in international 
relations and the world economy, opening the door to closer cooperation on the basis of 
common values and principles but also leading to a recasting of geo-strategic interests and 
new,  less  tangible  forms  of  risk.  Economically  speaking,  the  spread  of  the  market 
economy and the demise of exclusive or privileged ties have altered the terms of supply 
and  demand  on  international  markets.  The  conclusion  of  the  Uruguay  Round  trade 
negotiations created a new multilateral  context which  is speeding up a globalization of 
the economy driven by technological change and the liberalization of economic policies 
that started  in the  1980s. Interdependence is growing and extends beyond the economic 
and financial  to the social and environmental spheres. At the same time, the margin for 
manoeuvre in national policies has narrowed and new fault lines are being opened up by 
the  effects  of  social  exclusion,  by  the  fragmentation  of  the  social  fabric  in  both 
industrialized  and developing or  transitional countries,  by widening  inequalities and by 
the marginalization  of the poorest countries. These  fault  lines are destabilizing  and  lie 
behind the upsurge in extremism  in its nationalist or  fundamentalist  guises. 

This new international environment has prompted the European Union to redefine 
its political and security interests and give fresh  impetus to the political dimension of 
the  European  integration  process.  The  Treaty  on  European  Union  has  given  an 
institutional  basis  to the framing  of  a common  foreign  and  security  policy  (CFSP),  a 
policy which is as yet insufficiently  developed to further  properly the common interests 
of  the  Member  States;  its  machinery  is  currently  being  discussed  as  part  of  the 
Intergovernmental  Conference  (IGC). But the Treaty  has also provided an institutional 
basis for  European development cooperation policy. 

The European Union itself will be in the process of radical change at the time it embarks 
on a new relationship  with the ACP countries. 

It  has  a  full  programme  of  work  in  the  years  ahead  as  it  readies  itself  to  face  the 
challenges of  the 21st century:  fine-tuning  of the  internal  market and the prospect of a 
single currency, revision of the Treaty and other institutional reforms being discussed by 
the  IGC,  conclusion  of  a  new  medium-term financial agreement  and  the prospect  of 
enlargement to embrace the associated countries of Central and Eastern Europe, the Baltic 
States and  Cyprus and Malta. 

The  European  Union's  external  relations  have  also  been  marked  by  new  initiatives 
concerning developing countries and economies in transition. It has concluded association 
agreements  with  most  European  countries  of  the  former  East  bloc,  which  are  now 
applying  for  membership. 

At the same  time,  it is supporting  the process  of  economic and political change in the 
republics  of  the former  Soviet  Union and has concluded  trade agreements with several 
of them. 

Relations  with  non-member  Mediterranean  countries  are  now  covered  by  a  new, 
long-term  multilateral  framework  for  partnership  between  27 countries,  which  go  hand 
in  hand  with  closer  bilateral  relations  and  cover  three  sets  of  provisions:  political  and 
security,  economic and financial  (chiefly  the gradual  setting  up of a free-trade  area) and 
social,  cultural  and  human. 

The  European  Union has also decided  to strengthen  its links with  Latin America  as part 
of  a  three-pronged  strategy  involving closer  political  dialogue between the two regions, 
encouragement of free trade combine with institutional support for the regional integration 
process,  and technical and financial  cooperation focusing  on a number of priority  fields. 

Its  new  strategy  in its relations  with Asian countries  is aimed at strengthening  Europe's 
economic presence in this region, enhancing mutual understanding  and developing a new 
political  approach. 

These  new  policies  are the Union's  response  to the  political  and economic  changes 
under  way on the international  scene  and reflect  the fact that  the Union's  external 
relations  are not  only global in  scope  but  tailored to specific  circumstances. 

The Lomé Convention has provided the framework  for  trade and aid between the EU and 
the ACP countries, now numbering 70,  since  1975. But Community development policy 
goes  back  to  1957 and  has gone through  a number  of  decisive  phases  since  then.  After 
the  initial  years,  during  which  the  aim  was  to  establish  ties  with  the  Community's 
overseas countries and territories, cooperation continued under the Yaounde Conventions 
and  remained  focused  on  French-speaking  black  Africa  until  the  middle  of  the  1970s. 
After  its Community's first enlargement, which took place in a markedly changing  world 
economy,  the  European  Community  started  to  extend  the  geographical  scope  of  its 
cooperation  policy  by  opening  the  first  Lomé  Convention  to  other  ACP  countries  and 
forging  association  and  cooperation  ties  with  other  regions  of  the  developing  world. 

The Lomé Convention has been overhauled  every  five  years to adjust  it to economic and 
political developments, add new cooperation instruments and set fresh priorities.  The last 
revision  took place  in  1995.1 

The  EU  has  also  gradually  built  up  other,  non-Lomé  instruments  for  aiding  the 
developing  countries in the form  of specific budget headings (for  desertification  control, 
AIDS,  etc.)  or  components  of  other  Community  policies  that  can  also  contribute  to 
development  policy  (scientific  policy  under  the  framework  research  and  development 

The first three Conventions were concluded for a period of five years.  The  fourth 
covers  the period  from  March  1990  to  February  2000  and  includes  a  financial 
protocol  concluded  for  five  years.  At the same  time as  the  negotiations  for  the 
second  financial  protocol  a mid-term  review  of  the Convention was carried  out. 
The  text of  the  fourth  Lomé Convention  as revised  by  the agreements  signed  in 
Mauritius  on 4 November  1995 was published  in the ACP-EU  Courier,  No  154 
of  January-February  1996. 

programme  (FRDP)  is one  such).  The  ACP  countries  are  also eligible  for  these  forms 
of  aid. 

New  general  guidelines  have  been  drawn  up  for  EU  policies  in a  number  of  sectors  or 
fields  of  cooperation  as a  result  of  the  work  under  way  since  1992  "on the  outlook  for 
cooperation  in the run up to the year  2000"2 to  implement  the new Treaty  provisions  on 
European  development  policy.3 

On the threshold of the 21st century the future shape of the EU's relations  with the 
ACP countries needs to be examined in depth.  With the current Convention due to 
expire  in February  2000,  which is not  far distant,  and the two parties'  contractual 
obligation to start negotiations  at the latest 18 months beforehand,  plus the need to 
establish  against  the  background  of  the  tighter  disciplines  of  the  WTO  a  trade 
cooperation framework fully in line with the new multilateral rules, we have an ideal 
opportunity to go ahead with this reappraisal and embark on a wide-ranging  debate 
on the  future  of  relations  between the EU  and the  ACP  states. 

Not only  does the new global landscape alter the  EU's  objective  interests and those 
of  its  developing  partners,  it  also involves  increased  responsibilities  for  a player  of 
the  EU's size.  These  responsibilities  are  first  and  foremost  political  in nature:  the  EU 
must actively  support  the moves  towards  more openness  that started  when  the  cold  war 
came  to  an  end  in  the  second  half  of  the  1980s  and  in  particular  help  anchor  the 
democratization  process,  which  is  still  precarious  in  many  ACP  countries.  These 
responsibilities  are also  of  an economic nature:  the  EU  must complement  the  effects 
of  globalization  by  making  the  necessary  adjustments  within  the  Union  to  improve  job. 
prospects and reverse trends  towards exclusion by playing an active role  in  international 
economic  cooperation,  helping  frame  and  enforce  multilateral  rules  and  easing  the 
gradual  integration  of developing  countries  into the world  economy.  Another  aspect of 
globalization are the changes resulting from progress towards an information  society; this 
is  a  new  economic  factor  that  is  opening  up  extraordinary  prospects  in  areas  such  as 
trade,  education and health but also threatening  to marginalize still further  countries  that 
are  not  locked  into  international  information  networks. 

For  the  European  Community  -  faced  with  the  difficult  task  of  adjusting  its 
economic  and social  systems  and having to  frame  its  political  action to  fit  a multi-
rather  than  bipolar  world  and prepare  for  eastward  enlargement  - there  is  now  a 
new dimension to development cooperation, particularly with the ACP countries, viz 
how  can  we  take  on  a  global  role  without  responsible  strategies  for  the  different 
regions  of  the  developing  world,  notably  those  worst  hit  by  poverty  and 
marginalization? 

The EU's efforts to reduce poverty and inequalities in development around the world 
are  also  closely  linked  to  the  quest  for  peace  and  stability,  the  need  for  better 

SEC(92)  915,  15 May  1992, and  Council  Declaration  of  November  1992. 
Articles  130u  to  130y  of  the  Treaty. 

in 

management  of global interdependence  and risks,  and promotion of a kind  of  world 
development  that  is more  compatible  with  European  political  and  social  values. 

The  EU's  development  policy  offers  Europe  a  gateway  to  regions  with  enormous 
development  potential  which  are  now  starting  to bestir  themselves. 

As the 21st century  dawns,  relations between the EU and the ACP countries  should 
be  put  on new  footing  to take  account  not  only  of  changed  political  and  economic 
conditions for development but also of changed attitudes in Europe.  The colonial and 
post-colonial  period  are behind us and a more politically  open international  environment 
enables  us  to  lay  down  the responsibilities  of  each  partner  less  ambiguously. 

In view  of  the patchy  achievements  of  ACP-EU  cooperation  and  a degree of  scepticism 
about the scope for developing the ACP countries against the background of tight budgets 
in donor  countries and an inward-looking  tendency borne of social difficulties  in Europe, 
partners  on  both  sides  are  now  seeking  to place  more  emphasis  on  the effectiveness  of 
cooperation  and to review their priorities with an eye to better  reflecting  the concerns of 
European  and  ACP  societies. 

Community  aid is of major  importance for  many ACP countries and has  unquestionably 
helped to improve living standards.  It has often  been a testing ground  for  new  ideas and 
universally  acknowledged expertise has been built up in certain areas.  But like any  form 
of  aid  it has had failings,  which a critical analysis of the results of ACP-EU  cooperation 
has  identified  at  three  levels. 

1.  The  general  framework  within  which  development  operations  are  carried  out:  it  has 
to be admitted  that the principle of partnership has lost its substance and been only partly 
put  into  practice.  Aid  dependency,  coping  with  short-term  needs  and  managing  crisis 
situations have increasingly coloured political relations between the two sides.  Dialogue 
on economic  and  social policies  has proved  difficult  to put  into practice  with  countries 
with  little  institutional  capacity  and  ineffectual  public administration  with the  result  that 
partnership  is  limited  to day-to-day  resource  management. 

2. EU-commissioned evaluation reports on cooperation policies have generally  concluded 
that financial  and technical cooperation  matches  Community objectives  and the  needs of 
the  recipient  countries  and  that  effectiveness  is  relatively  high,  notably  as  regards 
infrastructure  and  social  projects.  However,  the  state  of  the  institutions  and 
economic policy in the recipient country have often been major constraints,  making 
Community  aid  less effective  in raising  living  standards  and  the level  of  development. 

The  impact  of  trade  preferences  has  been  disappointing  by  and  large.  Preferential 
arrangements,  especially  the  protocols  on  specific  products,  have  certainly  contributed 
significantly  to  the commercial  success  of  some  countries4  which  managed  to  respond 
with appropriate  diversification  policies.  But the bulk of ACP countries  have  lacked 
the  economic  policies  and  the  domestic  conditions  needed  for  developing  trade. 

Examples  are  Côte  d'Ivoire,  Jamaica,  Mauritius  and  Zimbabwe. 

IV 

Furthermore,  three new  factors  now have to be taken  into consideration  in designing a 
new  trade  regime:  (i)  the  Marrakesh  agreements  and  tougher  dispute  settlement 
procedures could put the future of differentiated,  non-reciprocal preferences  schemes in 
doubt;  (ii) the speeding-up of liberalization at multilateral and inter-regional  levels; (iii) 
the  growing  importance  in  international  trade  talks  of  new  issues,  such  as  the 
environment, competition policies,  investment codes, technical and health standards and 
compliance with basic social rights.  These developments affect the relative value of tariff 
preferences. 

3.  Where financial  and technical cooperation  is concerned, the fact  that some  financial 
resources  are  granted  automatically  (the proportion  has  now been  cut)  and  the  EU's 
tendency,  in common  with  other  donors,  to  take  the  initiative  away  from  its  weaker 
partners,  have  not  encouraged  ACP  governments  to  display  the  genuine  political 
commitment  expected  of  them.  There  has  been  a  drift  towards  a  tendency  for 
development instruments to dictate policy rather than the other way round.  A lack 
of flexibility  has meant that our cooperation does not adjust easily to a rapidly changing 
political and economic scene and is slow to produce new political initiatives reflecting the 
concerns  of society  in Europe and  the ACP countries and the desire to make aid  more 
effective  in the long term. 

In a rapidly changing global and regional environment,  the ACP countries have to face 
up  to  many  challenges:  halting  their  economic  marginalization  and  integrating  into 
international  trade,  implementing  the domestic, political,  economic and social changes 
needed to build a democratic society and a market economy, and creating the conditions 
for  sustainable development and poverty alleviation in a context of still high population 
growth. 

The  widening  gap  between  developing  countries  in  general,  and  within the  ACP 
group in particular, is undoubtedly a crucial factor.  Political and economic transition 
has gone further  in some countries than in others and the EU's efforts  will be gauged in 
terms of its ability to ease the constraints on the development of the ACP countries while 
supporting the factors of change emerging in a growing number of countries.  Above all, 
in more political  terms, they will be judged by whether policy  for  the ACP countries, 
especially  sub-Saharan  Africa  regains a strong  sense of purpose.  The negative image 
that many have of a continent that has lost its way does not reflect the real Africa. 
Africa  is not all of a pattern.  The unprecedented  political developments and the recent 
improvement  in growth performance  in some countries,5 stemming chiefly  from  better 
management  of  economic  policy  and  the  implementation  of  structural  reforms,  are 
promising signs. 

Côte d'Ivoire, Uganda and Benin spring to mind. 

In  the  light  of  a decline  in the general  acceptance  of  the very  principle  of  development 
aid  in a global  environment  beset with risks and  new opportunities,  the European  Union 
and  its ACP partners  must  strive to make their  cooperation  more  successful.  This  will 
entail identifying the ACP-EU cooperation achievements that are  worth  preserving, 
making  further  progress  in  refining  and  implementing  recent  guidelines  and 
initiatives,  and determining  which of the various possible options  for future  reform 
are most  consistent  with mutual  objectives  and  undertakings. 

The  difficulties  of  putting  "partnership"  into  practice  should  not  call  into  question  the 
value  of  this  form  mutual  political  commitment.  The  circumstances  and  huge 
challenges facing many ACP countries are good reason to preserve the strengths and 
qualities  of  the  present  relationship,  in  particular  the  predictability  and  contractual 
nature  of  the  aid.  But  this  political  commitment  must  be  made  more  explicit  and 
more  effective. 

Are  the  European  Union and  its ACP partners  ready  to do  this? 

On  the  EU  side,  the  political  dialogue  with  the  ACP  countries  must  be  part  and 
parcel  of its common foreign  policy.  A more  relaxed  framework  for  dialogue  where 
issues  of  good  governance,  democracy  and  human  rights,  and  the  consolidation  and 
maintenance of the rule of law can be broached,  along with the development of a genuine 
European conflict  prevention  and resolution policy,  would  seem to be preconditions  for 
a  more  effective  European  policy.  On the ACP  side,  commitment  to push  through 
institutional  reforms  and  conduct  economic,  social  and  environmental  policies 
reflecting  the  major  undertakings  made  at  the  Rio,  Vienna,  Cairo,  Copenhagen, 
Beijing, Istanbul and Rome international conferences,6 must be the foundation of the 
new partnership.  The  EU's  aid  activities,  in common  with  those of  other  donors,  can 
have major  political repercussions  for these countries; their relevance depends on a range 
of conditions,  notably political conditions.  The parties'  respective responsibilities  in the 
context  of  these activities  must  be  expressed  in political  terms. 

If  a  mutual  political  commitment  is  made  on  this  basis,  the  principal  subjects  of  the 
proposed  dialogue  (such  as  domestic  security  issues,  migration,  the  fight  against  drug 
trafficking,  etc.)  and  most  appropriate  geographical  configuration  (global  dialogue  or 
dialogue  tailored  to groups  of  countries)  must be  established. 

North-South relations  are part  of the external  face  of the European Union and the 
special  relations  between  the  EU  and  the  ACP  countries  fall  within  this  wider 
relationship.  The  link  between  the  politics  and  aid  and  with  multilateral  commercial 
policy  is  an  application  of  the  general  principle  of  consistency  in  external  action. 
Strengthening  the  Union's  capability  for  external  action  is  one  of  the  key  subjects 
broached  in  the  Intergovernmental  Conference  (IGC).  In  its  opinion  on  the  IGC,  the 
Commission argued in favour of bringing together  "the various strands comprising  foreign 
relations  in a single effective  whole,  with structures  and procedures  designed to enhance 

Earth  Summit,  Human  Rights  Conference,  Population,  Social  Development, 
Women,  Habitat  II, World  Food  Summit. 

VI 

consistency and continuity".7  Each strand should, however,  retain its distinctive  features. 
in  particular,  must  retain  sufficient 
Community  development  cooperation  policy, 
autonomy to pursue its own objectives,  which require a long-term view and continuity of 
action.  This  linkage does,  however,  entail greater  selectivity  in  Community  aid  with 
a  view  to  improving  its  effectiveness  and  this  would  lead  to  changes  in  the  actual 
implementation  of  cooperation. 

A  number  of  new  principles  would  facilitate  this process. 

First,  the  principle  of  differentiation:  not  all  ÀCP  countries  can  at  present  engage  in 
political  and economic partnership  with the European  Union on the same basis.  Policies 
and  methods  of  cooperation  have  to be  suitably  tailored  for  reasons  of  efficiency. 

Second,  European  and  ACP  partners  must  strive  to  reconcile  two  requirements: 
(i)  ultimate  responsibility  for  reforms  and  development  policies  must be  shouldered  by 
the recipient  countries;  (ii)  the  EU,  however,  must be  able to account  to  the citizens  of 
In  this  case,  the  only  alternative  to 
Europe  for  the  use  made  of  the  aid  it  gives. 
traditional forms  of aid is to step up the policy dialogue,  improve local capacity  for 
policy-making  and planning,  and refocus  Community  monitoring  of  aid  on  results 
and progress rather than the means deployed.  The implementation of sectoral  policies 
that  will  put  resources  to better  use  and  more  coordination  between  donors  is part  and 
parcel  of  this  process. 

The  EU  and  the  ACP  countries  must  set  themselves  the  target  of  developing  new 
forms  of  cooperation:  the  EU  is  unique  in  being  able  to  put  forward  an  array  of 
instruments and promote scientific,  economic and technological cooperation.  New  forms 
of  partnership  could  be  promoted  in  innovative  fields  such  as  new  technologies;  pilot 
projects would be a way of stimulating information flows between individual communities 
(research  on  the  Internet)  and  providing  practical  opportunities  for  cooperation  (in 
telecommunications  services,  for  instance). 

in  a  similar  vein,  more  active  participation 

in  development  by 
Finally, 
non-governmental  players  (private sector  and other representatives  of  civil society) 
could  be  envisaged,  either  in the form  of  a dialogue  on cooperation  priorities  or  in  the 
shape of  direct  access  to some  of  the  funding. 

It 
The  ACP  group  is  in  reality  neither  a  political  group  nor  an  economic  entity. 
grew up for  essentially historic reasons and exists only in the framework of relations with 
the  European  Union. 

COM(96)90,  Commission  Opinion  "Reinforcing  political union  and preparing  for 
enlargement". 

vn 

Will it remain a relevant partner for the Union in the future?  In other words, should 
the  present  framework  for  relations  between  the  seventy  ACP  states  and  the  EU  be 
maintained? 

The answer  certainly  lies partly with the ACP countries  themselves, which must adopt 
their  position on the matter  on the basis  of  their  common  interests  and  their  desire to 
develop a negotiating capacity as a political or economic group on the international stage 
outside their  relationship with the EU. 

For the EU the choice is above all a political one, taking account of the way in which 
cooperation  with the ACP countries meshes with the totality  of the EU's relations 
with developing countries. 

Other  factors  should also be taken into account. 

The geographical coverage of the cooperation agreement might be changed to take 
on  board  factors  such  as  the  diversity  within  the  ACP  group,  the  need  for 
differentiation of cooperation objectives and priorities and, possibly, trade regimes, 
plus the prospect  of reduced aid requirements for certain countries and graduation. 
Changing the non-reciprocal preference arrangements which are different  from  those of 
other  developing  countries  could  become  unavoidable  and  involve  different  trade 
arrangements  tailored  to the type of economy concerned. 

The importance that the EU attaches to the cooperation and regional integration process 
for  economic as well as political reasons will also influence  the shape of a new accord. 

There are four possible options: 

1. 

2. 

3. 

the status quo, with a few adjustments.  The principle of an overall agreement 
with all the ACP countries could be maintained, but with different  arrangements 
and priorities; 

an overall agreement supplemented by bilateral agreements.  Differentiation 
would  be  taken  a  step  further  and  the  overall  agreement  would  contain  only 
undertakings of a very general nature; 

splitting  up the Lomé Convention into regional  agreements.  An agreement 
with sub-Saharan Africa that embraced South Africa would clearly be meaningful 
for  Europe.  Where  the progress  of  regional  cooperation  allowed,  subregional 
agreements  could  also  be  envisaged.  There  are  a  number  of  options  in  the 
Caribbean, notably the idea of an enlarged cooperation arrangement for the whole 
of the Caribbean area leading ultimately to integration of cooperation with these 
countries  into  the  framework  of  relations  with  Latin  America.  In  the  Pacific 
region, enlargement of the framework of cooperation to other island states would 
increase the effectiveness  of European policy, especially as regards trade with the 
APEC countries.8 

Asia Pacific  Economic Cooperation. 

viii 

a  specific  agreement  for the least  developed  of the ACP  countries,  possibly 
open to other LLDCS.  This option, which does not exclude elements of the other 
three options,  would recognize the LLDCs'  special circumstances  and offer  the 
possibility  of  policies  better  suited  to their  problems  and  needs,  in the case of 
trade especially.  But in terms of political and financial  cooperation  it seems an 
inappropriate  solution.  Another  consideration  is  that  a  regional  approach  has 
always been adopted in relations with the ACP countries. The global perspective 
of European development cooperation is not what it was in 1957 or  1975: the EU 
now has cooperation links with a large number of countries and is present  in ail 
regions of the world. 

The  general  discussion  about  the  consistency  of  European  policies  as  they  affect  the 
developing countries has in recent years led to a number of initiatives to assess the effects 
of Community policies other than development cooperation on development objectives and 
to strengthen coordination between the Community and Member States and other donors 
in order  to improve the effectiveness  of cooperation overall. 

Even if the current situation is often  deemed unsatisfactory,  consistency - in the strict 
sense of the term, i.e. taking into account the external effects  of the other policies, 
cannot  be  the  subject  of  an  international  undertaking  by  the  Community. 
Consistency  is  a  matter  for  political  appraisal  in  the  face  of  sometimes  conflicting 
objectives. 

The lack of coordination could, on the other hand, be remedied not only by actively 
continuing  the  EU's  efforts  to  improve  coordination  of  policies,  operations  and 
participation in international forums but also by making specific new undertakings 
when  the  time  comes  to  renew  the  ACP-EU  agreement.  There  are  two  possible 
options here: 

the  Union  could  set  itself  the  objective  of  formulating  an  overall  European 
strategy for the ACP countries which would commit both Member States in their 
national operations and the Community.  A framework of common understanding 
would facilitate efforts to achieve greater complementarity, a principle laid down 
in  the  Treaty,  and  would  gradually  boost  operational  effectiveness  across  the 
board; 

it  could  also  propose  to  its  partners  putting  inplace  machinery  to  provide 
information,  monitoring  and  coordination  services  for  Member  States'  and 
Community  development  activities  and  policies.  The  Union  would  thereby 
commit  itself to providing the means for  better  coordination. 

Stepped-up  European coordination could also underpin efforts  to improve coordination 
within the whole donor community and within the multilateral system in the framework 
of inter-institutional  rapprochement decided at the recent G7 summit, which singled out 
Africa  for  particular  attention. 

IX 

The  Union  has  adopted  new  policy  guidelines  in recent  years  that  deal  with  new  topics 
or redefine  the objectives pursued  in the various sectors or areas of cooperation.9  These 
guidelines are likely to remain relevant in the year 2000 even if experience gained  in the 
interval  leads  to  adjustments  or  the development  of  certain  facets. 

But over  and above this  "acquis", the EU and its ACP partners can now consider  setting 
themselves  new  priorities,  taking  into  account  the  overall  objectives  of  Community 
development cooperation policy enshrined  in the Treaty, past successes and failures,  and 
the  ACP  countries'  handicaps  and  potential  for  future  development.  ACP-EU 
cooperation  policy  can  be reformulated  under  three  broad  headings:  (i)  economy, 
society  and the  environment;  (ii)  institutions;  (iii)  trade  and  investment. 

Distinguishing between these three areas in Community support should not of course lead 
to a compartmentalized  approach.  On the contrary,  the  different  components  should 
be mutually reinforcing; for instance, the necessary  improvement in the competitiveness 
of the ACP economies  is to be achieved by a combination of external and  internal  policy 
measures.  Likewise, job creation and social progress are intertwined with private-sector 
development  and  improvements  in the  workings  of  government. 

Yet the European Union cannot - indeed must not - do everything.  Greater  differentiation 
between  the ACP countries should rather prompt it to adopt a cooperation policy  tailored 
to  circumstances  and  to act  in fields  that  may  differ  from  one country  to  the  next. 

An  aid  strategy  centred  on  enhancing  the  competitiveness  of  the  ACP  economies  and 
developing  the private sector  and  trade should comprise a package of  measures aimed  at 
ensuring the continuation of the reforms  undertaken by these countries and boosting  their 
credibility.  The first  such  action should certainly  involve support  for  the  establishment 
of  a  stable,  non-inflationary  and  growth-generating  macroeconomic  framework. 

Among  the various  possible  options,  the  following  areas  could  be  looked  at  in  greater 
depth: 

a  more  systematic  approach  to  the  causes  of  low  investment  in  most  ACP 
countries.  The  EU  could  play  a positive  role  by supporting  administrative  and 
institutional reforms  that would encourage the mobilization of private  investment, 
framing  of  competition  policies,  development  of  capital  markets, 
i.e. 

See the  texts  and  resolutions on gender  issues (COM(95) 423), health  (COM(94) 
77),  education  (COM(94)  399),  food  security  (COM(94)  165),  the  fight  against 
poverty  (COM(93)  518),  support  for  structural  adjustment  (COM(94)  447),  the 
to 
environment  (June  1992  report  on  the  Rio  Conference  and  follow-up 
Agenda  21, COM(96 569) and the link between  emergency  aid, rehabilitation  and 
development  (COM(96)  153). 

modernization  of  business  and  property  law,  consumer  protection,  education, 
training  and development of  industrial  cooperation; 

support,  tailored to local circumstances, for restructuring  of public  enterprises 
and privatization  in  the wider  context  of  the changing  role  of the  state  in the 
economy; 

greater  support  for  an opening-up  to  international  trade  and for  regional 
integration.  Such an overall strategy should support both capacity  building (at 
regional and national  levels and provide aid  towards the costs of  transition. 

seeking  partnerships  between  EU  and  ACP  countries  that  would  mobilize 
private-sector  resources  for  the  development  of  infrastructure,  especially 
telecommunications  infrastructure,  and  their  operation  in economically  viable 
conditions; 

aid  for  building up scientific  and technical skills; 

macroeconomic and monetary cooperation; 

support  to help reduce  levels of  external  debt,  although  the  Community  itself 
accounts  for  very  little  of  the  ACP  countries'  debt  because  its  aid  is  highly 
concessional. 

There are strong arguments for  focusing cooperation with the ACP countries on poverty 
reduction.  This objective already features prominently in current cooperation policy but 
in future the European Union and its ACP partners should look at ways of enhancing the 
impact of  Community cooperation on poverty. 

The principle of a multi-pronged  approach involving a wide range of operations should 
be retained, but a more strategic approach could be adopted for  each of  the partners by 
acting  on two  fronts. 

First,  the  EU  could  support  packages  of  reforms  and  initiatives  designed  to  promote 
equitable and job-creating growth, improve access for all to productive resources, notably 
through  education and vocational training. 

Second,  it  could  adopt  a  more  comprehensive  sectoral  approach  based  on  in-depth 
dialogue  on  policies  with  significant  social  impact  and  on  aid  directed  towards  the 
financing  of current expenditure  in the social sectors. 

The  effort  put  into  achieving  social  development  objectives  could  also  be  one  of  the 
criteria  taken into account for  the granting of Community aid,  assuming that the option 
of greater  selectiveness  linked to an assessment of good governance  is taken up. 

xi 

A clearly defined  strategy would help translate  into practice the principles of  sustainable 
development.  In addition to continuing the current efforts  in the form  of  impact  studies 
and  specific  positive  measures,  a  new  policy  in  this  field  would  focus  on  certain 
priorities:  the  link  between  poverty  and  deterioration  of  the  environment,  the 
internalization  of  environmental  costs,  capacity  development  and  a  participatory 
approach.10 

The  EU  could  play  a  constructive  role  here  by  encouraging  and  supporting  ACP 
governments,  in the context of a policy dialogue,  to develop their  own capacity to assess 
and  manage  environmental  problems. 

There  are  particular  issues,  such  as  the  quantity  and  quality  of  water  supplies, 
deterioration of the soil as a result of population pressures,  the destruction  of forests  and 
the problems  of  cities,  which  merit  close  attention. 

The  institutional  aspects  of  cooperation  need  developing  because  of  administrative 
dysfunctionality  and governance problems  in many countires and because the rule of  law 
needs  to  be  restored  or  consolidated  to bring  about  the conditions  for  development  and 
a  reduction  in  inequality  and  poverty. 

But the EU must also think carefully  about the impact of such action.  Stronger political 
relations  between the EU and ACP countries are  integral  to any action  to support  the 
building  of  a  country's  institutional  and  administrative  capacities.  As  the  process  is 
essentially  a  political  one,  this  type  of  reform  affects  power  structures  and  inevitably 
encounters  stiff  resistance. 

Is the EU  ready to  adopt a more strategic approach to its support  for the  necessary 
political  and  social  transition? 

Aside  from  its  political  dimension,  support  for  institution  building  also  has  a  more 
technical side.  From  that point of view,  the European Union is relatively  well-placed  to 
offer  its services  because,  given  the diversity  of  social  and political  organization  in the 
Member  States,  it  has  no  one  model  to  "sell",  because  it  has  know-how  gained  from 
building  the  Community  and  because  partnership  is an  appropriate  framework  for  this 
type  of  cooperation. 

EU action could be focused  on themes connected  with its main areas of  cooperation 
where  it  could  offer  "added  value"  compared  with  other  donors.  These  themes 
include:  promoting  observance  of  human  rights,  support  for  regional  organizations, 
improving capacity for economic- and social-policy analysis and  formulation/preparation 
of reforms,  budget management,  improving the workings of the legal system, competition 

10 

The Protocol on the sustainable management of forest  resources, which was added 
to  the  fourth  Lomé  Convention  during  the  mid-term  review,  is  a  step  in  this 
direction. 

X ll 

rules,  investor  protection,  education and training,  environmental  protection,  consumer 
policy and developing the institutions of civil society. 

The Union could  also look  at  the development of  local capacity  as one of  the criteria 
determining  the  choice  of  arrangements  for  implementing  financial  and  technical 
cooperation. 

In most ACP countries the economic and institutional  environment has not usually been 
propitious to the development of a competitive private sector,  the growth of investment 
or diversification  of production,  and so they have not been able to take advantage of 
all  the  opportunities  offered  by  the  special  preferences  granted  under the  Lomé 
Convention.  ACP  exports  to  the  EU  have  been  no  exception  to  those  countries' 
generally  poor  trade  performance  and  their  share  of  the  EU  market  has  declined 
appreciably, dropping from 6.7 %  in 1976 to 2.8 %  in 1994.  Although the situation varies 
markedly  from  one country or region to another, the European market still accounts on 
average for  more than 40% of ACP sales. 

For  the  future,  there  are  various  options  involving  one  or  more  trade  regimes.  They 
should be assessed in terms of their implications for ACP-EU relations and whether they 
can help the ACP countries diversity their external economic relations and avoid the risk 
of  growing  marginalization. 

There are four main options: 

1. 

2. 

3. 

4. 

the status quo.  The present contractual  system  of non-reciprocal  preferences, 
specific to ACP's, could be supplemented by cooperation activities in trade-related 
fields  (standards  and  certification,  the  environment,  competition,  intellectual 
property rights, etc.). 

application of the Community's generalized scheme of preferences  (GSP) on 
a  bilateral  or  multilateral  basis.  This  would  entail  removing  trade  from  the 
cooperation  agreement,  and  therefore  from  the  negotiations,  as  the  GSP  is  a 
matter  for  unilateral  (or perhaps, one day,  multilateral) policy. 

uniform reciprocity.  After a transitional period, all ACP countries would extend 
reciprocity to the EU in line with WTO rules.  As in the first option, cooperation 
could also be developed  in new areas. 

differentiated  reciprocity.  Reciprocal  preference  arrangements  could  be 
envisaged between the EU and different  groups of countries or between  the EU 
and  individual  countries.  This option could besupplemented  by cooperation  in 
new fields  on the WTO agenda. 

These options are not mutually exclusive and could be combined  in various ways so that 
the arrangements can be adjusted to the level of development of the countries concerned 
and  their  willingness to strengthen relations. 

xiu 

Before  choosing  one or  other  of  these options,  we  must  make a detailed  analysis  of  the 
potential  impact  on  both  the  EU  and  the ACP  countries. 

Proposals  on  this  have  already  been  under  consideration  since  adoption  of  the  fourth 
Lomé  Convention.  International  agreements  are  being  negotiated  and  the  Commission 
is  pushing  for  progress  in  the  WTO  context.  Negotiations  are  also  under  way  in  the 
OECD  with  a view  to a  Multilateral  Agreement  on  Investment. 

In  the  meantime,  cooperation  at  subregional  level  or  by  groups  of  countries  would 
significantly  streamline  negotiations,  which at present  take place only  at bilateral  level. 
Such  an  initiative  would  give  a  significant  stimulus  to private  investment. 

The  move  towards a  more  "responsible"  partnership,  demands  for  greater  effectiveness 
and  recognition  of  the  significant  differences  in  levels  of  development  reached  by 
different  ACP countries all point to the need for  a radical review of the arrangements  for 
implementing  Community  aid  to ACP  countries. 

A  fresh  look  at  aid  instruments 

The Lomé Convention today provides for a wide range of instruments designed to achieve 
specific  objectives  and  subject  to  different,  sometimes  complicated,  management 
procedures.  Their  simultaneous  use  in  the  same  country  makes  EU  policy  less  than 
transparent.  We  should  ask  ourselves  whether  the  EU  should  not  switch  to  offering 
overall  financial  packages, perhaps retaining  the distinction between crisis situations and 
long-term  operations  and  between public-  and  private-sector  operations. 

Greater  selectiveness 

The  allocation  of  programmable  aid  resources  is already  much  less  automatic  since  the 
mid-term  review  of  Lomé  IV  and  a  new  performance  criterion  has  been  introduced, 
meaning  that  the  amounts  of  aid  allocated  to  a  country  are  adjusted  in  relation  to  the 
effort  made by the government in its sectoral and macroeconomic policies.  This  reflects 
the  EU's  concern  to achieve greater  effectiveness.  It also corresponds  to a  new  notion 
of  partnership  based  on  reciprocal  undertakings  and  the  view  that  external  aid  should 
support domestic reform  efforts.  The EU should therefore  be inclined  to continue along 
this road.  At  the same time,  the advantages  of  programming  in terms  of  predictability 
of external  financial  flows  for  the ACP countries  and the fact  that  it builds on  approved 
frameworks  of country strategy should prompt it to maintain a multiannual  programming 
system.  In determining  country  allocations, the EU should decide to what  extent  it 
wishes  to  supplement  the  needs  criterion  -  based  essentially  on  development 
indicators  -  with  performance  and  management  criteria.  It  should  also  consider 
whether to make its country policy more flexible  by adopting  for  example a system of 
rolling  programmes. 

xiv 

Project  aid  or  direct  budget  aid 

The  evaluation  of  Community  instruments  has  produced  a  number  of  operational 
conclusions:  the  advantages  of  a  more  sectoral  approach  and  support  for  reforms  -
already  acted  on  under  Lomé IV  - and  of  focusing  on  improvement  of  the  institutional 
framework  and  local  capacity  to  devise  economic  and  social  policies  integrated  into  a 
long-term  strategy.  This raises the  question as to  whether the  EU should  gradually 
abandon  the  project  approach  once  and  for  all  and  instead  try  to create  the  right 
conditions  for  giving  support  in  the  form  of  direct  budget  aid  for  the  states 
concerned  and sectoral  aid. 

Any  such  development  should certainly  go hand  in hand with a reform  of  conditionality 
to be coordinated  with  the whole donor  community.  Consensus  needs to be reached  on 
a small  set of essential criteria to avoid a continuation of the recent proliferation  of  often 
very specific conditions. If conditionality  is to have a real  impact on a country's policies, 
it  must  be  both  realistic  (i.e.  takes  account  of  political  and  institutional  as  well  as 
economic  and  social  factors),  comprehensive  (the  product  of  an  assessment  of  all  the 
government's  macroeconomic  and  sectoral  policies)  and  rigorous.  The  Commission 
hasamme for Africa  (SPA), the aim being to find a new approach that best accommodates 
long-term  development  objectives  and  short-term  imperatives,  while  encouraging 
recipients  to  internalize  reforms. 

Towards  new  management  arrangements 

Joint  management  as  practised  hithertoo  with  Lomé  has  revealed  its  limitations. 
It  has  hampered  the  effective  management  of  disbursements  andhas  discouraged  the 
internalization  of  reforms  or  development programmes  by their  beneficiaries.  It should 
therefore  be  overhauled.  What  are  the  alternatives  that  will  ensure  both  sound 
management  of  resources  and the  assumption of  responsibility  by the recipients,  a 
sine  qua  non  for  more  effective  aid?  One possibility  is a  differentiated,  progressive 
approach  that  would  enable  us  to  find  the  most  appropriate  management  method  on  a 
case-by-case  basis,  using  criteria  such  as  quality  of  policy  dialogue,  progress  in 
implementation, the relative shares of Community aid vis-à-vis the national resources and 
the existence  of  machinery  to  coordinate  external  aid  in the recipient  country. 

The  Commission  reiterates  its  recommendation  that  the  European  Development  Fund 
(EDF)  be  incorporated  in  the  Community  budget.11  "Budgetization"  would  give  true 
Community  status  to  the  aid  managed  by  the  Commission  and  make  for  beneficial 
synergies between different  EU policies.  Similarly,  EIB  lending to ACP countries could 
then be subjected  to the same procedures as used for  its operations  in other  non-member 
countries,  especially  in  respect  the  replenishment  of  the  guarantee  fund  for  external 
operations. 

Budgetization  of  the  EDF,  which  has  been  repeatedly  proposed  by 
the 
Commission,  is  not  broached  as  such  in  this  Green  Paper.  This  issue  will  be 
discussed  at  the  same  time  as  the  financing  of  a  future  partnership.  See  on  this 
subject  "Report  on  arrangements  and  possibilities  for  budgetizing  the  European 
Development  Fund"  (SEC(94)  640  final). 

xv 

WÊÊfëm 

PART  I  A  WORLD IN  TURMOIL 

CHAPTER  I.  GLOBAL  CHANGES  AFFECTING  ACP-EU  RELATIONS  pp  1-8 

A. 
B. 
C. 

The international  context and its consequences for  the ACP countries and  Europe 
The  external  action  of the  Union and development  cooperation  policy 
The  Union's  development  role 

CHAPTER  H.  THE EXPERIENCE  OF ACP-EU  COOPERATION  pp  9-20 

A. 

B. 
C. 

Relations between the Union and the ACP countries: their origins and  subsequent 
development 
Successes  and  failures  of  cooperation  under  the  Lomé  Convention 
Implications  for  future  partnership 

CHAPTER  HI. 

SOCIO-ECONOMIC  CHANGE  IN  ACP  STATES:  LIMITING 
FACTORS  AND  POTENTIAL  pp  21-36 

A. 
B. 
C. 

The  vicissitudes  of  economic  policy  in a deeply  uncertain  climate 
Anticipating  risks  and  exploiting  potential 
Implications  for  the  future  partnership 

PART  TWO: A  BLUEPRINT  FOR  ACP-EU 
RELATIONS  AS  THE 21st  CENTURY  APPROACHES 

CHAPTER  IV.  TOWARDS  A  NEW  PARTNERSHIP  pp  37-47 

A. 
B. 
C. 
D. 
E. 

The  place  of  the  ACP-EU  partnership  in the  European  Union's  external  policy 
Revitalizing  the ACP-EU  partnership  by  strengthening  its political  dimension 
Opening  up  the  framework  of ACP-EU  cooperation 
The  geographical  cover  of  cooperation  agreements:  options 
The  European  partners  and  coordination:  options 

CHAPTER  V. 

OPTIONS  FOR  A  NEW  EU  COOPERATION  POLICY  WITH 
THE ACP  STATES  pp  48-68 

A. 
B. 
C. 

The  socio-economic  dimension 
The  institutional  dimension 
Trade  and  investment 

CHAPTER  VI.  OPTIONS  FOR  A  NEW  PRACTICE  IN  THE  FIELD  OF 

FINANCIAL  AND TECHNICAL  COOPERATION  pp  69-76 

A. 
B. 
C. 

A  single  source  of  funds  or  multiple  smaller  sources? 
Should  aid be  granted  according  to  need  or  according  to  merit? 
Types  of  aid 

AO> 

D. 

Co-management, EU-only management or autonomous management by recipients 
themselves? 

FOLLOW-UP  TO THE  GREEN  PAPER  p  77 

Box  1.  Definition  of  the  evaluation  criteria  applied  by  the  European  Commission 

p.  13a 

Box  2.  Developing  countries:  social  indicators  by  region  p. 22a 
Box  3.  ACP  trade strategies p.  31a 
Box  4. 
Box  5.  Discussion  of the trade  options p. 65a. 

The  Caribbean  - prospects  for  regional  integration  p.  32a 

TABLES  AND  GRAPHS 

Chapter I 

PART  I  A  WORLD IN  TURMOIL 

CHAPTER  I.  GLOBAL  CHANGES  AFFECTING  ACP-EU  RELATIONS 

A. 

The  international  context  and  its  consequences  for  the  ACP  countries  and 
Europe 

Unprecedented  changes have occurred  on the international  scene  since  the beginning  of 
ACP-EU  cooperation,  the  scale  of  which  is illustrated  by: 

1. 

Economic  globalization  and  interdependence 

The growth of trade, the unification of capital markets and the globalization of production 
and distribution  networks represent both opportunities  and  new risks  for Europe and  the 
ACP  states. 

The emergence  of new motors of development in Asia and Latin America - itself a  factor 
of  globalization  - modifies  both the geography  of  international  growth  and the  direction 
of private capital flows.  Many countries which in  1960 were included among the world's 
less developed states, often with large populations, now have greatly reduced poverty and 
significantly  improved  human  development  indicators. 

The  new  economic  constraints  are  forcing  all  states  and  societies  to  adjust  by 
implementing radical reforms. EU countries must make their economies more competitive, 
reform  their  social  systems,  and  tackle  the  problem  of  declining  social  cohesion.  High 
unemployment,  rising poverty  and  social exclusion are a major  concern and may  lead  to 
both  countries  and  individuals  to  turn  in  on  themselves.  Budgetary  constraints,  linked 
ultimately to the pressure of an ageing population on social security systems, do not make 
the task  of  reform  any  easier. 

The  ACP  states  are  only  marginal  players  in  global  trade  (2%)  and  international 
investment  flows  (less  than  1%).  They  must  integrate  more  fully  into  global  trade, 
diversify  their  production  base  and  their  export  outlets.  As  in  other  regions,  regional 
synergies and cooperation, both economic and political, would contribute to this process. 

Action on a national scale appears increasingly inadequate as the growing interdependence 
between  the  social  and  economic  systems  of  various  regions,  the  appearance  of  new 
systemic environmental  dangers, migration, terrorism, drugs, and international  organized 
crime,  call  into  question  the  notion  of  national  sovereignty.  Global  regulation  is 
progressing very slowly; it seems likely that the parallel trends apparent today - a stronger 
multilateralism  and  regionalism  - will  continue. 

2. 

The  ever  faster  spread  of technological  innovation 

The  information  society  is  a  spectacular  aspect  of  globalization, which  could  accelerate 
change, reduce  technological  gaps  and  open new roads to  development.  Conversely,  the 

AC 

Chapter  I 

lack  of  basic  infrastructure  in  the  poorest  countries,  the  concentration  of  production  of 
new  technologies  in  certain  industrialized  countries  and  the  possibility  of  a  culturally-
motivated rejection of these technologies risk widening the gap between poorer and richer 
countries  and  increasing  social  inequality. 

Europe is striving to be ultra-competitive in high-technology  sectors. ACP countries must 
create the  right  conditions  for  technology  transfers  and  adapt  new technologies  to  their 
own  needs.  These  two  aims  are  complementary,  as  the  notion  of  what  constitutes 
"advanced  technology"  is constantly evolving. The most advanced technologies can  now 
be  used  to  solve  problems  in developing  countries  without  a prior  transition  period. 

Technology  plays  a crucial  role  in the  quest  for  sustainable  development.  However,  the 
cost of protecting the environment may,  in the short term, be in conflict  with the aim  of 
increasing  the  competitiveness  of  ACP  countries.  It  is  imperative  to reach  international 
agreement  on  clean  technology  and  how  to  share  the  costs  of  environmental  protection 
between  industrialized  and developing  countries. 

3. 

Uneven  demographic  trends 

The world population is growing at an unprecedented rate: from 2 billion people in 1930, 
it  reached  4  billion  in  1975  and  is  close  to  6  billion  today.  According  to  recent 
projections,  the  figure  will  be  near  8 billion  in  the  year  2020.  Should  the  entire  world 
population  attain  the  standard  of  living  and  levels  of  consumption  of  industrialized 
countries  today  (including  certain  newly  industrialized  countries),  pressure  on  the 
environment  would become intolerable. Moreover, population growth is accompanied  by 
an  increase  in  urbanization,  especially  in poorer  countries. 

The  imbalance  between the  populations  of the North  and  South  will be  reflected  in  the 
balance  of  power  in  the  multilateral  system,  especially  if  accompanied  by  economic 
performance,  as  exemplified  by Asia's  new  prominence. 

While  the  global  rate  of  population  growth  is  expected  to  fall,  sub-Saharan  Africa  is  a 
notable  exception.  This region  still has very  strong  population  growth (2.9% annually), 
which  is  not  easily  compatible  with  the  aims  of  sustainable  development.  Rising 
urbanization  is  putting  acute  pressure  on  infrastructure  and  social  services,  especially 
education.  Getting to grips with urban development  and managing the local  environment 
will  increasingly  be  a prerequisite  of political  stability  in  Africa. 

Massive  inter-African  migration  is  a  factor  promoting  economic  integration.  However 
these  movements  are  often  uncontrolled  and  may  also  become  an  important  cause  of 
political  risk  and  instability. 

North-South migrationary  pressures, especially between Africa  and Europe, are likely  to 
rise  considerably;  this prospect  underlines  the relevance  of  development. 

4. 

The  end  of  the  Cold  War  and the  emergence  of  a multipolar  world. 

Economics  plays  an  ever  greater  role  in  external  relations, while  the  end  of  East-West 
rivalry has rendered ideology-based support obsolete and given middle-sized nations more 
influence  and  a degree of  autonomy  in foreign  affairs.  The direct responsibility  of  states 

*. 

Chapter I 

for  their  internal  and  external  security  has  been  reestablished  in  both  North  and  South. 

The new geopolitical  reality is taking  shape as the  coexistence of regional entities. Asia, 
in  particular,  has  become  an  economic  player  of  the  first  order  and  is  expected  to 
reinforce  its political  presence  on the  international  scene  in the  years to  come. 

While the  European  Union  is engaged  in an  important phase  of stepping  up the  process 
of  integration,  it is also transforming  its identity. On the one hand, the events that  led  to 
its  founding  are  receding  into  the  past;  on  the  other,  it  is  preparing  to  deal  with  the 
fundamental  questions posed by its eastward expansion, which will make the Union more 
diverse  and  will  call  for  special  efforts  to  ensure  the  acceptance  of  its  values  of  peace, 
solidarity  and  cooperation. 

In this new context, both for internal reasons and in order to respond to external demands, 
the European Union will affirm  its political standing  by adopting a more effective,  more 
global  common  foreign  policy.  North-South  relations will be  one of the  first  strands  of 
this policy: Europe can thus affïrm  its identity  in adding  a new dimension to the  special 
relationship  between  the Union  and  ACP  countries.  The  end  of  the  Cold  War  will  give 
a  new  strategic  and  security  dimension  to  development  cooperation.  At  the  same  time, 
Europe will be shouldering new tasks which will increase its economic responsibilities in 
fields  other  than  development.  Development  policy  and  multilateral  trade policy  should 
be  consistent  and  seen as two  facets  of the Union's  external  identity. 

B. 

1. 

The  external  action  of  the  Union  and  development  cooperation  policy 

Development  cooperation:  a cornerstone  of  coherent  external  policy 

The  Union's  external  policy  has three  main  components: 

the  common  commercial  policy,  based  on  uniform  principles,  especially  with 
regard  to  the  conclusion  of  tariff  and  trade  agreements  and  measures  to  protect 
trade:  the  Union  has  adopted  a  broadly  liberal  overall  policy  centred  on 
compliance  with  multilateral  obligations,  the  building  of  a  better-managed 
multilateral system, and on the active pursuit of wider access to external markets;1 

systematic cooperation and joint actions in foreign  policy, centred on the aims of 
peace  and  security,  consolidation  of  democracy  and  the rule  of  law,  and  human 
rights  and  fundamental  freedoms; 

development  cooperation:  support 
for  sustainable  economic  and  social 
development of the developing countries, especially the most disadvantaged among 
into  the  world  economy  and  the 
them,  their  smooth  and  gradual  integration 
campaign  against  poverty.  According  to  the  terms  of  the  Treaty,  Community 

See Commission Communication on "A Market Access Strategy for the European 
Union  (COM  (96)  53). 

Chapter I 

policy  in  this  area  should  contribute  to  the  general  objective  of  developing  and 
consolidating  democracy  and the rule of law, and that of respecting human  rights 
and  fundamental  freedoms; 

A  number  of  other  Union  policies  are  closely  linked  to  external  affairs,  especially 
environment,  agriculture and fisheries,  science  and research,  the information  society  and 
the harmonization  of  standards  for  the  internal  market. 

In  all  these  fields,  the Union pursues  aims which  respond  to specific  concerns. 

Development  cooperation  makes  a  large  contribution  to  the  coherence  of  the  Union's 
external  actions  in  that  its  aims  ultimately  complement  the  Union's  political  and 
economic  objectives: 

the  aim  of  development  is  to  achieve  sustainable  economic  progress  and  social 
equilibrium  -  aims  that  underlay  the  setting-up  of the  European  Union. 

development  should  help  solve  global  problems  (environment,  population, 
epidemic  diseases, trafficking)  by making  it possible for  developing  countries  to 
help  manage  these problems; 

development  cooperation,  specifically  the role  Europe  plays in poorer  countries, 
enhances  Europe's  image  around  the  world.  Europe  cannot  be  accused  of 
commercialism  at  a  time  when  market  shares  in  emerging  economies  are  hotly 
contested. In practice, European producers will benefit in the medium or long term 
from  increased  prosperity  in  partner  countries  with  fast-growing  populations. 
Another  factor  to  take  into  account  is  that  ACP-EU  relations  embrace  four 
continents,  thanks  to  which  European  economies  are  well-placed  vis-à-vis 
emerging  regional  blocks  in  sub-Saharan  Africa,  Latin  America,  Asia  and  the 
Pacific; 

the  political  aspects  of  development  (democracy,  human  rights,  fundamental 
liberties,  rule of law),  its  social  benefits  (better  living  conditions, preventing  the 
disintegration of the social fabric),  and its environmental  concerns  (conflicts  and 
food  deficits  due  to  water  shortages  and  soil  degradation)  meet  some  of  the 
security  concerns  of the  EU  (risk  of armed  conflict,  spread  of  nuclear  weapons, 
terrorism, migration). Moreover, regional and global economic integration, which 
the  Union  supports,  contributes  significantly  to  stabilization. 

Development  cooperation 
is  an  important  part  of  the  Union's  external  policy. 
Nevertheless, it must retain enough autonomy  to meet the Union's own long-term needs, 
which  require  continuity.  Cooperation  may  contribute  to  the aims of  foreign  policy  but 
must  not  be ruled  by  them. The  explicit  ties between  various  strands  of  external  policy 
are  governed  by  the principle  of  consistency. 

2. 

Development  aid:  loss of  legitimacy  and  the  demand  for  efficiency 

Chapter  I 

During the  1980s various factors contributed to a general feeling  of disillusionment  with 
the actual results of development aid: the budgetary constraints of donor countries; rising 
unemployment and the worsening of social problems in industrialized countries, with the 
consequent  tendency  to  turn inwards;  the  perception  that,  in  comparison  to  trade  and 
investment,  aid had played a marginal role in the economic  success of certain Asian and 
Latin American  countries; finally, the  evidence  that  despite  certain remarkable  results, 
such  as  improved  health,  education  and  access  to  drinking  water,  many  countries  in 
sub-Saharan  Africa,  recipients  of  substantial  aid  and  cooperation  resources,  had  fallen 
behind and remained on the margins of global economic and technological development. 

This negative reaction to cooperation has been further exacerbated by rising violence, the 
spread  of  fratricidal  wars,  the  bankruptcy  of  many  African  states  in  recent  years,  the 
perception  that  corruption  was  endemic  and  aid  was  being  siphoned  off  by  powerful 
elites. Repeated crises have increased substantially the number of humanitarian operations, 
which divert resources from development budgets;  these  interventions have  also  led to 
a  certain  confusion  between  emergency  aid  and  more  long-term  aid,  and  between 
humanitarian and socio-economic needs. 

Faced  with  the  downward  pressure  on development  aid budgets, but also  aware  of  the 
extent of extreme poverty and the threat it represents in terms of instability and potential 
conflicts, today's partners in cooperation have no alternative but to reexamine the criteria 
governing  the  allocation  and management  of  aid in  order to  achieve  a better  and more 
efficient  use of  available  funds. 

Apart from the need to improve results, development thinking itself has moved on. Global 
economic  changes  (liberalization,  technological  progress,  emerging economies)  and the 
lessons  from  the  success  stories  of  Asia,  Latin  America,  or  Africa,  have  radically 
modified  the philosophy  of development. This is especially true of perceptions about the 
role  of the state and relations between public and private actors. 

Another  factor  contributing  to the overhaul  of cooperation  is the end of  the  Cold  War: 
the  new  political  openness  has  allowed  the  emergence  of  a  wide  consensus  on  the 
principles  of  democracy  and the  market  economy.  International  political  dialogue  has 
become  deeper  and richer by "incorporating  the  experiences  of  new  participants.  Since 
1990, the great international  conferences  on the environment,  human rights, population, 
social  development,  the  role of  women,  and food  security  have  demonstrated that  very 
dissimilar  countries  can  agree  on  common  values  and  principles  concerning  essential 
issues  for development. 

These processes have already led to  important changes in the concepts of aid and its role 
in development, which have been partly incorporated in the ACP-EU cooperation policy. 
These  changes fall  within four main categories: 

an  enhanced  political  dimension  (resolution  of  28  November  1991  and  revised 
Article 5 of Lomé IV: human rights, democratic principles, rule of law and good 
governance); 

Chapter I 

stronger  ties  between  relief,  rehabilitation  and development  aid;: 

the  formulation  of new approaches  concerning  the role  of aid and a  redefinition 
of  the  parties'  respective  roles:  emphasis  is  placed  on the  policy  environment, 
local  capacity  building,  the role  of  civil  society,  and on new ways  of  including 
other  agents  of development,  especially  in the private  sector; 

a  change  in  priorities,  by  reducing  intervention  in  productive  sectors  and 
integrating  relatively  new themes: 

(i) 

new ways of supporting  social development  (budget  aid and securing  social 
expenses),  taking  into  account  more  systematically  the  impact  of  cooperation  on 
poorer  groups  and  greater  emphasis  on  the  role  of  women,  demographic  issues, 
education  and training; 
actions  in  favour  of  environmental  protection,  the  management  of  natural 
(ii) 
resources,  and sustainable  development:  they  involve  environmental  impact  studies 
in  all  projects  as  well  as  financing  for  specific  environmental  programmes  and 
projects; 
(iii) 
macroeconomic  and sectoral  levels; 
institutional  reforms,  development  of administrative  capacity,  building  civil 
(iv) 
society, development of a more participatory approach, and decentralized cooperation; 

the  creation  of  an  instrument  for  structural  adjustment  support  at 

a new conception of the economic role of the state, policies to foster  private 

(v) 
sector  development,  and support  for trade  development. 

These  changes  are  expected  to  increase  the  effectiveness  of  development  policies. 
However,  it is too early  to assess their  real  impact. 

C. 

The Union's  development  role 

As a force for stability, a model of cooperation and regional integration, a leading trading 
power  and the largest  single  source of official  development  assistance,  the Union  has a 
major  role to play  in the development  of less fortunate  regions. 

The  Union  can contribute  in five main  ways: 

Through its active participation in the multilateral system, in the fields of security, 
trade  and investment,  economic  and monetary  cooperation,  the Union's  actions 
have  an  appreciable  impact  in  the  developing  countries.  The  Union's  long 
standing  concern to see the less developed  countries integrated  into  international 
trade  is now a key consideration  in its dealings  with  the ACP countries. 
In view of the general principle  that Community  action  should be consistent and 
sustained, the Union is duty-bound to ensure that the developing countries are able 

COM  (96)  153  of  30  April  1996  "on  linking  relief,  rehabilitation  and 
development". 

Chapter I 

to benefit  from  the process of European  integration.  Access to the single  market, 
soon  to  be  completed  by  the  move  to  a  single  currency,  and  the  prospect  of 
enlargement,  which brings  with  it a risk  of deflection  of trade and  investment  as 
well as new trading opportunities, are key aspects of any European policy towards 
other  regions. 
The  Union  stands  out  among  multilateral  institutions  involved  in  development 
issues (the World Bank,  IMF, regional development  banks, etc.) because it alone 
is a political entity.  The Union has the political clout needed to back an equitable 
and sustainable development model consonant with its own fundamental  principles 
and the  socio-cultural values underpinning  its vision  of  society.  The  importance 
it  attaches  to  human  rights,  social  values,  education  and  training  and  the 
preservation  of  the  environment  combine  with  its  firsthand  experience  of 
underpinning the liberalization of trade with carefully  designed structural policies, 
and  its  efforts  in  the  field  of  regional  cooperation  and  integration  to  make  it  a 
unique  force  in  the  development  field. 
The Union must make full  use of its capacity to mobilize enough aid resources to 
achieve  critical  mass  and  engage  in  aid  policies  pursuing  long-term  objectives. 
Compared  with  other  donors  - now that  US  aid  budgets  have been  slashed  -  the 
Union  is  a  major  source  of  official  development  assistance:  with  the  volume  of 
international  aid  in  sharp  decline  since  the  early  1990s,  the  share  of  the  total 
accounted  for by the Union (Community and Member  States) is increasing  all the 
time  (53% in  1995). 
Lastly,  by  continuing  its  internal  coordination  efforts  in  application  of  the 
principle  of  complementarity  between the  Community's  development  policy  and 
the Member  States' bilateral policies,3 the Union  can  give a fillip to  coordination 
efforts  by the international  donor community  in various  forums  (the UN, OECD, 
G7 initiatives to strengthen  coordination between the multilateral institutions, the 
Special  Programme  for  Africa,  consultative  groups,  round  tables,  etc.).  Greater 
coordination in respect both of global initiatives and individual recipient  countries 
is now  crucial  to  improving  the  effectiveness  and  efficiency  of  aid  policies. 

The renewed  momentum recently  given to the European project must, at least in part,  be 
ascribed  to Europeans'  efforts  to  deal with the major  changes  in world  affairs  described 
in  this  opening  chapter.  Still  far  from  over,  this  acceleration  serves  two  objectives:  to 
enhance Europeans'  capacity  for  action within a political  union and  to show  democratic 
solidarity  with  the  countries  of  central  and  eastern  Europe.  To  endorse  these  two 
objectives,  which  are  central  to  the  present  Intergovernmental  Conference  (IGC),  is  to 

See the Council's conclusion of 25 May  1993, the resolution of 2 December  1993 
on procedures  for  coordination  between the  Community  and the Member  States, 
and  the  various  resolutions  since  adopted  with  a  view  to  strengthening 
coordination between the Community and the Member  States in different  areas of 
development  policy  (poverty, health, food  security,  education,  AIDS, equality  of 
the  sexes  etc.).  See  also  the  Commission's  final  report  on the  pilot  scheme  to 
strengthen  operational  coordination  between  the  Community  and  its  Member 
States 
the  Council  adopted  conclusions  on 
28  May  1996. 

(COM(95)700),  on  which 

Chapter I 

recognize, in a way, the need in future  for a European development policy: Europe cannot 
claim  to  be  a  player  on  the  world  stage  without  a  responsible  strategy  towards  the 
different  regions  of  the  South,  and  in  particular  those  most  at  risk  of  poverty  and 
marginalization.  It  cannot  pride  itself  on  its  solidarity  with  Eastern  Europe's  fledgling 
democracies  without  confirming  a partnership  with  countries  feeling  their  way  towards 
a just  society  founded  on  fundamental  human  rights. 

Chapter  II 

CHAPTER  II. THE  EXPERIENCE  OF  ACP-EU  COOPERATION 

A. 

Relations  between  the  Union  and  the  ACP  countries:  their  origins  and 
subsequent  development 

1. 

The  evolution  in Europe's  political  relationship  with  the  developing  world 

Community  development  aid  policy  has  its  roots  in  the  association  of  the  overseas 
countries  and  territories  in  1957,  the  result  of  a  compromise  between  Member  States 
advocating a global approach to development and those arguing for  a special  relationship 
with  Africa. 

Association was designed as a broad strategy encompassing both trade arrangements  and 
development  aid. 

The  fact  that  many  countries  gained  their  independence  after  the  first  five  years  of  the 
association  arrangements  laid  down  in the Treaty  did  not  bring  any  fundamental  change 
in the thinking  behind cooperation.  The Member  States, moved by solidarity  and a wish 
to  assume  their  responsibilities  as  much  as  by  a  concern  to  defend  their  economic  and 
geopolitical  interests  in  the  age  of  the  Cold  War,  and  the  newly  independent  countries, 
which wanted to go on receiving trade preferences  and funding  for  development  projects, 
decided  to  continue  their  cooperation  in the  framework  of  the  two  successive  Yaounde 
Conventions  (1963-69  and  1969-74),  which  were  a  natural  follow-up  to  association. 
During the  1957-74 period  of Euro-African  relations, the lion's share of Community  aid 
went  to  the  French-speaking  countries  of  sub-Saharan  Africa. 

In  the  mid-1970s  the  international  situation,  the  desire  of  several  Member  States  to 
develop  a global  aid policy  and the accession of the United  Kingdom  combined  to  bring 
about a radical shift  in Community aid policy.  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  and  a residual  sense  of  responsibility  for  the  colonial 
past  to  produce  the  first  partnership  agreement  between  the  Community  and  the  ACP 
countries. 

Signed  in  1975,  the  first  Lomé  Convention  was  open  to  the  African  members  of  the 
Commonwealth, some Caribbean and Pacific countries, and other countries of sub-Saharan 
Africa  wishing  to  take  part  in  these  first  group-to-group  negotiations.  There  were  46 
ACP  countries  in all. 

Meanwhile,  Europe was embarking  on cooperation with other regions of the world.  The 
latter half  of the  1970s saw the conclusion  of the first agreements on trade, financial  and 
technical cooperation with Mediterranean non-member countries along with the emergence 
of  a policy  on  aid  to the  developing  countries of  Asia  and  Latin  America,  a policy  that 
\ has  been  developing  steadily  and  becoming  increasingly  structured  ever  since., 

The growing importance of food aid, most of it for  countries outside sub-Saharan  Africa, 
has  been  a  further  reflection  of  the  globalization  of  Community  aid  policy  since  the 
1970s. 

Chapter  II 

Successive  changes  within  a  framework  unaltered  since  1975 

The first Lomé Convention was at the time a unique example of international  cooperation. 
The  principle  of  partnership  has  been  at  the  very  heart  of  the  Conventions  that  have 
bound  the  Community  and  the  ACP  countries  since  1975.  It  reflects  an  approach  to 
cooperation based on reciprocal commitments in pursuit of  shared objectives.  Principles 
such as collective negotiations (between the two groups of countries and covering  several 
aspects of cooperation), the dialogue with individual ACP countries made possible by the 
joint institutions and the contractual  and predictable nature of the funding  provided  have 
become  the  foundation  of European  aid  policy  under  the  Lomé  Conventions. 

Successive Conventions have enabled the partners to adapt aid objectives  and instruments 
without  ever  questioning  the  overall  framework  or  the  strategy  pursued.  These 
adjustments  have nevertheless provided an opportunity to draw practical lessons from  the 
successes  and  failures  of  the  past,  and  to  incorporate,  at  least  partly,  the  intervening 
changes  in  development  thinking.  Aid policy  under  Lomé has  evolved  to  reflect: 

the  changing  perception  of  the  state's  role:  Once  considered  the  only  force  able 
to  raise  the  capital  necessary  for  economic  development,  its  role  is now  seen  as 
being to establish and maintain a legal and administrative framework  guaranteeing 
fundamental  rights and freedoms, to provide essential social services and to  foster 
the  development  of  private  enterprise.  The  nature  of  the  Convention  has  not, 
however, changed: the state remains practically the only partner in the aid context, 
apart,  since  1976,  the  cofinancing  with  NGOs  and  a  limited  number  of 
decentralized  cooperation  schemes  under  Lomé  IV. 

the  shift  away  from  an approach  to  industrialization  based  on import  substitution 
to  one  geared  to  export-led  growth. 

Since the Pisani Memorandum, there has been an increasing emphasis on policy dialogue, 
with  a  shift  from  aid  focused  mainly  on  project  financing  to  technical  and  financial 
assistance  for  sectoral policies. 

The innovations that have given the Lomé Convention its pioneering character include the 
system for offsetting  losses of export earnings introduced in the 1970s and, more recently, 
1990's negotiated approach to structural adjustment.  Regardless of their future  relevance, 
both instruments were applications of the latest in development thinking at the time.  With 
the  end  of  the conflict  between  East and  West,  the Convention  was also one  of  the  first 
cooperation  agreements  to  acquire  an  explicitly  political  dimension  in  the  shape  of  the 
human  rights  clause, which, since  1995, has been extended to encompass the  application 
of  democratic  principles, the  rule  of  law and  good  governance. 

The  alterations  made  to  conditionality  in  the  revised  fourth  Lomé  Convention  and  the 
principle of two-tranche programming, which limits the automatic nature of programmable 
aid  allocations,  also  reflect  a major  change  in the  Community's  approach  to  aid  policy. 

10 

Chapter II 

The  need  to review  the overall  framework 

As  the  21st  century  nears,  the  Union  must  redesign  its  aid  policy  towards  the  ACP 
countries  from  scratch,  not  only  as  a  result  of  changes  in  the  economic  and  political 
conditions governing development  or rapid development in other regions of the world but 
because  Europe's motives are no longer the same.  The colonial  and post-colonial  age is 
over,  and a more open international  political  climate  means that the partners'  respective 
responsibilities  can  be  defined  less  ambiguously. 
It  is  in  this  context  that  a  critical 
examination  of  past cooperation  can  offer  constructive  guidance  for  future  policy. 

B. 

1. 

Successes  and failures  of  cooperation  under the  Lomé  Convention 

Patchy  results 

While  aid  is  a  major  source  of  income  for  many  ACP  countries,  it  is  difficult  to 
determine its impact and effectiveness  in terms of improvements to a country's  economic 
and  social  conditions.  Trends  in  these  conditions  are  the  result  of  a  wide  range  of 
exogenous and endogenous factors, chief among them being the country's own economic 
and  social  policies, which  aid can  influence  but not ultimately  supplant. 

Some studies suggest that the aid allocated by the donor community to ACP countries has 
probably had  a beneficial  but limited effect  on growth, investment and the  improvement 
of  health  indicators,  and that  this  effect  has varied  appreciably  from  country  to  country 
according to the initial situation and economic policy conditions.4  Aid has been markedly 
more  effective  in  those  countries  that  started  out  with  the  least  capital  and  human 
resources,  and  in  countries  that  have  embarked  on  stabilization  policies  and  structural 
adjustment  programmes. 

Community  aid  accounts  for  a major  share of all the aid  received  by the  ACP  countries 
since the  1960s.  The Community  is today one of the ACP countries' three main sources 
of  aid,5  and  offers  these  countries  the  most  generous  system  of  trade  preferences.  The 
Lomé Convention has undoubtedly been a unique framework for cooperation between two 
groups  of  countries.  Its  main  advantages  lie  in  the  fact  that  it  has  been  a  testbed  for 
development aid, that it has provided a negotiated framework  for  the drafting  of a corpus 
of  shared  principles  and  objectives,  and that  it  has mobilized  considerable  - and  almost 
entirely  concessional  -  funding,  without  which  many  practical  schemes  could  not  have 
been carried out.  The predictable nature of European aid - part of a long-term partnership 
-  encouraged  the  governments  of  the  recipient  countries  to  embark  on  long-term 
transformations. 

"Effectiveness  of  Overseas  Aid  Flows",  P.  Mosley  and  J.  Hudson,  1996.  This 
study,  which  covers  a  sample  of  29  ACP  countries  accounting  for  80%  of  the 
group's total population, analyses the impact of international  aid over a period  of 
thirty  years. 
In  sub-Saharan  Africa  Community  aid  currently  accounts  for  about  10% of  aid 
from  the  OECD  area.  When aid  from  the Member  States  is counted,  the Union 
accounts  for  over  60% of  total  aid to the  region. 

11 

Chapter II 

Twenty  years'  experience,  however,  shows  the  Convention  to  be  an  ambitious  but 
sometimes  unrealistic  framework  based  on  assumptions  about  the  ACP  countries' 
institutional  and  political  capacities  that  have  not  been  fulfilled.  Thus,  the  respect  for 
national  sovereignty  that once took the form  of an almost  boundless trust in the  recipient 
governments  is  evolving  into  an  approach  guided  by  considerations  of  efficiency.  The 
automatic  granting  of  a  great  proportion  of  financial  resources  has  undermined  the 
political  dimension  of Community  aid: it has not been  conducive  to frank discussion  of 
the  way  in  which  resources  are  used.  Conditionality  in  its  present  form  and  the  policy 
of  substitution  that  all  donors  tend  to  pursue  appear  difficult  to  reconcile  with  the  real 
political  commitment  expected  of  the  ACP  governments,  a  commitment  which  would 
enable  them 
to  assimilate  reforms  and  sectoral  strategies  and  assume  political 
responsibility  for  them  in  the  face  of  growing  public  demands  for  transparency  and 
participation. 

Any  assessment  of  the  experience  of  Community  aid  must  hinge  on  a  number  of  key 
questions concerning the main difficulties  encountered by the principle of partnership, the 
effectiveness  of financial and technical cooperation  and the countries that have  benefited 
most,  and  the  impact  of trade  preferences. 

The  answers  to  these  questions  are  neither  obvious  nor  unequivocal.  They  combine 
political  and  economic  aspects  with the practical  administration  of  aid. 

2. 

The  partnership  experience 

The  principle  of  partnership  enshrined  in  the  Lomé  Convention  has  diminished  in 
substance and has not been fully realized.  It has tended to be restricted to the institutional 
side of  cooperation  and the joint  administration  of  aid  resources. 

At  political,  level,  the  relationship  between  the  two  partners  has  been  increasingly 
dominated  by  the  dependence  on aid,  the  needs of  the moment  and crisis  management. 

Economic  and  sectoral  policy  dialogue  has  proved  difficult  with  partner  countries  that 
have  weak  institutions  and  in  many  cases  inefficient  administrations.  The  practice  of 
conditionality  has  diminished  the  responsibility  of  the  recipient  governments,  since  the 
conditions  imposed  (linked  to  the  criteria  applied  by  the  IMF/World  Bank)  have 
sometimes been  too specific, too numerous or too rigid.  In its eagerness to improve  the 
efficiency  of  aid  operations,  the  Community  has tended  to  take  the place  of  its  weaker 
partner,  adopting a more interventionist  role that is hard to reconcile with the  recognized 
need  to  encourage  the  recipient  countries  to  take  charge  of  their  own  development 
process.  In an age of increasing political and economic liberalization,  non-governmental 
organizations,  representatives  of  the  private  sector  and  other  segments  of  civil  society 
have,  for  their  part,  expressed  growing  interest  in  direct  participation  in  a  partnership 
from  which,  with  the exception  of the NGOs,  they  have  felt  excluded. 

In the  practical  management  of  aid, the  structure  of  instruments  and  the procedures  for 
the joint  administration of resources have not always had the flexibility  required  to make 
sure  that  aid  operations  accurately  reflect  political  priorities. 

12 

Chapter II 

3. 

The  evaluation  of  aid  policies 

Since  1990, in the wake of the measures adopted  by the Council  on the evaluation of the 
Union's  aid  instruments  and  programmes,6  a  series  of  studies  have  been  launched 
concerning projects, sectors, recipient countries or specific instruments.  These evaluations 
cover  the  whole  of Community  aid policy, not just cooperation  with the ACP countries. 
They  have  served  to  identify  practical  measures  to  improve  the  efficiency  and 
effectiveness  of  Community  aid  and  to remedy  a number  of  weaknesses.7 

The overall evaluation of the European Union's development aid policies and  instruments 
launched  by  the  Council  in  June  1995  is  still  under  way.  A  number  of  points  can, 
however,  be made  on the  basis  of the  sectoral  or  geographical  studies  available. 

When considering the conclusions of evaluations, a distinction  should be drawn between 
improvements and adjustments  that can be made within the present  framework  and those 
that  call  into  question  the  framework  or  its  underlying  principles,  reflecting  the  Lomé 
Convention's  shortcomings as an aid instrument.  Only the latter  are of relevance  to this 
Green  Paper. 

One  conclusion  that emerges  from  most  of the evaluations  is that  the institutional  and 
economic  policy  situation  in the  recipient  countries  has  often  been  a major  constraint, 
reducing the impact of aid operations.  Even though a great number  of projects  financed 
by  the  Union  have  proved  apposite  and  effective,  which  is  the  case  of  the  majority  of 
infrastructure  projects  and  social  schemes,  they  have  not  automatically 
to 
improvements  in  the  country's  development  indicators.  Without  incentive  policies, 
dynamic sectoral  institutions and  sufficient  funding  to  cover  operating  and  maintenance 
costs, the viability of the results of aid remains precarious.  This fact, which concerns all 
the donors, is reflected  by  a tendency  for  international  aid to focus on the countries  that 
seem best  able to use it effectively,  which at the moment  are those undergoing  structural 
adjustment. 

led 

The  geographical  breakdown  of  Community  aid,  like that  of the other donors,  reflects 
this concern about the way resources are used: resources are directed away from  countries 
in  which  political  conditions  fall  short  of  basic  requirements  and  towards  countries 
undergoing  structural  adjustment.  At the  same time  a criterion  based  on  an  assessment 
of relative need is applied  when allocating  programmable  resources: over  and  above the 
general  priority  accorded  to  the  least-developed  countries,  priority  is  accorded  to  the 
poorest  countries (according to indicators such as per  capita  income, life expectancy  and 
literacy  rates), to  island  or  landlocked  countries  But  the  overall  country  breakdown  of 

See Council  Resolutions of May  1989, May  1990 and May  1992, the declaration 
of 24 November  1994, and the document adopted on  1 June  1995 laying down the 
procedures  and  organization  for  the  evaluation  of  the  European  Union's 
development  instruments  and  programmes. 
Measures  adopted  to  this  end  include  the  use  of  the  logical  framework  for 
examining  projects  and  the negotiation  of  frameworks  of mutual  obligations  for 
the  use  of  Stabex  funds. 

13 

Box  1. Definition  of the evaluation  criteria applied  by the European  Commission1 

N.B.:  These criteria correspond  broadly  to the criteria defined  by the OECD's  Development 
Assistance Committee when drafting  its "Principles for  effective  aid". The distinctive  feature 
of  the  Commission's  approach  is  to  put  the  stress  on  the  whole  the  context  of  the 
programme,  its  development  over  time  and  the  consequences  for  the  conduct  of  the  aid 
programme. The criterion of pertinence, for  example, takes account of government  policies, 
operations  by  other  donors,  etc.  Effectiveness  is  measured  not  only  in  relation  to  the 
anticipated  results  and the  situation  of the beneficiaries,  but also  to any  unexpected  results. 
is  not  just  a  question  of  cost/benefit  analysis  but  also  a  function  of  the 
Efficiency 
organizational,  management  and  monitoring  framework.  Lastly,  the  criterion  of  impact 
covers qualitative as well as quantitative aspects too. 

Pertinence 

The  pertinence  of  a  programme  or aid  measure  stems  from  the  relationship  between 
the  problems  to  be  solved  and  the  objectives  of  the  programme.  It  therefore  includes 
elements  of  the  wider  physical  and  political  context  (macroeconomic  and  sectoral  policies) 
and  more  specific  factors  (diagnosis  of  the  problem,  project  beneficiaries  and  parties 
involved).  The  (explicit  and  implicit)  policies  of  all  those  involved  in  implementation 
(governments, EU, other donors and interest groups)  are taken into consideration. 

Efficiency 

Efficiency  concerns  the  relationship  between  the  activities  carried  out  and  the  results 
obtained.  The Commission takes the following  factors into account: (i) a cost-benefit  and/or 
cost-effectiveness  analysis of the project, principally  in the form  of comparative  analyses of 
different  projects  pursuing  the  same  objectives,  plus  an  analysis  of  the  adequacy  of  the 
budgetary  resources  allocated; 
(ii)  an  analysis  of  the  project's  overall  and  specific 
organizational  framework  (prograrnming  of  activities,  timetable,  financial  management, 
technical assistance, etc.); (iii) an assessment of the methods used in the operation (degree of 
involvement  of  beneficiaries,  priority  given  to  training,  etc.);  (iv)  an  assessment  of 
monitoring carried out by the government or by the  Commission. 

The  above  criteria  are  consistent  with  the  terminology  used  for  the  "logical 
framework"  as defined  in the  "Project  Cycle Management"  manual, published  by 
the  Commission  in  1993. 

A3QL 

Effectiveness 

Effectiveness  concerns  the  relationship  between  the  results  obtained  and  the  specific 
objective(s) of the project, i.e. to what extent the results of the programme are those desired 
and how much they have helped to meet the specific  objectives or could do in future.  It also 
identifies  the real beneficiaries  of the programme. 

Impact 

The  evaluation  of  the  impact  of  a  programme  concerns  the  relationship  between  the 
specific  and  overall  objectives  of  development,  at  two  levels:  (i)  the  contribution  of  the 
programme in question to the overall objectives assigned to it, and (ii) its contribution to the 
general objectives laid down by the Treaty on European Union regarding poverty alleviation, 
sustainable  social and economic development and integration into the world economy. 

Sustainability/reproducibiUtv 

Sustainability  concerns  the  extent  to  which  the  results  obtained  can  be  sustained  on 
completion  of  the  aid  programme.  Sustainability  is  assessed  in  terms  of  economic  and 
financial aspects, socio-cultural integration, local institutional capacity, appropriateness of the 
technology  chosen, etc. 

Mb 

Chapter  II 

Community  aid  only  partly  mirrors  these  priorities.  The  methods  used  to  calculate 
payments  under  instruments  such  as  Stabex  and  Sysmin, which  have their  own  specific 
allocation  criteria,  distort  the  overall  targeting  of  aid. 

Another  factor  to  be  borne  in  mind  is  that  lack  of  pertinence  and  inefficiency  are 
sometimes  a  product  of  disagreement  about  the political  priorities.  The  ACP  countries 
have often proved unable to establish consistent sectoral policies, and the Community has 
tended to rely excessively on technical assistance consultants to determine the procedures 
for  the  implementation  of  its  aid  operations.  Moreover,  in  certain  fields,  e.g.  the 
environment, the ACP countries and the Member States may have very different  concerns 
and priorities.  Policies in other sectors have often been drawn up according to approaches 
laid  down  by  the  donors,  and  in  particular  the  World  Bank.  In  yet  others,  however, 
among  them  health,  which  has  attracted  a growing  proportion  of  Community  aid  under 
successive  Conventions,  the  Community  has  exercised  increasing  leadership:  through 
institutional  and  technical  support,  the  Community  has  emphasized  the  development  of 
national  health  systems, with  an emphasis  on primary  healthcare  and  access to  essential 
drugs. 

The Union has also demonstrated  that it can carry through major  changes in direction, as 
in  the  case  of  the  recently  adopted  food  aid  reforms.  These  reforms,  which  are  a 
response  both  to  growing  problems  of  food  security  in  sub-Saharan  Africa  and  to  the 
relative  inefficiency  and  adverse  side-effects  of  the  instrument  used,  mark  a  shift  away 
from  a  culture  of  assistance to  one of  development  by  supporting  food  security  policies 
in  a  number  of  priority  countries. 

For  certain  new  objectives,  e.g.  the  development  of  the  private  sector,  which  has 
acquired increasing importance under the fourth Lomé Convention, Community aid is still 
not as strategic as it should be, relying as it does on a body of instruments and  operations 
that lack the requisite consistency and complementarity.  Projects fostering investment and 
competitiveness through targeted  support to firms remain few and far between, and those 
there  are  need  to  mesh  better  with  schemes  to  improve  the  institutional  and  economic 
policy  environment.  In  some, fields,  such  as  support  for  regional  cooperation  and  the 
development  of  regional  trade  or  for  programmes  to promote  exchanges  between  firms, 
the  Community's  backing  is proving particularly  apposite  and  effective. 

4. 

The  evaluation  of  financial  and technical  aid  instruments 

The  efficiency  and impact of Community  aid are often  undermined  by the difficulties  of 
maintaining  consistency  between  instruments  which,  even  if  they  interact  in  closely 
related areas, are governed by different  criteria.  Some recent Community measures born 
of  the  results  of the evaluations  have, however,  been  designed  to  limit  such  drawbacks. 
The  reform  of  the  food  aid  system,  for  example,  should  generate  synergies  with  EDF 
operations by placing a policy of food  security  in the wider context of efforts  to  alleviate 
poverty. 

14 

Chapter II 

(a) 

Project  aid 

The impact  and efficiency  of project  aid, which now accounts for an appreciably  smaller 
share of overall  funding,  vary considerably  from  one sector to another.  An evaluation  of 
335  projects  started  in  the  1980s,  for  example,  puts  the  efficiency  rate  of  transport 
projects  at 70%, compared with only 30% for agriculture and rural development  projects. 
A  number  of  inherent  weaknesses  in the  instrument  have, however,  been  identified: 

Project  aid  tends  to  underestimate  the  importance  of  the  macroeconomic 
framework  in  ensuring  a  satisfactory  impact  in  terms  of  improved  living 
conditions  and  a project's  long-term  viability. 
It  is  inappropriate  -  and  therefore  ineffective  -  where  there  is  no  clear  sectoral 
policy.  Indeed action of this kind can sometimes delay the reforms  necessary  by 
masking  the underlying  constraints. 
A  widespread  failure  of  governments  and/or  beneficiaries  to  internalize  over 
development  projects  also  reduces 
their  effectiveness,  especially  where 
accompanying  measures  prove  inadequate. 
As with any other  form  of  intervention,  inadequate coordination  between  donors 
appreciably  reduces the  overall  effectiveness  of  aid  projects. 

(b) 

Structural  adjustment  support 

The  Community  has  become  a  major  player  in  this  field,  providing  the  countries 
concerned with  10-30% of their total adjustment  aid.  The Community  differs  from  most 
other  donors,  however,  in that all  this aid  is provided  in the  form  of  grants. 

Evaluations  underline the relevance of this instrument,  which  enables the Community  to 
provide effective  support for stabilization programmes and pursue broader objectives than 
the more conventional programmes agreed by the governments with the IMF/World Bank: 
besides macroeconomic stabilization and the conditions for the development of the private 
sector,  the priority  accorded to priority  sectors, and in particular  education and health,  is 
highlighted  by  the targeting  of  counterpart  funds. 

There is, however,  room for  improving the impact of what is potentially  one of the most 
effective  instruments,  notably  through: 

a  deeper policy  dialogue, the scope of  which could  be  substantially  increased  by 
improved  coordination  within  the  Union; 
greater  consistency  between  structural  or sectoral  adjustment  support  and the  use 
of  other  instruments, which need to be better  integrated  into the overall  strategic 
framework  negotiated; 
support  for  budget programming  and  management  in  the  recipient  countries; 
the clarification  of conditions and the improvement of monitoring procedures and, 
in the  event  of breaches, the practical  repercussions  thereof. 

5. 

Commodities: the  Stabex  and  Svsmin compensation  systems 

15 

Chapter  II 

While  the  need  to  provide  special  support  for  restructuring  in  some  sectors  is  not 
necessarily  in  question,  a  series  of  factors  render  these  two  instruments  ill-suited  to  the 
present  context: 

There  has  been  a  considerable  change  in  the  thinking  that  lay  behind  the 
development  of  this  kind  of  aid,  particularly  concerning  the  role  of  the  state  in 
setting  producer  prices  for  commodities; 
The  criteria  governing  eligibility,  which  depends  on  fluctuations  in  export 
earnings, and the initially automatic nature of payments have been much criticised 
because  they  can  delay  reforms. 
Sysmin  and  Stabex resources  are  best used  for  the purposes  of  diversification  in 
the  course  of  macroeconomic  and  sectoral  reform.  Their  increasing  use  to 
promote reform  in sectors recording losses of earnings places these instruments in 
the  same  sphere  as the  structural  adjustment  facility. 

The  introduction  of  frameworks  of mutual  obligations  (FMOs)  under  Lomé IV  marks  a 
considerable  improvement,  since  it  imposes  a  systematic  effort  to  use  resources  as 
effectively  as  possible.  The  slowness  of  disbursement  remains  a  major  handicap, 
however,  and  one that  must  be  remedied. 

6. 

The  impact  of trade  preferences 

Three  key  principles  underpin  the  Lomé  trade preferences:  (i)  stability:  preferences  are 
granted  for  long  periods,  i.e.  the  fourth  Lomé  Convention  is  a  10-year  agreement 
(1990-2000); (ii)  contractualitv: preferences  are jointly  agreed, they  cannot  be  modified 
unilaterally  by  the  EU,  and  (iii)  non-reciprocity:  the  ACP  countries  are  not  obliged  to 
extend  reciprocal  preferences  to  EU  exports. 

Stability  and  contractuality  are  key  elements  of  the  Lomé  trade  preferences,  since  they 
provide  a  degree  of  security  of  access  for  ACP  countries'  exports  to  EU  markets 
unmatched by any other existing non-reciprocal preferential  arrangements such as the GSP 
schemes, thus reducing  the  inherent  risks for  economic operators in investing  in  export-
oriented  activities. 

The Lomé trade preferences have provided, and still provide, important value to the ACP 
group  in  the  sense  of  increasing  the  profitability  to  ACP  exporters  of  sales  on  the  EU 
market.  Beyond  the  general  offer  of  complete  duty-free  access  for  manufactures  and 
processed  products,  and  in  particular  the  exemption  from  MFA  disciplines  of  the 
preferences  granted  for  textiles  and  clothing,  individual  ACP  countries  have  benefited 
from  the  generous  prices  and  guaranteed  access  for  specific  quantities  within  the  Lomé 
commodity  protocols (bananas, sugar, beef and veal, and rum) as well as from  relatively 
liberal  rules  of  origin.  Revenue  from  the  protocols  accounts  for  a  significant  share  of 
eligible  countries'  incomes. 

The  value  of  the  Lomé  trade  preferences  has,  however,  declined,  and  stands  to  suffer 
further  erosion,  as a result  of multilateral  liberalization  (with  the  implementation  of  the 
Uruguay  Round  agreement),  pre-accession  arrangements  with  the  Central  and  Eastern 
European  countries,  and the  surge  in  EU-centred,  regional  trade  arrangements. 

16 

Chapter II 

Furthermore,  as  regards  impact,  in  general  the  Lomé  trade  preferences  have  not  been 
sufficient  to  enhance  export  growth  and  increase  diversification.  A simple  glance  at the 
this  assessment.  ACP  countries'  export 
statistics  (see  tables)  seems  to  confirm 
performance  and  their  performance 
in  attracting  foreign  direct  investment  (FDI) 
deteriorated  during  the period  in which  they  most  enjoyed  those  preferences. 

During the course of the Lomé Conventions the ACP countries failed  to increase or even 
maintain  market  share  in the  EU, while  less preferred  exporters  were  able to  raise  their 
market share. The EU market remained relatively important for the ACP countries, which 
still depend on the EU for  about 40% of their export earnings. Dependency  on trade with 
Europe varies among ACP regions, being higher for Africa  (46%) than for the Caribbean 
and  the  Pacific  (18% and  23%, respectively). 

In  comparison  with  developing  countries  as  a  whole,  the  ACP  countries  have  also 
recorded  a much more modest  overall trade performance  during  the last decade. Neither 
have they managed to diversify  exports significantly  and most still rely on a few  primary 
products.8  FDI  to  African  ACP  countries  doubled  as  a percentage  of  GDP  between  the 
mid-1980s  and  the  early  1990s,  to  1.2%.  However,  compared  with  other  developing 
countries,  Africa's  share  of  FDI  dropped  from  6%  to  4%  of  all  FDI  to  all  developing 
countries  excluding  China.  Furthermore,  most  FDI  to  Africa  is  concentrated  on  the 
oil-producing  countries. 

However,  individual  success  stories  of  export  growth  and  diversification  exist.  Several 
exports  that  have  enjoyed  a  relatively  large  preferential  margin  in  terms  of  tariff 
preferences  or exemption from quotas have expanded. A few countries, in particular those 
making  the  fullest  use  of  preferences,  have  been  able  to  attract  significant  amounts  of 
FDI.  Those  ACP  countries  which  have  managed  to  diversify 
their  exports  into 
non-traditional  products  or  benefited  from  the  Protocols,  such  as  Mauritius,  Botswana, 
Côte  d'Ivoire,  Jamaica,  and  Zimbabwe, have  gained  from  the  Lomé  preferences. 

The reasons for ACP countries'  poor overall export and growth performance,  despite the 
breadth  and  depth  of  the  Lomé  preferences,  are varied.  Lack  of  critical  factors  such  as 
infrastructure,  shortage of entrepreneurship, low levels of physical and human capital, low 
levels  of  savings  and  investment  and undeveloped  financial  sectors,  on the  supply  side, 
have  limited  the  benefits  that  could  be  derived  from  the  preferences.  High  dependency 
on a few basic commodities subject to high price fluctuations and substantial deterioration 
in the terms of  trade  are  important  explanatory  factors  as well. 

Furthermore,  it  is  now  widely  believed  that  beyond  political  stability,  which  is  a 
fundamental  precondition for growth, and initial endowments, sound policies play a major 
role  in  influencing  exports  and  growth.  Macroeconomic  stability,  realistic  and  stable 
exchange rates, good institutions  and good  governance, and efficient  resource  allocation 
policies, in particular stable and credible import and taxation regimes, as well as reduced 
trade protection, which allow a transparent transmission of world price signals to domestic 
producers,  are  significant  determinants  of  competitiveness  and  hence  of  export 

8 

ACP States still derive over 80% of their total export earnings from commodities. 

17 

Chapter  II 

performance.  These  supply-side  factors  are  now  considered  much  more  important  than 
trade  preferences  in  achieving  high  rates  of  export  and  economic  growth. 

ACP States as a group, and many sub-Saharan African  countries in particular, have  failed 
to meet those preconditions for achieving export-led growth. Being weak, because of poor 
initial  endowments, they have also failed  in respect  of the policy-mix  adopted,  or,  when 
they  have  adopted  the  right  one,  they  have  been  weak  on  implementation,  and  have 
frequently  reversed  their  policies.  As  a  consequence,  sub-Saharan  African  countries' 
economic policies and policy reforms have suffered  from  very low credibility  in the eyes 
of economic operators, domestic as well as foreign. This has undermined  and blunted not 
only the supply response to trade preferences,  but also to any prospective policy  reform. 

Finally, the legal battles fought by the EU and the ACP countries in the GATT  following 
the  setting-up  of the single market  for  bananas  led the European  Community  in  1994 to 
seek a "waiver" for the trade package of the Lomé Convention after  a panel (non  adopted 
by the GATT  Council) found  the Lomé Convention  inconsistent  in respect  of the  GATT 
due to non-reciprocity (which excludes the Convention from being considered a free trade 
agreement), and to discrimination vis-à-vis other LDCs, which means it is not covered by 
the  enabling  clause  allowing  GSP  schemes. 

The fact that the waiver only extends until the end of the present Convention, that it must 
be reviewed  annually  and that issues linked to the banana trade arrangements applied  by 
the  EU  are  still  not  solved,  has undermined  the principles  underpinning  the  Lomé  trade 
preferences,  in particular  those of non-reciprocity  and stability.  The security  attached  to 
those  preferences  has been  accordingly  reduced. 

C.  Implications  for  future  partnership 

The  main  conclusion  to  be  drawn  from  this  critique  of  past  policy  is  that  the  need  to 
achieve  results  is  becoming  the  driving  force  of  Community  development  cooperation 
policy. Major  reviews are under way in a number of areas, taking on board the results of 
evaluations  aimed  at improving the efficiency  and  impact  of Community  aid. The  claim 
that Community  development aid is peculiarly  inefficient  appears to be quite  unfounded; 
no  objective  comparative  study  supports it.  All  aid donors are confronted  with  the  need 
to  review  operations  regularly  and  seek  ways  of  maximizing  the  impact  of  their 
programmes.  An  evaluation  of  key  factors  limiting  the  effectiveness  of  ACP-EU 
cooperation under the Lomé Convention should enable us to pinpoint factors  contributing 
to  greater  success.  The  following  questions  will  need to  be  addressed: 

the  foundations  of  future  partnership.  The  attempt  to turn the Lomé  Convention 
commitment  to  partnership  into  an  everyday  reality  impinged  upon  its  general 
effectiveness,  with  the  result  that  the  EU  tended  to  adopt  unilateral,  interventionist 
approaches that were not conducive to ACP internalization of development policies or to 
each  side  accepting  its  own  responsibilities.  The  tendency  to  step  in  to  assume  the 
development partner's responsibilities may be quite understandable in transitional phases, 
but  it  is no  guarantee  of  efficiency,  nor  is it  a viable proposition  in the  long  term.  It  is 
a  vicious  circle,  which  needs  to  be  broken  by  making  a  renewed  commitment  to 
partnership  - viewed  this time  as an  objective  to  be  achieved  rather  than  a  ground  rule. 

18 

Chapter II 

This  will  require  a  new  policy  foundation  and  more  effective  dialogue,  backed  by  a 
commitment  by  ACP  governments  to  reform.  It  will  also  require  greater  flexibility  in 
implementation; 

the  EU's  priorities  and  resource  allocation  criteria.  If  no  clear  priorities  can  be 
discerned from the breakdown of resource allocation by country over the last few decades, 
it  is  largely  because  the  various  instruments  created  have  all  added  their  own  specific 
goals  to  the  list.  In  its  mid-term  review  of  the  fourth  Lomé  Convention,  the  EU 
committed  itself to two  priorities: focusing  on the poorest  countries,  in  accordance  with 
the  Treaty,  and  creating  conditions  for  more  efficient  resource  utilization.  The  new 
partnership  must  address these  priorities,  and  ways of putting  them  into  practice; 

aid  conditionality  and  selectiveness.  The  problem  of  Community  resource 
allocation  criteria  leads  us on  to  the  conditions  attached  to  aid  programmes. The  effect 
of  "conditionality"  is  to  give  more  weight  to  performance-related  criteria  in  resource 
allocation,  but a consistent,  universal  approach  to the issue has  yet to be defined.  There 
should,  no  doubt,  be  some  scope  for  discretion  in  applying  conditionality,  in  order  to 
leave more to the initiative of recipient countries and emphasize their responsibilities. The 
way in which the Community  addresses these issues will ultimately determine the degree 
to  which  Community  aid  is selective; 

*  capacity  building.  The  evaluations  concluded  that  it  was  vital  to  systematically 
identify  any limitations in the recipient countries'  institutions or economic policies which 
might  make  a  development  project  less  likely  to  succeed,  and  consider  ways  of 
overcoming them. That being so, the EU should  surely consider  giving higher priority to 
improving  ACP  States'  institutions  and their  ability  to  conceive,  implement  and  sustain 
economic and sectoral policies over a period of time. It should certainly consider building 
up their  forecasting  and planning  capacity,  although  it raises  political  as well  as  strictly 
institutional  issues; 

a  new  trade  chapter.  While  the  trade  preferences  enshrined  in  the  Lomé 
Convention  have  a significant  value,  not  only  in terms  of  concrete  concessions  but  also 
as  regards  the  basic principles  underpinning  the  trade  partnership  between  both  parties-
(non-reciprocity,  stability and contractuality), it is widely considered that, in general, the 
impact  of  the  Lomé  trade  preferences  has  not  been  sufficient  to  enhance  growth  and 
increase  diversification. 

Some  of  the  trends  and  features  of  the  new  global  context,  such  as  multilateral  and 
regional  liberalization,  will  have  to  be  taken  into  account  -  in  particular  the  need  to 
comply  with  WTO rules. 

More weight will need to be given to structural  features of trade development, conditions 
for  product  diversification,  and the  creation  of  favourable  conditions  for  export  growth. 
Trade preferences  are not sufficient  in themselves to promote growth and  diversification, 
although they provide opportunities that may tempt businesses and other economic players 
to develop particular product lines as part of a particular  strategy. A broader  approach to 
trade  cooperation,  linked  to  operations  to  support  structural  adjustment  and  the  private 
sector,  and reflecting  ACP countries'  need to create political  and  institutional  conditions 

19 

Chapter  II 

conducive  to  foreign  investment,  should  help  improve  their ability  to  take  advantage  of 
trade  preferences  and,  moreover,  to  diversify  their  external  economic  relations; 

rethinking  aid and aid instruments. The impact  of Community  aid is less than  the 
sum of its parts because of the way the Community has accumulated aid instruments, each 
one  with  its  own  rationale.  Adopting  a  thematic  approach  and  refocusing  Community 
assistance  on  sectoral  policies  and  agreed  reforms  should  help  make  aid  more  efficient 
and  increase its impact on economic and  social conditions  in ACP countries. Project  aid 
should only be maintained within a specific  institutional  and policy  framework,  to  tackle 
clearly  identified,  specific  problems, where  a transfer  of  know-how is needed.  It  should 
therefore  improve targeting and speed up agreed reforms  across the board or on a sectoral 
basis; 

the  need  for  coordination.  All  the  evaluations  agree  on  one point:  better  liaison 
between donors, especially as regards policy dialogue, would improve the impact of many 
development  operations. 

20 

Chapter  III 

CHAPTER  IK.  SOCIO-ECONOMIC  CHANGE  IN  ACP  STATES:  LIMITING 
FACTORS  AND  POTENTIAL 

A. 

1. 

The  vicissitudes  of  economic  policy  in  a  deeply  uncertain  climate 

Socio-economic  performance:  uneven,  but  generally  disappointing 

In  the  last  two  years,  the  economic  situation  has  improved  appreciably  in  a  growing 
number  of  ACP  countries.  This  -  as  yet  fragile  -  recovery  may  yet  prove  lasting,  with 
knock-on  effects  on  other  countries,  provided  that  they  continue  to  improve  their 
economic  policies. 

Over  the  long  run,  however,  the  performance  of  ACP  countries  as  a  whole  has  been 
disappointing  and  generally inferior  to that of other developing countries, particularly  in 
sub-Saharan  Africa,  the  region  with  the  greatest  problems  at  present.  There  is  no 
shortage  of  indicators  to  support  this  assertion: 

Per  capita  GDP  in  sub-Saharan  Africa  grew  by  an  average  of  only  0.4%  a  year 
between  1960 and  1992, compared  with 2.3% for  developing  countries as a whole.  This 
figure  reflects  both  markedly  lower  economic  growth  (3.3%)  and  higher  population 
growth (2.9%). The gap between per capita GDP in sub-Saharan Africa  and that of other 
countries has since widened to  1:4,  and on current trends is likely to widen further  to 1:6 
within  15 years. 

.The  region's  low  growth  makes  its  continuing  poverty  problems  all  the  more 
worrying; it scores extremely badly on income, health, nutrition,  education and access to 
drinking  water.  On  the  most  commonly  used  measure  of  poverty,  per  capita 
income/consumption,  the World Bank estimates that  1 300 million people live below the 
poverty  line, of  whom  515 million  are  in southern Asia and 220  million  in  sub-Saharan 
Africa.9  Poverty  is  particularly  widespread  in  sub-Saharan  Africa,  where  the  average 
income of the poor is 15% below than the poverty line. Despite important recent advances 
in  assessing  social  development  (by  the UNDP  and  the  World  Bank  in particular),  it  is 
difficult  to  grasp  the reality  of  such  poverty  and  in particular  to assess the dynamics  of 
it, given the lack of reliable long-term data series for many countries. Available estimates 
suggest that  between  1987 and  1993, the incidence  of poverty remained  fairly  steady  at 
39%  of  the  population;  there  were  marked  improvements  in  some  countries,  such  as 
Nigeria, Ghana, Tanzania and Ethiopia, while in others the situation worsened, sometimes 
dramatically  so. 

Education  and training  standards  improved  from  a very  low starting  point  in the 
early  1960s, although adult illiteracy  is still over 40% and attendance rates are  markedly 
lower than in other developing countries (36% of those aged 6 to 23, compared with 47% 
for  all  developing  countries  in  1990). 

World  Bank  definition,  1996.  For  the purposes  of  international  comparison,  the 
poverty  line  was  set  at  USD  1 per  person  per  day  (at  1985  purchasing  power 
parities),  converted  into  national  currency  on the basis of  revised  PPPs. 

21 

Chapter  III 

Life expectancy has certainly improved (from  40 in  1960 to 51 in  1993) and  infant 
mortality  has  declined  (from  167  to  97  per  thousand  live  births),  but  this  is  less 
impressive  than  comparable  figures  for  other  developing  regions. The percentage  of  the 
population  denied  access  to health  services is still  large  - over  40% - compared  with  an 
average  of  20% for  developing  countries  generally. 

Sub-Saharan  Africa  has  the  fastest-growing  population  in  the  world.  If  present 
trends  continue  -  and  there  is  no  sign  of  any  levelling-off  -  it  is  set  to  double  between 
1992 and 2017. Rapid urbanization increasingly threatens living standards and complicates 
infrastructure  management  -  schools  are  overcrowded,  health  services  overburdened, 
water supplies inadequate and below standard, and electricity supplies erratic. The United 
Nations  Fund  for  Population  Activities  (UNFPA)  forecasts  a  rise  in  the  percentage  of 
Africans  living in cities of over  5 million inhabitants from  8% in  1994 to almost 20% by 
2015. 

Food production is chronically inadequate and likely to remain so. Per capita  food 
production  has  fallen  by  5%  over  the  last  15  years.  With  population  rising  fast,  it  is 
difficult  to  see  how  the  food  deficit  will  be  filled,  especially  in  the  poorer  countries, 
although  there  is  substantial  scope  for  improving  agricultural  yields  in  the  region.  At 
present,  such  countries  are  heavily  dependent  on  food  imports  and  therefore  on  export 
earnings  - and  food  aid. 

Economic  and  social  development  is  increasingly  hampered  by  environmental 
damage. The poor  are worst hit by deforestation  and soil exhaustion, while water and  air 
pollution  problems  are becoming  increasingly  acute  in  overpopulated  areas. 

Exports are still geared to primary exploitation of natural  resources.  Sub-Saharan 
Africa  began to  lose its market  share internationally  in the  1970s and continued  to do so 
throughout  the  1980s, up to  1993. This part of the  world  has  attracted  little FDI, with a 
few  exceptions,10  and  so  far  has  failed  to  benefit  from  rising  investment  in  developing 
countries.  In  1995,  for  example,  it  captured  a  meagre  USD  2  billion  out  of  a  total  of 
USD  90 billion in investment in developing countries. Whereas FDI is becoming a major 
source of external finance  for  many developing countries, it represents only  10% of such 
funds  in  sub-Saharan  Africa.  Altogether,  the  region  is  of  marginal  importance  in  the 
world  economy  at  the  moment,  accounting  for  only  2%  of  international  trade  and  less 
than  1% of FDI. 

Major  macroeconomic  disequilibria  persist,  notably  a  highly  inadequate  rate  of 
savings which, allied to low growth, has allowed external debt to expand to unmanageable 
proportions in some countries. Sub-Saharan Africa  is the most heavily indebted region  in 
the  world,  at  270% of  export  earnings  and  75% of  GNP, and  is chronically  in  arrears. 

10 

FDI  in  sub-Saharan  Africa  is  still  concentrated  in  the  petroleum  and  mineral 
sectors  and tourism,  in a limited number  of countries (Nigeria, Angola,  Zambia, 
Namibia,  Côte  d'Ivoire,  and  Swaziland).  In  the  Caribbean,  by  contrast,  foreign 
investment  has increased  sharply  since  the  early  1990s. 

22 

Box 2.  Developing 

countries: 

social 

indicators 

by 

region 

Population 
(millions) 

(USD) 

GNP per capita 

(% change 
per annum) 

Infant 
mortality-
rate (per 
thousand) 

Illiteracy 
rate age 
15+  (%) 

Export 
growth 
1990-94 

1994 ODA as 
% of GNP 

1994 
direct 
investment 
as % of 
GNP 

Sub-
Saharan 
Africa 

Middle 
East & 
North 
Africa 

East Asia 
Sc Pacific 

559 

520 

-0.7 

93 

262 

M 

-2.5 

53 

1 714 

820 

South Asia 

1 194 

Latin 
America & 
Caribbean 

466 

310 

2 950 

6.4 

2.7 

0.0 

35 

84 

43 

51 

46 

24 

54 

15 

0.9 

12.4 

1.9 

1.1 

1.6 

M 

14.4 

8.5 

M 

0.8 

1.4 

0.3 

2.8 

1.6 

Sources:  World Bank/ "Social Indicators of Development", World Development Report 1996 

UNCTAD, World Investment Report 1996 

x  Chapter  III 

The  overall  picture  masks  a  wide  variety  of  conditions,  however,  and,  as  in  other 
developing  regions,  the gap between  African  countries  is  widening. 

In  1994  income  per  capita  averaged  USD  460  in  sub-Saharan  Africa,"  ranging  from 
USD  80  or  90  in  Rwanda  and  Mozambique  to  USD  600  in  Côte d'Ivoire  and  Senegal, 
and  around  USD  3000  in Botswana  and  Mauritius. 

Moreover,  forecasts  indicate  a  growing  divergence  between  countries  capable  of 
implementing  credible  development  policies  and  others  locked  in  a  vicious  circle  of 
violence  and  poverty.  Countries  covered  by  the  Special  Programme  for  Africa12  have 
achieved  encouraging  growth  rates  in  recent  years;  GDP  growth  was  around  1.5  points 
higher  than  in  other  sub-Saharan  African  countries  on  average  from  1994  to  1996  (at 
median rates). Faster growth was matched by improved exports and increased investment, 
which  is now running  at almost  20% of  GDP. The  growth  of private  sector  investment, 
in  particular,  illustrates  the  marked  improvement  in  the  economic  climate  of  those 
countries. Another encouraging  sign is that this improved  performance  has been more  or 
less  steady  since  structural  adjustment  programmes  were  introduced  in  1987. 

Most Caribbean countries, with the exception of Guyana, Suriname and Haiti (one of the 
world's poorest countries, with an average per capita  income of USD  230), figure  in the 
intermediate  income  bracket.  Some,  like  Trinidad  &  Tobago,  are  better  off  (at  around 
USD  3  740  per  capita),  while  Barbados  is  among  the  region's  elite.13  On  the  whole, 
however,  GNP  growth  has  been  poor  (even  if  one  excludes  Haiti),  averaging  1%  since 
1990,  and  there  is  considerable  poverty.  Social  indicators  nonetheless  show  the 
Caribbean's health and education performance to be better than that of sub-Saharan  Africa 
even  where  incomes  are  similar,  reflecting  advances  achieved  in  recent  decades  by 
focusing  on  basic  needs.  In  the  last  few  years,  however,  that  progress  has  been 
jeopardized  by pressure to curb spending, particularly  social expenditure, with  a view to 
macroeconomic  stabilization  and  structural  adjustment. 

Improved economic policies led to a rise in FDI from  the early  1980s onwards in  almost 
all but the poorest Caribbean  countries; however, conditions are  still far  from  conducive 
to private-sector diversification.  The region is still heavily dependent on a few agricultural 
products  (bananas,  sugar  and  rice,  mainly),  and  mineral  products,  for  its  exports.  Since 
most  Caribbean  countries  are  islands, the  climate  and  weather  conditions  also  influence 
their  economies,  and  considerably  increase  the  per  capita  cost  of  social  and  economic 
investment  and  infrastructure. 

The eight Pacific ACP States form a relatively heterogeneous group in both economic and 
cultural  terms. The  largest, Papua New  Guinea (PNG), with  some 5 million  inhabitants, 

11  World  Bank, Atlas method;  includes  South  Africa  (average: USD  3040). 
12 

The  Special  Programme  for  Africa  (SPA), open  to  heavily  indebted  low-income 
countries committed to a World Bank structural adjustment  programme,  currently 
covers  some  30  countries,  which  account  for  around  45% of  the  GDP  of  sub-
Saharan  Africa  and  some  57%» of  its  population. 
The  Bahamas  (USD  11 500)  is of  course  quite  exceptional. 

13 

23 

Chapter III 

accounts  for  70%  of  the  group's  total  population,  while  the  smallest,  Tuvalu,  has  only 
9  000. There is likewise a wide range in income, from  USD  710 per capita in Kiribati to 
USD  2  130  in Fiji.  As islands,  with  very  small-scale  economies,  the  eight  countries  are 
highly  vulnerable  to  external  influences:  they  are  heavily  dependent  on  trade  and 
vulnerable  to  natural  disasters  such  as cyclones. 

Given the  growing diversity  of economic and social  conditions found  in the ACP  States, 
it  is tempting  to  subdivide  them  into  different  categories.  On  current  performance,  one 
can,  in  fact,  distinguish  between: 

(1) 

(2) 

(3) 

countries  in political  or economic  crisis, such  as Somalia,  Liberia,  Sudan,  Zaire, 
Rwanda  and  Burundi; 

countries  which  have  embarked  upon  reform,  but  have  not  yet  begun  to  see 
results in terms of faster  growth, and which are stagnating; this applies to most of 
sub-Saharan  Africa; 

emerging  economies  which, over  the last  few  years (since  1992-93), have  shown 
themselves  capable  of  reform,  and  whose  growth  prospects  are  now  improving 
(e.g. the Côte d'Ivoire-Ghana-Mali-Burkina Faso axis, Uganda, and Namibia). In 
the  Caribbean,  Jamaica,  Trinidad  &  Tobago,  and  the  Dominican  Republic  have 
stepped  up  the  pace  of  reform  with  a  view  to  acceding  to  the  North  American 
Free  Trade  Agreement.  In  the  Pacific,  PNG  has,  since  1989, participated  in  the 
APEC-led (Asia Pacific  Economic  Cooperation)  liberalization  process. The  ACP 
countries  also  count  a  few  exceptional  "success  stories",  such  as  Botswana  et 
Mauritius. 

While  this  classification  is  useful  for  analytical  purposes,  its  development  policy 
implications  are  extremely  limited  in  practice.  The  categories  are  subject  to  change;  a 
good  number  of  African  countries  have  been  and  will  be  subject  to  abrupt  changes  of 
fortune.  Countries  which  once performed  quite well  have  experienced  major  reversals  -
Rwanda  is a case in point, as is Nigeria, where political  upheaval  halted  reforms.  On the 
other  hand,  some  countries  which  had  been  in  recession  for  a  long  time  are  now 
advertisements  for  successful  reform:  Ghana  and  Uganda,  for  example. 

Categorizing  aid  recipients  is,  therefore,  no  substitute  for  a  thorough  analysis  of  the 
problems  that  African  countries  are  likely  to  face  now and  in  the  future. 

2. 

Causes  of  low  growth  in  sub-Saharan  Africa 

Several  factors  contribute  to  sub-Saharan  Africa's  poor  per  capita  growth  performance. 
Among  the economic  factors  are its relatively  low investment,  rapid  population  growth, 
and  failure  to  improve  industrial/agricultural  productivity,  which  in  turn  is  partly 
explained by economic policy failures. Africa has unquestionably suffered  poor economic 
management:  large  budget  deficits,  overvalued  currencies,  excessive  market  regulation, 
market  distortions  caused  by  protectionism  and  poor  public  sector  management,  all  of 
which has tended to discourage the private sector. This is not to deny that external  factors 
have  played  their  part  in  its  poor  economic  performance;  ACP  States  are  particularly 

24 

Chapter III 

vulnerable  to  fluctuations  in commodity  markets, international  monetary  conditions  and 
debt  servicing  obligations. 

If  we  take  this  analysis  a  step  further  and  seek  to  pinpoint  key  factors  that  have  either 
reduced  the effectiveness  of African  development  policies over  a long period  or  suggest 
that,  compared  with  other  regions,  African  countries  have  opted  for  policies  less 
conducive  to  growth,  we  find  that  they  fall  into  two  groups: those relating  to  structural 
disadvantages  and those arising  from  the high-risk  environment.  If it is more  difficult  to 
implement an effective  economic policy in Africa,  if adjustment  and reforms  seem harder 
to achieve there than elsewhere, it is because, of initial handicaps and the fact that  Africa 
is prone  to  more  risk  factors. 

Among  the  handicaps  which  have  dogged  sub-Saharan  Africa  since  independence, 
exerting a lasting influence on development conditions, two in particular have ensured that 
development  needs  outstrip  the  state's  ability  to  respond:  firstly,  the  level  of  education 
is  particularly  low,  even  when  considered  relative  to  per  capita  GNP  and,  secondly, 
population  has  been rising  faster  than  anywhere  else  in the  developing  world. 

Another  factor  is the relative  lack  of entrepreneurial  spirit,  which  accounts  for  the  weak 
response 
incentive-based  policies  following  decades  of 
interventionism. 

introduction  of 

the 

to 

Sub-Saharan Africa  is also less predictable than any other region. Its climate, for example, 
brings great variations in agricultural  output, which is still  of major  social and  economic 
importance.  Growth  is also hampered  by fluctuations  in  export  earnings, in  government 
aid  payments  and  in  external  finance,  which  in  turn  lead  to  great  variations  in  import 
levels  and,  except  in  the  CFA  states  and  a  few  other  countries,  to  internal  monetary 
instability. 

There  is  a  high  degree  of  political,  as  well  as  economic  instability,  which  adversely 
affects  investment  conditions  and  economic  activity  in  general.  Government's  ability  to 
do its job is limited by the lack of transparency in public affairs,  the rentier mentality and 
the clientelism practised by ruling elites. Bad governance jeopardizes social development 
efforts,  which  demand  policy  continuity  and  long-term  vision,  and  partly  explains  the 
delayed  impact  of  structural  adjustment,  since  it  encourages  investors  to  adopt  a  "wait-
and-see"  policy. 

25 

Chapter HI 

3. 

Political  instability  and the  dysfunctional  state 

In recent years a number of ACP States have  been characterized by political  instability, 
weak  government  institutions  incapable  of  implementing  development  policies,  rising 
crime,  organized  violence  and  the  spread  of  a  new  kind  of  armed  conflict,  with 
humanitarian,  social,  economic and environmental  consequences.14 

The causes can be traced back, in part, to the colonial  legacy  of strong central  planning 
and government  intervention, and the creation of borders with no  social  rationale. 

They  can  also  be traced to the  authoritarian  leanings  of  the  political  regimes  in power 
during the first two or three decades of independence, backed by Cold War alliances, and 
their frequent use of power for short-term private gain. Public services that do not work 
properly, swollen parastatal organizations,  declining infrastructure,  and problems raising 
revenue  are the more obvious symptoms  of the dysfunctional  state. 

Continuing economic recession, triggered in the early 1980s by falling commodity prices, 
rising petrol  prices  and international  financial  problems,  has  shrunk  state revenues  and 
real wages and altered the structure of incomes and the distribution of wealth; this has led 
to a rise in informal economic activity and contributed to a boom in fraud and trafficking, 
which  is becoming  linked to international  networks. 

As a result, over the last 15 years, three new factors have helped to weaken government 
structures  and contributed to social breakdown: 

(1) 

(2) 

The  first  attempts  at  adjustment  and  economic  reforms  introduced  in  the  early 
1980s threw up some unexpected problems. For example, early operations geared 
to  slimming  down the public  sector  and cutting  budget  deficits,  reduced  public 
service effectiveness  and eroded not only the economic and social  foundations of 
the  state  but  its  political  authority  and  legitimacy.  In  general,  external  aid  for 
economic reform had serious, unpredicted, political consequences.  Only later did 
the  IMF  and  World  Bank  in  particular -  along  with  the  EU  in  its  adjustment 
support  policy  introduced  from  1990 -  stress  the  need  to  make  government 
institutions  work  better,  with  a  view  to  maximising  the  impact  of  adjustment 
programmes.  A  more all-embracing  view  of  the  state's role  in a new  economic 
climate  gradually  developed. 

The  end  of  the  Cold  War  and  the  fall  of  the  Berlin  Wall  in  1989  prompted 
industrialized  countries to  rethink  their geo  strategic  interests  and changed their 
attitude to the ACP States, in two key respects. Firstly, many developing countries 
discovered  that they  could  no  longer rely  on unconditional  financial  assistance; 
secondly, the international community began to take a firmer line about upholding 
human  rights  and  democratic  principles.  The  resulting  strategy  of  "political 

14 

Six  countries  are currently  caught up  in  civil  wars; with  60 million  inhabitants 
altogether,  they  account  for  around  11% of  the  total  population  of  sub-Saharan 
Africa. 

26 

Chapter HI 

(3) 

conditionality",-  imposed  in  addition  to  economic  strings,  was  probably  too 
formalistic,  and  its  impact  insufficient  to  secure  political  stability  or  significant 
advances in the rule of law. In some cases, the international community's backing 
for  "democratization"  resulted  in token  representation  and  sham  institutions. 

The transition to democracy  in ACP States was started up in tandem with the end 
of  the Cold  War,  and proved  particularly  difficult.  Democratization  has not been 
matched  by equal advances in the rule of law. Particularly  in sub-Saharan  Africa, 
it  is also  clear  that there  is a  lack  of  models  of  political  and  social  organization 
appropriate  for  current conditions: the style of government  derives  from  the way 
African  societies  operate,  with  the  group  prevailing  over  the  individual.  The 
general  interest often  gives way to the particular  interests of  the group  in  power, 
which does not share or accept the principle of relinquishing it; in such conditions, 
it  is  difficult  for  the  state  to  assume  the  role  of  promoting  economic  and  social 
progress in an increasingly competitive world economy and upholding democratic 
principles  recognized  by  the  international  community.  The  fact  that  elections  in 
a number  of countries have returned  former  ruling  elites to power testifies  to  the 
difficulty  of  carrying  through  economic  and  fiscal  reform,  which  often  entails  a 
short-term  social  cost  that  may  disappoint  the  voters.  It  is  a  situation  quite 
different  from  that  of  post-war  Europe,  where  the  need  for  democratic  reform 
went  hand  in hand  with  social progress and  the  introduction  of  highly  advanced 
social  welfare  schemes. 

There  are  nonetheless  some  encouraging  signs:  scheduled  elections,  increasing  press 
freedom,  and  the  setting-up  of  consultative  bodies  giving  a  voice  to  the  private  sector, 
grassroots communities, women's organizations, NGOs, etc. have created space for debate 
and  paved  the way  to more transparent  governance. The pressure  for  change is  reflected 
in ACP societies'  increasing  demands for  a style of participatory  development  that  takes 
account  of  individual  needs. 

By  no  means  every  country  shares  the  same  political  problems,  but  the  problems  are 
there,  and  they  lend  credence  to  a  widespread  unease  which  is  not  confined  to  the 
countries  with  the  worst  problems  but  which  tends,  at  least  in  sub-Saharan  Africa,  to 
weaken  confidence  in  the  continent  as  a  whole.  It  is  that  lack  of  confidence  which  is 
largely  responsible  for  the  record  of  slow,  erratic  investment,  particularly  foreign 
investment,  in Africa,  and which tends to undermine  the legitimacy  of development  aid. 

B. 

Anticipating  risks  and  exploiting  potential 

1. Basic  conditions  for  development  and  economic  reform 

The  problems  - in  some cases severe - caused by political  and  social  destabilization  and 
the  persistent  difficulties  besetting  the  implementation  of  economic  growth  policies, 
despite  fifteen  years  of  adjustment  and  assistance  from  the  international  financial 
institutions,  are  the two  main  dilemmas  confronting  sub-Saharan  Africa  today. 

A  number  of  countries  lack  the  mimmum  criteria  for  peace  and  proper  economic 
management.  A  mere  30% of the  sub-Saharan  population  is  living  in countries  which  -

27  . 

Chapter HI 

only just  - satisfy  these criteria.  This figure  excludes countries in the throes of civil  war 
and  those  which,  through  economic  mismanagement,  lack  the  basic  prerequisites  for 
development.15 

Six interdependent  factors  provide  the yardstick  by which  future  development  prospects 
may  be  gauged: 

(i)  Peace  and  security,  minimum  conditions  for  development 
Civil  war  has  exacted  a  heavy  toll  in  the  ACP  countries,  with  little  prospect  of 
improvement  in  the  medium-term.16  Apart  from  their  devastating  direct  effects  in  the 
countries  concerned,  these  conflicts  also  have  a  "domino  effect"  in  the  sense  that  their 
repercussions,  in  particular  the  loss  of  confidence  by  economic  operators,  are  felt 
throughout  the  region. 

Despite this bleak  outlook,  there  is still some cause for  optimism:  in countries with  only 
a  minimum  of  social  stability,  economic  growth,  although  low  in  relation  to  their 
potential,  has  still  generated  an  increase  in income per  capita.17 

15 

16 

17 

These prerequisites are: a minimum degree of social cohesion (the absence of civil 
war);  a  mimmum  of  macro-economic  stability  (in  terms  of  inflation,  budget 
balance, balance of payments and debt management); minimum conditions for  an 
efficient  allocation  of  resources,  contingent, upon  the  trading  and  exchange-rate 
system,  the  financial  sector,  the  factor  and  product  markets,  the  running  of 
parastatals  and  public  expenditure  patterns.  Minimum  thresholds  have  been 
established for  all of these criteria. These three categories form  a hierarchy:  there 
cannot be macro-economic  stability without a minimum of social stability;  where 
there  is  a  reasonable  degree  of  social  stability  but  not  even  a  minimum  of 
macroeconomic  stability,  the  question  of  allocation  of  resources  does not  arise. 

A recent study (P. Collier, CSAE Oxford  University,  1995) estimates for  example 
that  GDP  in  Mozambique,  Ethiopia  and  Uganda  is  around  40%  lower  than  it 
would  have been  in the  absence  of  civil  war. 

The  eight  countries  analysed  during  the  period  1993-95  (Cape  Verde,  Ethiopia, 
Gambia, Ghana, Guinea-Bissau, Mauritania, Uganda and Zambia) satisfy  the basic 
criteria defined  above in terms of social cohesion and minimum economic policies 
and experienced average economic growth of just over 6% per annum during these 
three  years.  The  list  of  countries  which  satisfy  these  criteria  obviously  varies 
according  to the  time period  under  consideration;  thus the countries  of the  franc 
instance,  whose  macro-economic  situation  has  improved  since 
zone,  for 
devaluation in  1994, were not included on this occasion but could well  feature  in 
a  future  analysis. 

28 

Chapter HI 

(ii) Necessary  economic  and  institutional  reforms 
The  rate  of  investment  in  many  countries  is  still  too  low.  Of  all  the  factors  which 
investment  decisions,  the  evaluation  of  "risk"  (political  instability  and 
influence 
unpredictable  economic  and  trade policies)  is often  the  most  decisive  at this stage. 

The implementation  of economic reforms  in an increasing number  of countries since the 
end of the  1980s has helped reduce the risk factor.  As in other regions of the world, these 
reforms  - usually undertaken in the context of a macro-economic  stabilization effort  - go 
beyond  the problem  of  short-term  adjustment  and  embrace  a whole  series  of  economic 
policies  and  institutional  changes.  Apart  from  restoring  a  stable  macro-economic 
framework,  the  reforms  are  intended,  overall,  to  improve  economic  competitiveness 
through a more realistic exchange-rate policy, more efficient  markets, trade liberalization 
and  opening  up  to  foreign  investment.  The  reform  of  the  public  sector  is  based  on  a 
"back-to-basics"  approach, with  the  emphasis  on  the  provision  of  essential  services  and 
basic  infrastructure. 

Institutional  reforms  take  longer  and  are more  difficult  to  implement  than  liberalization 
policies;  they  concern  the  development  and  modernization  of  the  financial  system,  tax 
reforms,  public  expenditure  management,  the  improvement  of  the  legal  and  regulatory 
framework,  the reform  of public  enterprises  and  privatization. 

These  observations,  which  concern  mainly  sub-Saharan  Africa,  are  also  valid  for  the 
Caribbean  countries, which  are facing  similar  problems,  albeit  on  a different  scale.  The 
reforms introduced in some of these countries in recent years to facilitate the development 
of  the  private  sector  and  improve  export  potential  still  have  a  long  way to  go.  Matters 
such  as  trade  liberalization,  the  improvement  of  the  regulatory  framework,  the 
development  of the  financial  system, the  functioning  of  the labour  market  and  the  need 
to  create  room  for  manoeuvre  in  social  policy  are  thus  set  to  dominate  the  economic 
policy  agenda  of  the region  for  some time  to  come. 

Tangible  results  are  already  discernible  in  certain  areas.  While  it  is  difficult  to  identify 
the  precise  reasons  for  the  improvement  in  economic  growth,  particularly  in  countries 
covered  by  the  Special  Programme  of  Assistance  for  Africa,  it  is  clear  that  financial 
support  from  the  international  community  has played  a  vital  role  in helping  ensure  the 
continuity  of  economic policies  and  reforms.18 

(iii)  Democratization  and  economic  liberalization 
The  dual  process of  economic  and  political  transition  (switch  to  a market  economy  and 
a  pluralist  system)  brings with  it  both  synergies  and  special  problems:  synergies  in  the 
sense that the reforms may give rise to broad public debate between Government and civil 
society,  in  particular  representatives  of  the  private  sector,  thereby  prpviding  the 
Government  with  a  credible  mandate;  problems  in  so  far  as  the  implementation  of 
stabilization  policies  in  tandem  with  liberalization  will  be  hampered  temporarily  by  the 
emergence  of  democracy.  This  happens  mainly  when  progress  is  slow  and  modest, 

18 

For  the countries  of the  SPA, this support  represented  over  40% of the  value  of 
their  imports of  goods  and  services  (net  of  interest). 

29 

Chapter III 

delaying the benefits  derived from  improved supply conditions and prolonging  the period 
of  socio-economic  austerity.  In these  circumstances,  electoral  support  and a mandate  for 
reform  is  more  difficult  to maintain, jeopardizing  the  continuity  of  economic  policies. 

(iv)  Issues  relating  to the  social  transformation 
While  there  may  be  a  consensus  on  minimum  economic  reform,  structural  reforms  -
whose  implications  are  more  pervasive  and  distributive  effects  more  subtle  -  are  more 
controversial  and  meet  with  greater  resistance.  In  sub-Saharan  Africa,  this  resistance  is 
provided  by the dominant  groups and  is rooted  in one of the cornerstones of the  African 
ethos,  i.e.  the  repudiation  of  the  "each  man  for  himself  mentality.  However,  the 
mechanisms  of  group  solidarity  have  failed  to  ensure  equitable  distribution  of  the  fruits 
of  economic  activity.  The  result  is  a  predatory  mentality  and  a  very  selective  form  of 
solidarity  to  the  benefit  of  a privileged  minority  close  to  those  in  power.  This  form  of 
social organization has led fund donors to keep their economic policy prescriptions within 
bounds  as it is so difficult  to predict  the  impact  and viability  of  reforms  that  go  beyond 
a  basic  common  minimum. 

Furthermore, the entire international  community is faced  with the problem of reconciling 
the  major  political  commitments  entered  into  at Rio,  Cairo,  Copenhagen  and  Beijing  in 
support  of  sustainable  development  based  on human needs  with the  reality  of  economic 
development  in  an  increasingly  competitive  international  environment. 

(v)  Reducing  poverty 
The  recent  improvement  in economic  growth  has  undoubtedly  helped  halt  or  check  the 
spread of poverty in some countries, but has not reduced it. This would require, inter alia, 
more  sustained  economic  growth.  The  World  Bank  estimates  that,  given  the  economic 
structures  and population  growth rates in sub-Saharan  Africa,  an increase in GDP of 5% 
per  annum  would  still  not  suffice  to  stabilize  the  numbers  living  below  the  poverty 
threshold;  of  those  countries in the region with over a million  inhabitants, only  six  have 
recorded  sufficient  growth  rates  in  the  last ten  years to reverse  the  trend. 

A  great  deal  also  needs to be  done  to  improve  the  impact  of  growth  on poverty:  access 
to basic social services should be widened significantly  and,  in some countries, access to 
productive  resources  (education,  training,  land  ownership,  capital  and  credit,  etc.)  could 
be  greatly  improved:  entire  population  groups  are  practically  excluded  from  the  formal 
sector  of the  economy.  Women  are particularly  vulnerable  and  an  improvement  of  their 
socio-economic  situation  would  act  as  an  effective  lever  in  curbing  poverty.  While  the 
informal  sector  is often  very dynamic,  it does not  generally  contribute  much  in terms of 
a  lasting  improvement  in  people's  living  conditions.  Finally,  any  form  of  economic 
transition  inevitably  alters the  relative  positions  of  different  sections  of  the  population; 
the  existing  social  systems,  based  for  the  most  part  on  group  solidarity  but  also  on 
dependency  relations,  stand  in the  way  of  an  effective  response  to  these problems. 

(vi)  Integration  into the world  economy 
The  integration of the ACP countries  into the world trade  arena hinges on the success of 
domestic  economic  policies  and  on  enhanced  economic  competitiveness  and  access  to 
foreign  markets. 

30 

Chapter III 

While  globalization  has  reduced  trade barriers  and  the  cost  of  engaging  in  international 
trade, access to international  markets is becoming more complex and dependent  on other 
non-tariff  barrier trade-related considerations. In the market access equation, the  level of 
tariffs  plays  an increasingly  reduced role and other aspects such  as competition  policies, 
technical, sanitary and phytosanitary standards, subsidies, anti-dumping and countervailing 
policies,  environmental  and  social  regulations,  intellectual  property  laws,  investment 
codes, etc, have  come  increasingly  to the  fore  as major  determinants  of  market  access. 

Thus,  although  multilateral  liberalization  following  the  Uruguay  Round  agreement 
achieved  considerable  success,  it  remains  true  that  many  of  the  trade-related  areas 
mentioned  above  are  still  insufficiently  regulated  by  the  WTO,  allowing  potentially 
uncompetitive  behaviour  by  multinational  corporations  and  trading  nations,  which  may 
constitute  effective  barriers  impairing  access to  international  markets. The  development 
of  multilaterally  agreed  disciplines  in  those  new  trade-related  areas  as  well  as  the 
consolidation  of  the  credibility  of  the  dispute  settlement  rules  in  enforcing  the  new 
agreements  on TBT  and  other  non-tariff  barriers,  constitutes  unfinished  business  which 
will  fill  the  agenda  of  the  WTO  for  the  years to come. 

Multilateral liberalization following  the Uruguay Round agreement has not slowed  down 
the surge in interest in regionalism  initiated in late  1980s. Trading nations, industrial  and 
developing  ones  alike,  seem  to  see  an  added  value  in  going,  at  a  more  limited 
geographical  scope, beyond the "acquis" of the Uruguay  Round  which is deemed not  yet 
to have met the accrued  demand  for  freer  trade and more certainty  and harmonization  in 
the  new trade-related  areas. 

North-South trading arrangements, beyond the normal  static trade creation  and diversion 
effects,  increase  the  policy  credibility  of  the participating  LDCs  and  have  the  potential 
to  lead  to  higher  domestic  and  foreign  investment,  enhanced  pro-competitive  effects, 
improved  access  to  technology  and,  last  but  not  least,  a  degree  of  protection  on  policy 
developments  in trade-related  areas. 

But  multilateral  liberalization  and  the  growing  trend  towards  regionalism  alter  the 
economic  opportunities  for  the  LDCs.  On  the  one  hand,  those  that  benefit  from  non-
reciprocal preferential  treatment  under the GSP or other preferential  regimes like Lomé, 
see  the  value  of  their  preferences  being  eroded.  Furthermore,  LDCs  which  may  be 
excluded  from  regional  blocs,  are  likely  to  face  shifts  in  trade  and  investment  to  their 
detriment. On the other hand, multilateral and regional liberalization, in so far as the latter 
can  be  expected  to  spur  the  lowering  of  tariff  barriers  not  only  among  the  partners  but 
also vis-à-vis  the rest  of  world,  should  improve the  market  opportunities  for  the  LDCs. 

Developing  countries  lagging  in growth  and  integration  are confronted  with the  need  to 
reverse those negative trends and must make difficult  decisions regarding how much and 
how  fast  to  liberalize  and,  in particular,  choose the  best  strategy  of  integration  into  the 
world economy: Should they follow the multilateral way, or would unilateral liberalization 
be  the  best  way  to  go?  Should  they  alternatively  engage  in  regionalism  (South-South 
and/or  North-South)?  Should  they  follow  some  combination  of the  above  options? 

31 

Box 3. ACP  trade  strategies 

A major  objective  for the ACP countries as they  look ahead to the first part of the  next 
century  is  to  ensure  optimum  integration  into  the  global  economy.  That  is, integration 
that  rninimizes  the risk of marginalisation, reversing the current trends in this direction, 
and  maximizes  the  opportunities  that  the  global  environment  offers  to  participate 
profitably  in the international markets for  goods, capital, services and labour. 

The  ACP  may  consider  several  integration  strategies,  depending  on  their  specific 
situations and conditions, as more suitable models or paths for integration into the global 
economy: 

aVNon-reciprocitv.  Insist  on  preserving  the  current  differentiated  (relative  to  other 
LDCs),  non-reciprocal,  contractual,  preferential  treatment  from  the  EU,  requesting  an 
enlargement  of  market  access  and  a  softening  of  procedures  and  rules  seen  as 
constraining  the development of exports. 

received; 
bVMultilateralism.  Disregard  any  differentiated  preferential 
rationalize,  reduce  and  bind  tariff  rates  under  the  GATT.  Push  for  more  trade 
liberalisation  at the multilateral  level, focusing  on products and sectors of  interest  to all 
LDCs. Make full  use of new WTO disciplines to defend  trade interests. 

treatment 

cVUnilateral  liberalisation.  Proceed  with  autonomous  trade  liberalisation,  not  bound  in 
GATT,  within  the  framework  of  structural  adjustment  programmes  (autonomous  or 
supported  by  the  Bretton  Woods  Institutions).  Maintain  all 
trade  policy  flexibility 
allowed  under the GATT, in terms of commitments and timetables. 

dVSouth-South  reciprocity.  Broaden  and  deepen  the  processes  of  regional  economic 
integration  under  way.  Possibly  look  beyond  neighbouring  ACP  countries  in  search  of 
the  most  "natural"  (in  terms  of  trade  flows  and  complementarities)  geographical 
coverage. 

eVNorth-South reciprocity Join regional integration arrangements involving developed as 
well  as developing economies in order to achieve the dynamic advantages of anchoring 
their  own  economies firmly into any of the major  trading blocs, thus counteracting  any 
deflection  of  trade  and  investment  which might  benefit  or already  have benefited  other 
LDCs (Caribbean  in NAFTA or the FTAA). 

Of course, these options are not mutually exclusive. Many combinations can be thought 
of.  It is from these options (open to the ACP themselves) that the EU must select when 
determining  its  own  options  in  respect  of  the  trade  arrangements  that  it  may  wish  to 
agree with its partners. 

3/1 K. 

Chapter HI 

2.  Promising  results:  a possible  turning  point? 

The recent  improvement  in economic  growth  in sub-Saharan  Africa  (3.5% to 4% for  the 
region  as a whole  in  1995 and  7%  for  the  31  countries  of  the  SPA)  is undoubtedly  due 
in  part  to  short-term  factors  such  as  the  increase  in  raw  materials  prices  on  the 
international markets. But it is also encouraging as it concerns a large number of countries 
and  can  also  be  attributed  to  better  socio-economic  management  and  the  adoption  of 
reforms  which  are  starting  to bear fruit, primarily  in the  form  of  a rise  in the volume  of 
exports. 

The emergence of post-apartheid South Africa  is without a doubt one of the most obvious 
auspicious  developments.  The development  prospects  of this country  are  contingent  on 
its ability to reduce the causes of social tension and to improve the employment  situation, 
but the potential  for  growth  is considerable  and the promising  developments  in terms of 
foreign  investment  and  trade  relations  should  reverberate  throughout  the  entire  region 
thanks  to  the  economic  knock-on  effects  and  an  improvement  in  the  domestic  situation 
of  the  other  countries  in the  region. 

The countries of the franc  zone in West Africa are also helping to improve the continent's 
overall image. The 1994 devaluation had beneficial effects,  particularly in countries which 
were  also  implementing  an  adjustment  and  reform  policy.  The  process  of  regional 
economic  integration  in  West  Africa  has  also  improved  the  economic  outlook  for  the 
region  and  could  prove  to  be  a  decisive  turning  point  for  economic  development  by 
boosting  trade  and  improving  competitiveness  and  also  by  anchoring  stability-oriented 
macro-economic policies, thereby increasing their credibility and in turn helping to attract 
domestic  and  foreign  investment. 

In East Africa,  too, a number of countries such as Kenya, Tanzania and Uganda have seen 
their  situation  improve  considerably  over the past two years. These three  countries have 
also  recently  embarked  on  a  process  of  cooperation  and  regional  integration  which  at 
present  covers  transport,  communications  and  payments. 

A  number  of  Caribbean  countries  have  also  achieved  significant  progress  in  stabilizing 
their  economies  and  were  able  to  take  advantage  of  the  more  favourable  external 
environment  in  the  1980s to  implement  tax  and  monetary  reforms  and  engage  in  trade 
liberalization  as part  of  a process  of  cooperation  and regional  integration,  which  should 
eventually  lead  to  their  integration  into  the  economy  of  the  Western  hemisphere  (see 
Box 4). 

The medium-term  prospects of all of these countries still depend ultimately on the results 
of  their  economic  policies.  Structural  handicaps,  however,  are  still  a  major  source  of 
weakness.  In  the  absence  of  the  new  investment  required  to  enable  these  countries  to 
diversify  their  exports, the terms  of trade will continue  to be at the mercy of  fluctuating 
raw materials  prices,  which  can thwart  the reform  process  at  any  moment, jeopardizing 
any  gains  achieved  through  the adjustment  programme. 

Provided  there  are no  major  external  crises  and  assuming  that  raw  materials  prices  fall 
very  gradually  in  the  coming  years  against  a  background  of  social  disintegration  and 

32 

Box 4. 

The Caribbean  - prospects  for  regional  integration 

The broadest  geographical  definition  of the  Caribbean  area takes  in a group of  37 countries 
and  territories  in  the  Antilles  archipelago  and  on  the  coast  of  the  Latin  American 
subcontinent.  They  are:  the  15  independent  ACP  countries  in  the  Caribbean  proper,  two 
Dutch territories and five UK territories (classed as OCT), three French overseas departments 
(DOM), two  US  territories,  Cuba and  nine  independent  Spanish-speaking  countries  on the 
Central  and  South  American  coast  (the  Central  American  Common  Market  countries,  plus 
Mexico,  Venezuela  and  Colombia).  Most  have joined  the  recently  formed  Association  of 
Caribbean  States, an emerging economic area with a total population of around 205 million. 

The  features  and  geography  of  the  Caribbean  set  it apart from the  other  ACP  regions.  Its 
economic  future  will  inevitably  involve  a  gradual  integration  into  the  whole  American 
region, but balanced by continuing close and solidly-based ties with Europe.  The  Caribbean 
countries  are anxious to keep such a balance and seek alternative trade alliances  in order to 
preserve  both  national  sovereignty  and  the  region's  identity  in  the  face  of  the  economic, 
cultural  and  technological  might  of  the  United  States.  But  whatever  the  case  the  trade 
liberalization  strategy  adopted  in  the  Western  hemisphere  and  the  principle  of  trade 
reciprocity within NAFTA1 will force  a faster  pace of change than in  Africa. 

Prospects of free trade agreements and greater economic cooperation in the West are making 
a regional economic integration strategy increasingly attractive.  The main aim of integration 
would  be  to  provide  an  economic  and  trade  framework  that  would  offer  step-by-step 
liberalization and prepare the region's economic operators for competition.  At the same time 
the  Caribbean  countries  are  having  to  assess  the  impact  that  the  new  international 
environment  is  having  on  the  political  and  economic  viability  of  the  small  island  states, 
which constitute the  majority. 

Pursuit of greater integration has long been the region's central concern. The first steps date 
back to the abortive attempt at a Federation of the West Indies in the late  1950s/early  1960s. 
Over  the  last ten  years  structural  changes  in  the  world  economy  have  prompted  responses 
that  reflect  the concentric circles of  regional  and  subregional  integration, ranging from the 
small  monetary  union  of  the  Organization  of  East  Caribbean  States  (OECS)  to  the 
CARICOM  common  market  and  the  recently  formed  and  even  bigger  Association  of 
Caribbean  States  (ACS).2  Regional  structures  have  a  variable  geometry  with  tendency 
towards enlargement rather than deepening of the integration process.3 

1 
2 
3 

North  American  Free  Trade  Area. 
Caricom  was  set  up  in  1973, the  OECS  in  1981 and the  ACS  and  1995. 
ACP-EU  cooperation  with  the  Caribbean  covers  the  member  countries  of 
CARIFORUM,  a coordination body set up in  1991 for  the two new signatories to 
the  Lomé Convention  (Haiti  and  the  Dominican  Republic  and  the  long-standing 
ACP partners in Caricom: Antigua & Barbuda, the Bahamas, Barbados, Dominica, 
Grenada,  Guyana,  St  Lucia,  St  Kitts  &  Nevis,  St  Vincent  &  the  Grenadines, 
Suriname, Trinidad  & Tobago.  The total population of this group is 21.5  million. 

3 2 *-

The results of these efforts  have been patchy because of the greater complexity  and 
multiplication  of the challenges facing  the Caribbean countries, namely: 

consolidating  democracy,  managing political transition in Haiti and anchoring Cuba 
in the new regional  and  international  environment; 

avoiding marginalization  as new regional blocks emerge; 

achieving sustainable development, in particular: development of human resources 
and involvement of civil  society and the private sector in the development process; 
conservation of natural resources and the environment and disaster prevention; 
dealing with socio-economic  and cultural threats (above all drugs) and controlling 
migratory  flows; 

managing economic transition, i.e. preparing the Caribbean economies for  the era of 
services and new technologies and the move away from trade protection (bananas, 
sugar, rice, etc.) to open, competitive trade; economic adjustment  and cushioning  of 
the negative social  side-effects; 

the continuation of the presence of the Caribbean's traditional partners: Europe, the 
US and Canada; 

One possible strategy for the region is to promote a realistic  and  open form  of regional 
integration, the scope of which is under discussion. 

il> 

Chapter HI 

varying  degrees  of  political  destabilization  in  many  of  the  countries  in  the  region,  the 
World Bank's  medium-term  projections  put  annual  growth  for  the whole  of  sub-Saharan 
Africa  (including  South  Africa)  at  3.8%  per  annum  for  the next  ten  years  (1996-2005). 
This result, which is based on the assumption that the current reforms  continue at a steady 
rate,  would  be  a considerable  improvement  on  the  previous  ten  years  (1.7% per  annum 
between  1986 and  1995) and would  engender  a modest rise in income per capita (+0.9% 
per  annum).  It  would  not,  however,  be  sufficient  to  bring  about  a  significant  reduction 
in  poverty  in  many  of  these  countries;  this  remains  a  major  challenge  for  individual 
governments  and  all those  involved  in development  cooperation. 

The  world  economic  outlook  bodes well  for  the ACP  countries  on  a  number  of  counts: 
a  sustained  upswing  in world trade  (more than  6% per  annum  according  to  World  Bank 
forecasts), an international trading system based on the conclusions of the Uruguay Round 
and  the  work  of  the  WTO,  major  development  opportunities  in  the  service  sector,  in 
particular tourism, the emergence of new burgeoning markets in East Asia, Latin America 
and possibly  also in Eastern Europe, will provide the ACP countries with an  opportunity 
to diversify  their economic and trade relations. The EU proposal  on improving access  for 
the  poorest  countries  to  industrialized  countries'  markets,  approved  at  the  recent  G7 
summit,  should  also  enhance their  economic  prospects. 

C. 

Implications  for  the  future  partnership 

Development  conditions have changed radically in terms of socio-political  developments 
within  the  ACP  countries  themselves  and  changes  in  the  international  political  and 
economic  arena. 

The  analysis  of  the  constraints  and  opportunities  facing  the  ACP  countries  provides  an 
important  yardstick  for planning future  cooperation, based on a better targeted  and  more 
efficient  approach in support of these countries' adjustment and development policies. The 
following  factors  in particular  should  be taken  into  account: 

- support for  adjustment  policies. In much of sub-Saharan Africa,  the problems  identified 
in  the  1960s  will  still  exist  in  the  year  2000:  poorly  integrated  economic  fabric, 
insufficient  infrastructure  and  forms  of  social  and  political  organization  which  hamper 
economic development.  Despite the structural  handicaps affecting  most  of the  countries 
in the region, there  are a few  success stories  which prove  that  an improvement  in  living 
standards is possible and that such success is largely contingent upon the reintegration  of 
these  countries  into  the  world  trade  arena.  The  main  challenges  confronting  the  ACP 
countries are: (i) to  improve their internal political  and economic management  to  create 
conditions  more  conducive  to  the  development  of  the  private  sector  and  attract  foreign 
investment  and  (ii)  to  expand  external  economic  relations  to  take  account  of  growth  in 
the world  economy.  The poorest countries will, however, continue to require  foreign  aid 
for  a  long  time  to  come to help them  finance  investment  and  provide  basic  services; 

-  the  importance  of  credibility  and  good  governance.  The  reforms  planned  will  only 
succeed  if  they  gain  credibility.  The  political  and  institutional  aspects  of  the  reform 
programme should dovetail with the economic aspects. The future  partnership will fit into 

33 

Chapter HI 

a long transition  process which will transform  not only the economic organization  of the 
country  but  also  society  itself; 

- the  need  for  increasing  attention  to be paid to the environmental  aspects of  sustainable 
development.  The  focus  should  be  primarily  on  capacity  strengthening  and  the 
environmental capacities of the ACP States themselves, but attention also needs to be paid 
to  engaging  in  dialogue  with  our  partners  on  the consequences  they  are  likely  to  suffer 
as  a  result  of  global  environmental  trends  and  their  role  in  combating  unwelcome 
changes; 

-  the  need  to  adopt  differentiated  approaches.  The  role,  content  and  methods  of 
cooperation  cannot  be  the  same  in  a  country  in  the  throes  of  economic  and  social 
disintegration  as in one implementing  an economic  and institutional  reform  programme. 
Conflict  prevention and the rebuilding of the State and efficient  institutions should  figure 
among the major  cooperation objectives. In countries with a minimum of social cohesion, 
cooperation  can help diminish the risks and sources of instability  which stand  in the way 
of investment  and  growth.  Trade  arrangements  can play  an important  role  here in so  far 
as they allow or impede shifts  in policy.  The arrangements for  granting external aid and, 
in  particular,  support  for  reforms  may  serve  as  an  incentive  to  recipient  countries  to 
implement  necessary policy  changes and assure the continuity of the reform  programme. 
Other  forms  of  cooperation  could  also  be considered  in an effort  to quell the  sources of 
instability,  particularly  in the  monetary  field; 

- trade  arrangements  established  in accordance  with  specific  criteria and  objectives.  The 
new  EU/ACP  trade  arrangements  after  the  year  2000  should  be  assessed  in  relation  to 
their  ability  to  meet  the challenges,  the constraints  and  the problems  the ACP  countries 
must  confront.  It  should: 

-  achieve  respect  for  the  relevant  WTO  rules  so  as  to  provide  the  necessary 
security  and  stability  on  market  access terms. 

- promote  fuller  and more active participation  of the ACP countries,  individually 
or  collectively,  in the  WTO. 

-  preserve and,  if possible, expand  the current  level  of access to European  Union 
markets, by  relaxing  constraining  rules and procedures  and  securing,  as much  as 
possible, the benefits  provided  through  the  commodity  protocols. 

-  mitigate  the  trade  and  investment  shift  to  the  detriment  of  the  ACP  countries, 
resulting  from  EU-centred  regionalism. 

-  provide  an  international  anchor  of  enhanced  credibility,  certainty  and  stability 
for the trading and regulatory framework  (import and export regimes) of the ACP 
countries as preconditions for better performance  on exports and attracting  foreign 
direct  investment,  and ultimately  higher  growth. 

34 

Chapter HI 

- encourage competition, better resource allocation and competitiveness within the 
ACP  economies  in  order  to  improve  supply  response  to  world  market  price 
incentives  and  to  new  market  access  opportunities. 

-  promote  actively,  and  provide  the  conditions  for  facilitating  the  success  of 
regional  integration processes  among  ACP  partners. 

-  help  the  ACP  countries  cope  with  the  increase  in  national  and  international 
regulations  on  new  trade-related  areas  which  may  give  rise  to  new  obstacles  to 
market  access. 

-  allow  the  different  ACP  regions  to  join  in  different  (overlapping)  trading 
arrangements  more  convenient  to  their  development  needs  while  providing  a 
counterweight  to the pull  they  would  experience  from  new regional  blocs. 

- take account of the differentiation  among ACP countries in respect of their  level 
of  integration  into  the  global  economy,  their  level  of  development  and  their 
perceived  needs. 

- the importance of making progress  in managing the external debt. This is important  for 
a number  of countries, which need to normalize  relations with their creditors in  order  to 
restore  a  sufficient  degree  of  financial  credibility  and  gain  renewed  access  to  capital 
markets; 

- the advantages of a cooperation policy which encompasses the whole of the sub-Saharan 
African  region.  Cooperation  which  is  open  to  all  countries  in  the  region,  possibly  in 
varying  forms,  can have positive knock-on effects,  improving  the image of the continent 
as  a  whole.  This  factor  should  be  borne  in  mind  when  a  decision  is  taken  on  the 
geographical  scope  of the new  cooperation  agreement(s). 

-  the  particular  difficulties  of  the  Caribbean  ACP  countries  and their  trade  strategies  in 
a  rapidly  developing  regional  framework.  The  diversification  of  trade  and  economic 
activities  hinges  mainly  on  the  prospects  for  regional  integration,  access  to  the  North 
American market (NAFTA) and participation in the mooted free trade area encompassing 
the  whole  of  the  western  hemisphere  (FTAA).  This  transition  is,  however,  far  from 
certain and  the  move  from  an economy  which  is traditionally  dependent  on the  primary 
sector,  and  which  benefits  from  specific  trade  preferences  to  an  open,  competitive 
environment  will  not  be  at  all  easy. 

-  problems  peculiar  to  the  small  island  economies  of  the  Pacific.  These  countries  have 
every interest in gearing themselves to the booming economies of the "Pacific  Rim", with 
the  support  of  Australia  and  New  Zealand.  Problems  relating  to  transport  and 
communications,  on  the  one  hand,  and  the  environment  and  preservation  of  natural 
resources  as the  main  economic  resource, on the other,  will  require  particular  attention. 

35 

Chapter HI 

The  analyses expounded  in the first  part of this green paper  show that  future  cooperation 
between  the  EU  and  the  ACP  countries  must  be  seen  against  a  radically  changed 
international  backdrop.  Also, the European Union  is set to undergo  far-reaching  changes 
and  the  various  ACP  countries  will  move  in  widely  divergent  socio-economic  and 
political  directions.  In  the  face  of  a  loss  of  legitimacy  for  the  very  principle  of 
development  aid,  compounded  by  budget  constraints  and  a  European  social  crisis,  the 
lessons learned from past successes and failures should help improve the effectiveness  and 
impact  of  future  cooperation. 

The  main  task  facing  the  EU  counties  is  to  avoid  the  temptation  to  go  it  alone  and 
develop  basic  solidarity.  To  that  end,  it  should  endeavour  "do  better"  next  time  and  to 
improve  the prospects  for  successful  cooperation  with the  ACP  countries.  A  number  of 
recent  Community  initiatives reflect  this desire  and an effort  should be  made to  identify 
which  aspects  of  a  multi-faceted  policy  should  be  retained  and  which  discarded.  The 
Union  has  a  number  of  options  to  consider  as  it  takes  its  decisions  on  the  long-term 
development  of  cooperation  policy. 

36 

PART  TWO: A  BLUEPRINT  FOR  ACP-EU 
RELATIONS AS  THE 21st  CENTURY  APPROACHES 

Chapter  IV 

CHAPTER  IV.  TOWARDS  A NEW  PARTNERSHIP 

On the threshold  of  the 21st  century,  the European  Union  and  the ACP  States  must  lay 
the  foundations  of  a new partnership  with  a view to: 

the  need  to  meet  Europeans'  concerns  by making  long-term  political  choices; 
the  absolute  necessity  to  strengthen  the political  dimension  of ACP-EU  relations 
in order  to  give  them  new  impetus; 
the  need  to  open  up  the  cooperation  framework  in  order  to  offer  a  European 
response better geared to the current needs of the ACP States, their private sectors 
and  civil  societies; 
a  possible  reorganization  of  the  geographical  framework  of  the  cooperation 
agreement; 
a  greater  emphasis  on consistency  at  European  level. 

A. 

The  place  of  the  ACP-EU  partnership  in  the  European  Union's  external 
policy 

The  European  Union  plays  a  leading  role  on  the  international  scene.  It  is  the  biggest 
trading partner (the EU accounts for 20% of world trade19 and a third of its imports come 
from the developing countries) and it is called on to play a significant  part in international 
forums,  particularly  the  WTO,  and,  at  Member  State  level,  in  the  IMF  and  the  World 
Bank.  In the political  arena, the European Union  is endeavouring  to  step up its  capacity 
for  action.  For  a  long  time  the  European  Union  has  also  been  the  main  source  of 
development  aid  and  its  contribution  to  international  aid  has  increased  in  recent  years, 
particularly  in the  light  of  the United  States'  major  scaling-down  in this  area; 

The  European  Union  has the  means  to  help  close  the  development  gap: it  is up  to  it  to 
implement an active and consistent development policy to this end. ACP-EU relations are 
part  of the  international  community's  overall  strategy  to  reduce  poverty  in  the  world. 

In  addition  to  the  basic  motivations  for  a European  development  policy, which  are 
an  integral  part  of  the  European  Union's  identity,  Europe  has  objective  interests. 
These are of particular importance when it comes to the ACP States and among these, the 
countries  of  sub-Saharan  Africa. 

The  relative  failure  of  Africa's  development  clearly  generates  a  certain  amount  of 
scepticism  about the effectiveness  of international  and, above all, European  cooperation, 
and  indeed  about  the  real  possibilities  of  developing  the  continent. 

19 

Not  counting  intra-EU  trade. 

37 

But the  long-term  nature  of the choices to be made raises  issues concerning  the  grounds 
and  stakes  of  new  cooperation  links  between  the  EU  and  the  ACP  States  which  are  of 
vital  importance  to  Europe  and  its  people.  The  European  Union,  in  the  current  and 
foreseeable  international  context,  has  an  interest  in  promoting: 

Chapter IV 

peace  and  stability,  by  preventing  the  development  or  persistence  of  areas  of 
in  the  world.  The  tendency  for  the  marginalization  of  entire 
instability 
communities  and  its  corollary,  the  political  destabilization  and  disintegration  of 
entire  countries,  must  be  stopped.  Cooperation  can  and  must  contribute  to  the 
preservation  and  development  of  the  rule  of  law  in  all  countries,  and  work  to 
maintain  a  satisfactory  degree  of  social  cohesion; 

more effective  international  cooperation to manage global threats. Europeans  are 
increasingly concerned about the growth in migratory pressure, which is basically 
the result of development  gaps and requires a thought-out  political response. The 
spread  of terrorism, the problem  of preventing  illicit trafficking,  the limitation  of 
pandemics are also important areas which cannot be tackled and controlled  by the 
EU  on  a  unilateral  basis.  The  European  Union  must  endeavour  to  get  as  many 
countries  as  possible  to  shoulder  their  responsibilities  and  participate  in  the 
management  of global  interdependencies  and  problems; 

solidarity. The fight against  absolute poverty and for  respect for  democracy,  civil 
and  political  rights  as  well  as  economic,  social  and  cultural  rights,  calls  for  a 
cooperative  approach  which  oversteps  national  frontiers; 

economic  development  and  mutual  interest.  The  European  Union  can  help 
countries which are currently outside the international economic system to develop 
internal capacities and secure the basic conditions  for  sustainable development;  it 
can monitor  the development  process in the more advanced countries, step up the 
pace of economic and social development and encourage their smooth  integration 
in  the  world  economy.  Tomorrow  the  ACP  States  might  enjoy  significant 
economic growth so it would very  short-sighted to reduce the weight of  Europe's 
influence  there; 

the  social  and  environmental  aspects  of  development.  It  is  very  much  in  the 
European  Union's  interest  to  encourage  a  form  of  development  (i)  guaranteeing 
social progress, respect  for  human rights and above all fundamental  social  rights; 
and  (ii)  focusing  on the  problems  of  destruction  of  the  environment  and  natural 
resources.  In the  absence  of  a policy  deliberately  targeted  at  social  development 
and environmental protection objectives, the constraints and also the opportunities 
of  the  new  international  economic  environment  may  give  rise  to  a  form  of 
development  which  is incompatible  with European  political  and  social  values.  It 
comes  down  to  ensuring  consistency  between  the  objectives  pursued  within  the 
European  Union  and  the  influence  that  it  can  bring  to  bear  on  the  form  of 
development  in certain  regions  of  the  world. 

38 

Chapter IV 

B. 

Revitalizing the ACP-EU partnership  by strengthening its political  dimension 

ACP-EU  relations  are  so  long-standing  and  pioneering  that  they  have  created  an  entire 
"culture" which  must  be  safeguarded.  This culture  is  largely  based  on the  existence  of  a 
special  partnership  between  each  ACP country  and the  European  Union.  In  view  of  the 
new international backdrop, this partnership should be strengthened rather than weakened 
by  increasing  its value  as a mutual  political  commitment. 

The  partnership  pursued  under  the  Lomé  Convention  has  come  up  against  a number  of 
difficulties,  which  are described  in Chapter  II.B. Indeed  it has proved hard to put  initial 
intentions,  based  on  the  principle  of  equal  partners,  into  practice  since  the  institutional 
weakness of the recipient countries, their dependence on aid, a growing conditionality  and 
the Community's tendency, like other donors, to take the place of their faltering  partners, 
a tendency  prompted by a growing concern  for effectiveness,  have seriously  undermined 
the  principle  of  partnership. 

Partnership  is  undoubtedly  still  the  ideal  form  for  cooperation  relations  and  any  future 
agreement between the EU and the ACP States must endeavour to restore it. This implies 
a  fundamental  overhaul  of  cooperation  procedures  and  a  careful  weighing  up  of  the 
options in order to reconcile on the one hand the need to adopt differentiated  approaches, 
ensure  a  sufficient  degree  of  flexibility,  apply  conditionality  for  incentive  purposes  and 
exercise  some  selectivity,  with  on  the other  hand,  something  more  akin  to  an  objective 
which consists of conducting  an adult, responsible, effective  and predictable partnership. 

The enormous challenges which some ACP States face  are reason enough for  preserving 
the specific  qualities of the cooperation relationship, in particular its predictability  and  its 
contractual nature. But from now on a more explicit and real mutual political commitment 
must  be  added  to  this  "contract". 

The  revitalization  of  the  partnership  therefore  calls  for  a  reinforcement  of  its  political 
dimension  in two  respects: 

the foundations  of  a political  dimension  were  laid  with the introduction  in  Lomé 
IV and in the revised Convention of a clause on respect for human rights, together 
with  a  provision  allowing  for  suspension  of  the  Convention  in  the  event  of 
infringement.  This clause also refers to democratic principles, consolidation of the 
rule  of  law  and  good  governance.  The  Convention  provides  for  a  consultation 
procedure  if  one  of  these  obligations  is  not  met.20  This  approach  follows  the 
general  framework  of  Community  policy  in  the  field  of  human  rights  and 
fundamental  freedoms, which constitutes an essential element of the dialogue with 
the various partners on which the partnership with third countries is based.21 From 
a  formal  point  of  view,  the  current  provisions  appear  quite  comprehensive. 
However, practical implementation of this political component raises a number  of 

20 
21 

Except  in  the  case  of  special  urgency. 
COM(95)567  "The  European Union  and the  external  dimension  of human  rights 
policy:  from  Rome  to Maastricht  and  beyond". 

39 

Chapter IV 

questions  about  the  criteria  to  be  applied  and  the  consequences  that  a  political 
judgement  would  have  on the  management  of  cooperation  -  apart  from  extreme 
cases  giving  rise  to  the  suspension  of  European  cooperation; 

in  the  context  of  an  upsurge  of  organized  violence  and  an  increase  in  armed 
conflicts  in sub-Saharan Africa,  with all their humanitarian,  social, economic and 
environmental  repercussions  and  the  challenges  which  they  pose  to  any 
development policy, the Commission has drawn up a proposal designed to develop 
a  European  conflict  prevention  and  settlement  policy.22  Issues  such  as  the 
introduction  of  preventive  diplomacy,  arrangements  for  broader  political 
cooperation and ongoing political analysis all need to be tackled. The Commission 
has proposed  a comprehensive  strategy,  allowing  for  coordinated  intervention  at 
political  and  development  cooperation  level.  The  final  objective  is  to  ensure 
"structural  stability",  an  idea  which  embraces  the  objectives  of  sustainable 
economic and social development, democracy  and human rights, establishment of 
viable  political  structures  and  a  capacity  to  manage  change  without  resorting  to 
violence. 

It  should be possible to develop a stronger political  relationship between the EU and the 
ACP  States in these two areas, either  globally  with all these countries or separately  with 
sub-regional  blocs  or other  groups  of countries. 

Strengthening  the  political  dimension  has  wide-ranging  implications.  Are  the 
partners  ready  for  this  and  all  its  consequences? 

There  are  three  aspects  to this: 

1. 

A  mutual  political  commitment at the  basis of  a new  partnership 

As far  as the EU is concerned, political dialogue with the ACP  States will have  its place 
in  the  common  external  policy.  The  many  wars being  waged  in  sub-Saharan  Africa  are 
both  a cause  and  a consequence  of the  lack of development.  They  are as much a matter 
for  political  as  socioeconomic  analysis. 

As  far  as the ACP  States are  concerned,  the necessary  changes  and  reforms  will  not  be 
made  without  a  radical  transformation  of  political  and  social  structures.  EU  support 
measures  for  economic  policies  and  institutional  reforms  may  have  major  political 
repercussions  on these countries.  Experience of past cooperation has furthermore  shown 
that  this  support  is  appropriate  only  when  certain  conditions  -  primarily  political  -  are 
met. 

Strengthening  the  political  dialogue  is  now  a  condition  of  increased  effectiveness  of 
ACP-EU  cooperation: a stronger political relationship which allows essential  issues such 
as good governance, democratization and human rights to be tackled in a less formalistic, 

22 

See SEC(96)332 "The European Union and the issue of conflicts in Africa: peace-
building,  conflict  prevention  and  beyond". 

40 

Chapter IV 

franker  and hence more efficient  manner now seems to be absolutely  necessary if Europe 
wishes to  give  its cooperation  policy  a greater  chance  of  success. 

2. 

The  arrangements  for  political  dialogue 

These  arrangements  concern  the  geographical  configuration  of  the  political  dialogue:  it 
could  be conducted  on a multilateral or a bilateral  basis or  by subregional  groups.  This 
links up  with  the  issues  raised  in Chapter  IV  D. 

They  also  concern  the  priorities  of  the  dialogue:  questions  of  national  security,  the 
problems  of  migration,  the  fight  against  illicit trafficking  etc. 

They  also concern the level of this dialogue (ministerial  meetings and technical  working 
parties)  depending  on the  degree of  cooperation  sought. 

3. 

The  links between  the  political  and  the cooperation  components 

Although  in the long term they are complementary,  the objectives  of the CFSP and those 
of development  cooperation follow  radically different  time  scales.  Any  subordination  of 
cooperation  policy  to  foreign  policy  measures could jeopardize  development  objectives, 
It  is  in 
which  are  medium  and  long-term  and  hence  require  continuity  of  action. 
compliance  with  the  general  principle  of  consistency  of  the  European  Union's  external 
activities  that  the link  between these two components  must be  ensured. 

More specifically, strengthening the political dimension of relations will mean considering 
various  possible  procedures  designed  to: 

increase the selectiveness of aid  in accordance not only  with countries'  needs  but 
also  their  institutional  and  political  choices; 
adjust  the practical  details of cooperation  so that  they  facilitate  reforms  by  these 
countries. 

These two  issues will  be dealt with  in  greater  detail  in  Chapter  VI. 

C. 

Opening  up  the  framework  of  ACP-EU  cooperation 

The cooperation framework  must henceforth  do more to help the ACP States to open their 
markets  to  develop trade  with the  EU, of  course,  but  also  with  other  partners. 

In  the  light  of  past  experience  and  in view  of the  constraints  and  prospects  in  the  ACP 
States,  it  seems  that  the  European  Union  can  facilitate  this  opening-up  by  altering  the 
framework  of  cooperation  in  four  ways: 

differentiation:  The  situation varies so much from  one  ACP  State to another  that 
there must be scope for  adjustment  in the European Union's cooperation.  Not all 
ACP  States  are  at  present  capable  of  embarking  on  a  standard  political  and 
economic  partnership  with  the  EU.  Effective  partnership  can  result  only  from 
mutual interests, common objectives and priorities and reciprocal rights and duties 

41 

Chapter IV 

which  are  strictly  adhered  to.  For  reasons  of  effectiveness,  differentiated 
cooperation  policies  and  procedures  have become  essential. 

stepping  up the policy  dialogue:  The  European  and  ACP  partners  must  examine 
ways of reconciling two requirements: the responsibility of the recipient  countries 
and  the  requirement  to  account  for  the use of cooperation  resources to  European 
citizens.  Policy  dialogue  must  be  based  on  a  dual  acknowledgement:  (1) 
development  cooperation  can  be  effective  only  if  it  is  based  on  a  process  of 
change  decided  and  actually  implemented  by  the  authorities  of  the  country  in 
question;  (2)  the  EU  can  commit  itself  to  supporting  only  economic  and  social 
organization  models  which  contribute  to the  objectives  of  its cooperation  policy 
and which comply with the political and social values which it means to promote. 
These  priorities  and  objectives  formulated  by the  EU  are  not  incompatible  with 
the  aspirations  of  the  ACP  peoples,  nor  with  the  formulation  of  development 
strategies proper to the ACP States.  However,  an agreement  on priority  reforms 
and the acceptance of the necessary  socio-political changes is possible only if the 
Euro-ACP dialogue  on  economic  and  social  policies  is  stepped  up  and  the  local 
capacity  for  analysis  and  implementation  of  development  policies  is  improved. 

A  more  effective  dialogue  would  mean  that  Community  monitoring  could  be 
focused  on  the  results  of  cooperation  and  on  the  progress  achieved  sector  by 
sector,  rather  than  on the  means deployed.  Such an  approach  would  have  to  be 
gradual,  it  would  take  time  and  resources.  Yet  it  appears  to  be  the  only 
alternative to traditional aid operations which would be effective  in the long term. 

Cooperation  which  could  be  expanded  and  stepped  up  in  other  fields:  The  final 
objective  that  the  European  and  ACP  partners  must  set  themselves  is  to  reduce 
In  fields  such  as 
dependence  on  aid  and  develop  other  forms  of  cooperation. 
science  and  technology,  education  and  training, 
industrial  and  economic 
cooperation,  it  is  a question  of  identifying  mutual  interests  and  encouraging  the 
exchange  of  experience.  The  EU  is  in  a unique  position  here  to  propose  a  wide 
range  of  cooperation  fields  and  instruments.  Cooperation  will  also  have  to  be 
continued  in traditional  areas, particularly  in the cultural sphere, where the EU is 
already  very  active.  Such  an  extension  cannot,  however,  hide  the  fact  that  the 
poorest  countries  will  still need  foreign  aid  for  a  long time  to  come  and that  the 
lion's  share  of  funding  will therefore  have to  go to  them. 

more active participation by non-governmental  bodies in cooperation relations, the 
private  sector  and  other  representatives  of  civil  society  (academic  circles, 
cooperatives, development NGOs and environment NGOs, consumer associations, 
etc).  Such  participation,  which  is  intended  to  complement  rather  than  supplant 
official  partners, should  be  envisaged  at two levels: 
(i) 

developing  an  effective  dialogue  with  social  and  economic  partners  on 
cooperation  priorities,  particularly  in  the  areas  which  concern  them 
directly; 
implementation  of  certain 
involving 
cooperation  operations,  which  would  mean  that  there  would  be  fewer 

the  parties  concerned 

in  the 

(ii) 

42 

Chapter IV 

intermediaries  and  programmes  could  be  better  targeted,  more  effective 
and  more  relevant. 

These different  aspects of the partnership, the need to improve the way it is really run by 
partners  whose  responsibilities  are  by  nature  very  different, 
therefore  call  for  a 
fundamental  review  of  the way instruments  and  tools  are  designed  and  used. 

D. 

The  geographical  cover  of  cooperation  agreements:  options 

The  "ACP  group"  is strictly  speaking  neither  a political  nor  an economic  entity.  It  was 
established  in  the  framework  of  relations  with  the  European  Union  for  essentially 
historical reasons. Today, the members of the ACP group have development interests and 
opportunities  which  diverge  widely  because  of  their  very  different  income  levels  and 
living  standards,  their  economic  structures  and  trade  strategies  and  their  relative  appeal 
for  foreign  investment. 

In  this  context,  is  the  ACP  group  still  an  appropriate  partner  for  the  European 
Union?  In  other words, should  the unique  structure  currently  governing  relations 
with  the  seventy  ACP  States  be  maintained,  broken  up  or  extended? 

This  question  should  be examined  in the  light  of  four  considerations. 

(1)  It  will  be  partly  up  to  the  ACP  States  themselves  to  take  a  position  on this.  Their 
choice will basically depend on their willingness to step up their own intra-ACP dialogue 
structures, define  their common objectives  and interests  in multilateral  forums  and vis-à-
vis their various partners, and improve their negotiating  skills as a political  or  economic 
group  on the  international  scene,  outside  their  relations  with  the  EU. 

(2)  An  acknowledgement  of  the  diversity  of  situations  within  the  ACP  group  and  a 
willingness  to  make  future  cooperation  more  suited  to  meet  varying  needs  could  mean 
changing  the  form  that  a cooperation  agreement  might  take.  In  addition,  as far  as  trade 
provisions  are  concerned,  the  system  of  non-reciprocal  discriminatory  preferences 
currently  granted  to  all  the  ACP  countries  may  have  to  be  changed  to  ensure  its 
compatibility  with  WTO rules. These preferences  would  then be renewable  only  for  the 
LLDCs  (UN  list  of  the  least-developed  countries)  whereas  new  arrangements  would  be 
examined  for  the  other  ACP  States.  These questions are  dealt  with  in  greater  detail  in 
Chapter  V.  This  necessary  differentiation  in  cooperation  strategies  does  not,  however, 
necessarily  mean  abandoning  the  ACP  concept  since  it  could  be applied  only  to  certain 
aspects  of  relations  (obviously  trade,  but  also  possibly  the  nature  of  financial  and 
technical  cooperation  instruments  or  the  volume  of  aid).  But  this  differentiation  could 
also  be  more  radical  and  give  rise  to  separate  agreements.  Differentiation,  which  is 
already a feature of cooperation under the revised Lomé IV to varying degrees, depending 
on  the  instrument,  will  in any  case have to be  spelt  out  more  clearly. 

(3)  The  objectives  of  the  European  Union,  its  view  of  development  and  the  role  of 
cooperation, will shape not only the content of the new agreement or agreements but also 
their  geographic  configuration.  The  creation  of  political  and  economic  areas  which  go 
beyond national  boundaries has been recognized as a necessary  step for  Europe and  is so 

43 

Chapter IV 

for  the  ACP  States  as  well.  The  path  of  regional  cooperation  and  integration  seems 
advisable  not  only  because  of  the  generally  inadequate  economic  size  of  many  ACP 
countries but also because such an option can encourage political  leaders to adopt a more 
strategic  approach  to  developing  their  economies.  It  is  also  likely  to  speed  up  the 
socio-economic  transformations  which  are needed  to develop  a market  economy  and  do 
away  with  clientelist  structures  often  organized  on  a national  basis. 

(4) Another aspect, which could lead to the principle of graduation, is the idea that while 
cooperation  relations  must  be  constantly  established  and  strengthened,  dependence  on 
foreign aid must be gradually reduced as progress is made in mobilizing internal resources 
and  improving  a country's  credibility  in terms  of private  foreign  investment. 

In  the  light  of  these  considerations,  four  options  are  possible: 

(1) 
The status quo with some changes: a global agreement, differentiated  procedures. 
A first  option would be to maintain the principle of a global ACP-EU agreement but with 
different  procedures  depending  on  how  the  recipient  countries'  level  of  development 
evolves. The common basis would determine the essential features (objectives, principles, 
institutional  provisions, duration  of the  agreement  etc)  and would  cover  certain  areas of 
relations  (political  dialogue,  security  matters,  terms  of  access  to  financial  and  technical 
cooperation). The trade provisions  would, on the other hand, be differentiated,  as would 
the priorities and arrangements for the management of financial and technical cooperation. 

(2) 
Global  agreement  supplemented  by  bilateral  agreements.  A  global  agreement 
containing  general  undertakings,  supplemented  by  bilateral  agreements  negotiated  on  a 
country-by-country  basis - or possibly by groups of countries  in the case of  sub-Saharan 
Africa  -  would  no  doubt  make  it  possible  to  tailor  EU  operations  more  closely  to 
circumstances. 

(3) 
Break-up of Lomé IV into regional agreements. A third option would be to replace 
the  Convention  with  a  set  of  regional  agreements.  This  approach  would  be  entirely 
consistent  with  the  general  direction  taken  by  the  EU  in  recent  years  in  its  external 
relations,  based  on  differentiated  strategies  by  regions  or  subregions.  Within  the  ACP 
area, sub-Saharan Africa  is clearly  a significant  region for  Europe. In certain subregions, 
the  headway  made in regional  cooperation  is such that  subregional  agreements  could  be 
considered. 

The  Caribbean  countries  are  already  organized  at  different  regional  and  sub-regional 
levels.  The  long-term  aim  of  the  EU  could  be  to  incorporate  cooperation  with  these 
countries  in  the  framework  of  the  relations  it  has  developed  with  Latin  America.  The 
European  Union  could  also  propose  extending  cooperation  to  all  the  countries  of  the 
Caribbean  basin.  The  Association  of  Caribbean  States,  as  yet  a  fledgling  but  extensive 
organization  covering  37  countries  of  the  Caribbean  basin,  could  provide  a  suitable 
framework.  The very different  levels of development within this region, the vulnerability 
inherent  in island states and the fragmentation  of their economies, and specific  problems 
connected  with drugs, the environment,  migratory  flows  and  democratic  changes  (Haiti 
and  Cuba)  are,  however,  all  reasons  for  a  special  approach,  in  terms  of  both  foreign 

44 

Chapter  IV 

policy  and  security  -  the  EU  has  a  physical  and  strategic  presence  in  the  area23  -  and 
development  cooperation. 

The  ACP  States  of  the  Pacific  are  all  members  of  regional  organizations  which  are 
relatively  well-developed  at  economic  and  political  level,  as  well  as  technical  level. 
Effective  cooperation with this region of the world would mean extending the framework 
of  cooperation  to  other  island  states  in  the  Pacific.  In  this  extended  framework,  the 
Community's  interests  lie in two  specific  areas: preservation  of  the  environment  and  of 
the region's considerable natural resources and trade promotion, especially with the APEC 
countries.24 

(4) 
LLDC Agreement.  A  last option  would  be to  establish  a cooperation  agreement 
with  the  least  developed  countries  (LLDC)  which  could  possibly  be  opened  up  to 
non-ACP LLDCs, and  to consider  other types of agreement with non-LLDCs.  In  formal 
terms of institutional provisions, a willingness to take account of the level of development 
and  needs  of  each  country  in  determining  the  type  of  cooperation,  can  work  only  if  a 
distinction  is drawn  between  LLDCs and  non-LLDCs.  A more detailed  consideration  of 
the  situation  of  each  country  could,  as is already  partly  the  case  now,  take place  in  the 
course  of  financial  and  technical  cooperation. 

While this option might offer  some advantages at trade level, it appears entirely unsuitable 
as  far  as  political  dialogue  and  other  areas  of  cooperation  are  concerned  (support  for 
socioeconomic  policies,  scientific  cooperation,  environment,  etc). 

E. 

The  European  partners  and  coordination:  options 

From  the  outset  EU  relations  with  the  ACP  States  have  been  driven  by  a  desire  for  a 
global  approach,  to  the  extent  that  the  main  instruments  of  Community  action  -  trade 
policy  and  aid  -  have  been  incorporated  in a  single  institutional  framework.  Provisions 
on  respect  for  human  rights,  the  rule  of  law,  good  governance  and  the  principle  of  a 
political  dialogue,  have  been  in the cooperation  agreement  since  1990. 

An integrated approach has the advantage of encouraging consistent use of the various aid 
and dialogue  instruments  involved. None the less the scope of European cooperation  has 
been hampered by three factors resulting from  the EU's own action: (i) the consequences 
for  the ACP states, which were not systematically  anticipated, of Community or Member 
State  policies  other  than  development  cooperation; 
(ii)  the  loss  of  efficiency  and  the 
difficulties  encountered  by  the  aid  recipient  countries  as  a  result  of  inadequate 
coordination  between  the  Member  States  and  between  the  Member  States  and  the 
Community;  (iii) the  lack, which  is increasingly  felt  in the current  international  context, 

23 
24 

French  Departments  of  America  (DOM); British  and  Dutch  OCT. 
The Asia Pacific Economic Cooperation Council has eighteen members: Australia, 
Brunei  Darussalam,  Canada,  Chile,  People's  Republic  of  China,  Hong  Kong, 
Indonesia,  Japan,  South  Korea,  Malaysia,  Mexico,  New  Zealand,  Papua  New 
Guinea,  Philippines,  Singapore,  Taiwan,  Thailand  and  the  United  States. 

45 

Chapter IV 

of a common  stance and a common  stance approach to the ACP  States on the part of the 
countries  of  Europe. 

To  what  extent  can  the  EU  improve  the  consistency  -  in  the  broad  sense  -  of  its 
action  vis-à-vis  the ACP  countries? 

It is clear that strengthening the political  dimension  of the partnership,  referred  to  under 
point  B  above,  is  a key  area  in  the  discussion  on  consistency  in the  broad  sense.  Apart 
from  this fundamental  dimension there are two other aspects: (i) the consistency  of other 
the 
Community 
complementarity  and  coordination  of  the  Community's  and  the  Member  States' 
development  policies.  These  two  aspects  were  underscored  in  the  1992  Commission 
communication;25  none  the  less,  the  effects  of  measures  taken  by  the  EU  since  then 
remain  limited  and there  is  still  a  lack  of  coordination  and  consistency. 

-  policies  with  development  objectives; 

-  and  national 

(ii) 

Consistency  in  the  strict  sense,  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.  Because  of  the  sometimes  conflicting  interests  between 
internal  and  external  concerns,  or  in  the  context  of  relations  with  other  countries  with 
possibly  competing  interests,  consistency  remains  a  matter  of  political judgement.  The 
Treaty  on  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).  This  issue  has  been 
raised  on  several  occasions  by  the  Commission  and  the  Council  and  a  case-by-case 
approach  has  been  adopted  here.26 

With regard to coordination of the European partners, howevei, there are several options 
for  improving  the  situation.  Besides  the  coordination  efforts  referred  to  in  Chapter  I.C, 
which  must  be  pursued  at  operational  and  sectoral  policy  levels  and  in  international 
organizations,  the  European  Union  could  contemplate: 

either  framing  a  global  European  strategy  in  relation  to  the  ACP  States  which 
would  commit  both  the  Member  States  in  their  national  activities  and  the 
Community.  It  would  no  longer  be  a  question  of  taking  a  more  "Community-
based" approach to development cooperation but rather of aligning strategies. The 
search  for  greater  complementarity  between  the  various  national  and  European 
interventions,  a  principle  enshrined  in  the  Treaty,  would  be  facilitated  by  a 
common  reference  framework; 

or incorporating  in the new cooperation  agreement(s)  an information,  monitoring 
and  coordination  system  in  the  Member  States'  and  the  Community's  key  areas 

25 

26 

SEC(92)915  of  15 May  1992  "Development  cooperation  policy  in the  run-up  to 
2000"  and the November  1992  Council  declaration  on the  same  subject. 
See the  conclusions  of  the  Development  Councils  of  25 November  1994  and  20 
December  1995. 

46 

Chapter IV 

of intervention.  It would take the form  of a commitment  by the  EU to  improved 
coordination. 

The aim of these two options would not be to standardize European cooperation  policies, 
whose  existence  and  diversity  in  terms  of  experience  are  a  reflection  of  pluralism.  The 
aim  would  be  both  to  improve  the  impact  and  effectiveness  of  European  development 
operations  and  achieve  critical  mass  and  also  to  assume  the  corresponding  political 
responsibility  more  explicitly. 

Improved  European  coordination  will  promote  coordination  efforts  undertaken  by  all 
donors,  and  also  within  the  multilateral  system  in  the  context  of  the  interinstitutional 
rapprochement agreed at the recent G-7  Summit, giving particular attention to Africa,  on 
the  basis  of the  United  Nations  Initiative  for  Africa  announced  this  March. 

47 

Chapter V 

CHAPTER  V.  OPTIONS  FOR  A  NEW  EU  COOPERATION  POLICY  WITH 

THE  ACP  STATES 

The  year  2000  deadline  does not  herald  a rethink  on  all  the  components  of  cooperation 
policy  implemented  thus  far.  Indeed,  many  of  the  policy  guidelines  developed  over  the 
years, particularly those adopted more recently, require both consolidation and, in certain 
cases, further  development. Cooperation policy is constantly evolving and new approaches 
are  gradually  being  introduced  in  a  number  of  areas.  Their  significance  should  be 
recognized. 

In line with these recent  guidelines  and in view of the overall  objectives  enshrined  in the 
Treaty  for  Community  development  cooperation  policy,  the  experience  of  the  Lomé 
Convention  and  the  analysis  of  the  ACP  states'  handicaps  and  potential,  cooperation 
between  the  EU  and  the  ACP  states  in  future  must  involve  supporting  their  efforts  to 
achieve  the  political,  economic  and  social  conditions  for  sustainable  development. 
Improvements  to the competitiveness  of ACP economies, which are essential to  boosting 
employment  and  raising  the  overall  standard  of  living,  can  be  fostered  by  a  variety  of 
measures  both  in  the  field  of  foreign  policy  -  promoting  the  development  and 
diversification  of economic and trade relations - and domestic policy - to improve supply 
capacity.  Given the above, the EU's cooperation  policy with the ACP countries could  be 
restructured  around  three core areas. 

-  the  social  and  economic  dimension  Poverty  alleviation  is at the  heart  of  many  of  the 
EU's  financial  cooperation  initiatives.  Several  of the ACP  states  are counted  among  the 
wrorld's poorest  and,  if the  conditions  that  lead  to  stagnation  and  marginalization  are to 
be overcome, a range of sectoral and general policies is required. A variety of options can 
be  considered  to  extend  the  EU's  scope  for  action  so  as to  foster  economic  growth  and 
investment,  promote  private  sector  and  social  development  and  reduce  poverty; 

- the  institutional  dimension  and the public  sector The way  in which  a state performs  its 
duties  and  the  factors  of  good  governance,  policy  and  economic  management  are  often 
crucial  to ensuring  the conditions of development  in many ACP countries.  In addition to 
their  intrinsic  political  dimension,  which  would  justify  stepping  up  ACP-EU  political 
dialogue  as mentioned  in Chapter  IV.B,  such problems also entail  significant  "technical" 
aspects  which  need  to  be  addressed  in  the  cooperation  framework.  A  broad  consensus 
exists  on  the  need  to  support  institutional  reform  and  build  capacity  as  part  of  any 
cooperation  policy  and  there  is  no  doubt  that  the  EU  is  already  active  in  that  respect. 
However,  it might  consider  stepping  up  support  for  reform  of the  institutional  and  legal 
framework  and improving public service capacity: indeed the latter is an area that is likely 
to  exert  a  considerable  influence  as, in many  ACP countries,  it  is directly  implicated  in 
the  management  of much  of the  aid  and  often  determines  both  its  impact  and  viability; 

-  trade  and  investment  The  Lomé  trade  arrangement,  with  its  focus  on  tariff  and  quota 
preferences,  has been insufficient  for the ACP countries, in contrast with the much better 
performance  of the LDC group, to preserve, least so to improve, their participation  in the 
world  markets  of  goods,  services  and  capital.  Tariff  advantages  are,  thus,  neither  a 
sufficient  nor a necessary condition for good export and growth performance.  Supply-side 
factors,  in  particular  good  governance  and  sound  macro  and  microeconomic  policies, 

48 

Chapter V 

notably  stable, secure and efficient  internal trade and investment policies, are determinant 
factors,  more  so  than  unilateral  tariff  preferences,  in  achieving  high  rates of  export  and 
economic growth. It is vital, in the light of the limited impact of the  "Lomé preferences", 
the likely erosion of preferential  margins and the need to adopt measures compatible with 
the  new  WTO  rules, to  study  carefully  the  various  options  facing  the  EU  and  the  ACP 
states when deciding the new trade arrangements. The goal is to enable the ACP countries 
to be more  involved  in  international trade and economic  relations and to help them  reap 
greater  benefit  from  the development opportunities such relations can offer  and avert the 
threat  of  increasing  marginalization. 

An  acquis  communautaire  exists  to  a  varying  extent  in  respect  of  each  of  the  above-
mentioned  core  areas  for  cooperation.  The  following  sections  give  an  overview  of  the 
acquis,  referring  to  the  Council  texts  deemed  most  important  in  the  areas  concerned. 
However,  further  options  should  also  be  considered  either  for  necessary  institutional 
reasons  -  as  in  the  case  of  the  trade  measures  -  or  for  purposes  of  enhancing, 
strengthening and ultimately  increasing the effectiveness  of the EU's involvement in line 
with  the  goals  it  is pursuing  through  its development  cooperation  policy. 

A. 

The  socio-economic  dimension 

The analysis set out in Chapters I and III has underlined how the conditions of economic 
and social  development are undergoing a complete sea-change  both at international  level 
and  within  the  ACP  countries,  where  the  call  for  democratization  and  greater  private 
sector  and  civil  society, involvement  is  being  made  with  increasing  stridency.  Now 
committed  to  the  market  economy  and  opening  up  trade,  most  ACP  countries  are 
endeavouring  to  create  conditions  more  conducive  to  the  development  of  the  private 
sector and  recognize the beneficial  effects  of foreign  investment.  Some have  undertaken 
economic  reforms  to  that  effect  with  varying  degrees  of  success.  However,  private 
investors are still reticent and only a few countries and sectors have registered  significant 
foreign  investment. Nevertheless, prospects for  growth have improved  in many countries 
though  without  any  significant  reduction  in  the  incidence  of  poverty.  One  of  the  main 
conclusions was the importance of making reform  policy more credible so as to bring the 
expected positive results earlier while reducing the element of risk and instability  inherent 
in the economic  environment.  The  essential  institutional  and  economic reforms  must  go 
hand in hand with a profound  transformation  in the workings of society, which  inevitably 
implies  long  and  gradual  processes. 

The  ACP  countries  need  to  accelerate  their  economic  growth.  However,  the  leeway  for 
improving  the  impact  of  growth  on  the  reduction  of  poverty  is  large  too.  Maximum 
participation  in  the  economy,  access  to  productive  resources  (land,  capital  and  credit, 
training,  information)  and  basic  social  services  (education,  health,  nutrition,  drinking 
water),  improving the social and economic situation of women and young people - these 
are just  some of the  essential  and complementary  elements which  make up  any  strategy 
to alleviate poverty and which belong first and foremost  to domestic economic and  social 
policy.  The  role  of  cooperation  is  to  encourage  the  necessary  political  change  and  to 
support  endeavour  by means  of technical  and  financial  assistance.  Measures to  alleviate 
poverty  cannot really be effective  or have a lasting  impact  without the commitment  and 
clear  willingness  of  the recipient  country. 

49 

Chapter V 

The  concept  of  sustainable  development  and  the  pivotal  nature  of  social  and  human 
development  have been extensively  debated on the international  scene in recent years. At 
the  major  international  conferences  of  Rio,  Cairo,  Copenhagen,  Beijing  and  Rome,27  a 
large number  of countries  adopted  common  values and principles  and  identified  priority 
objectives.  Thus  the  broad  strategic  outline  and  the  main  guidelines  of  economic  and 
social  policy  have  been  sketched  out.  Meanwhile,  Europe  clearly  has  its  own  bench 
marks:  the  EU's  cooperation  relations  reflect  its  concept  of  economic  and  social 
development,  which  is itself  the product  of the  diversity  of Member  States'  experience. 
It  only  remains  for  the  EU  therefore  to  find  the  most  effective  means  to  encourage 
implementation  of these  strategies  and  adherence  with the  principles  stated. 

The discussion  of the socio-economic  situation in the ACP countries has also highlighted 
increasing  differences  between  them.  The  idea  of  a  cooperation  policy  tailored  to 
circumstances merits consideration by the EU, allowing countries or groups of countries, 
as they  proceed  gradually  along  the path  of  stabilization  and  reform,  to progress  from  a 
policy  based  on  support  for  the  reform  process  to  a  wider  relationship  embracing  new 
areas  of  cooperation  and  different  forms  of  partnership,  similar  to  what  the  EU  has 
proposed  in  other  developing  regions  (more  advanced  economic  cooperation,  scientific 
and  technical  cooperation,  etc.). 

The options for  support of socioeconomic development must therefore  be assessed  in that 
perspective: not only do different  strategic priorities need to be adopted  for each country, 
but  the  areas  of  cooperation  can  differ  from  one country  to  the  next. 

The  options  can  be  grouped  together  under  two  priority  themes  geared  to  the  same 
objective,  i.e.  preventing  marginalization:  integrating  the  ACP  states  into  the  world 
economic  system  and  integrating  the poor  into  economic  and  social  life. 

1. 

Stimulating  economic  growth  through  competitiveness  and  private-sector 
development 

Many  of  the  EU's  current  cooperation  policies  are  angled  towards  promoting  faster 
growth  and higher private investment in ACP countries, with a wider integration through 
trade  and  investment  into  the  world  economy.  These  include  financial  and  technical 
support  for  structural  adjustment  reforms,  sectoral support  in infrastructure,  agriculture, 
industry,  services  and  human  resource  development,  and  direct  support  for  the  private 
sector through the promotion of enterprise development,  investments, trade  development 
and the financial  and technical support provided by the EIB and CDI.  A vigorous private 
sector  is  essential  if  living  standards  and  opportunities  are  to  be  continuously  and 
sustainably  improved. 

The  issue  for  the  EU,  given the  modest  rates  of  growth  achieved  in  many  partner 
countries  in  the  past,  is  what  more  it  can  do  to  promote  faster  economic  growth, 

27 

Earth  Summit,  World  Conference  on  Population,  World  Summit  for  Social 
Development,  World  Conference  on  Women  and  the  World  Food  Summit. 

50 

Chapter V 

increased competitiveness of ACP enterprises, better export performance  and higher 
levels  of  private  investment,  and  what  new  policies  and  approaches  it  might  adopt. 

There  are  several  options  for  making  future  assistance  more  effective: 

(a)  More  systematic  and  comprehensive  support  for  private  sector  development 

The expected positive response of the private sector to economic  reforms  has been  weak  and 
slow  in  a  number  of  countries, particularly  in  sub-Saharan  Africa.  The  reforms  have  often 
failed  to  inspire  confidence,  and to produce the expected  results, and  consequently  to  reduce 
to  reasonable  levels  the costs and  risks  facing  investors.  Experience  in recent  years  shows 
that  countries  which  demonstrate  a  credible  commitment  to  sound  economic  policies  and 
reforms  and which present a transparently  fair  and favourable  environment  for  enterprise  are 
also successful  in attracting investment, creating jobs and innovative firms, raising their export 
earnings  and  achieving  sustained  economic  growth.  The  tasks  ahead  are,  therefore:  (i)  to 
convince the public authorities and the private sector that reforms are genuine and  permanent, 
and that there will be stable and predictable  economic policies; (ii) to tackle the policies  and 
institutions  which  are  still the causes of  high  costs, low productivity  and  uncompetitiveness; 
(iii)  to strengthen  financial  systems and institutions so the private  sector can  invest more  and 
has better access to financial  services; (iv) to develop economic infrastructure  and (v) to build 
private-sector  capacity  to manage  businesses, train employees,  develop  and market  products, 
and  achieve  efficiency  gains. 

In  assisting  in  these  tasks the EU has  a number  of  options  for  developing  its  own  action: 

• 
Confidence Building  The  EU can insist that economic  reforms  it  supports as well  as 
the  assistance  it  supplies  to  promote  the  productive  sectors  of  the  economy  are  designed  in 
the  knowledge  that  they  will  serve  the  overall  development  purposes  of  ACP  countries  and 
in particular  those  of  the private  sector.  After  consultation  with  the  population  they  need  to 
be  properly  explained  to key  non-governmental  stakeholders. 

It can provide resources to help partner governments streamline their relations with the private 
sector,  to  improve  lines  of  communications  with  it,  to  consult  with  it  about  its  policy 
intentions, and to listen to its grievances and policy proposals.  Some ACP countries  already 
have  government-private  sector  consultative  fora  which  play  a  valuable  role  in  confidence 
building,  so  long  as  they  are  adequately  resourced.  In  this  context,  the  strengthening  of 
professional  organizations  and  chambers  of  commerce  is  crucial,  so  as to  perform  properly 
their  advocacy  role  and  provide  useful  services  to  enterprises. 

• 
Policy  and Institutional Environment  The EU can assist partner governments  with 
further  administrative and institutional reforms - including reforms in tax administration  - and 
reinforce  the  rule  of  law  and  the  administration  of justice  as  they  affect  businesses.  It  can 
help governments to identify  those regulatory and administrative practices which are nugatory 
and  which  cause delays,  inhibit  investment  and employment  creation,  and add  unnecessarily 
to  the  costs  and  risks  of  carrying  on  normal  business. 

It  can  make  a  more  vigorous  technical  contribution  to  planning  and  implementing  the 
privatization  of  public  enterprises  (see  sub-section  under  point  b,  below),  and join  partner 

51 

Chapter V 

governments  in  the  search  for  imaginative  and  sustainable  solutions  to 
deficiencies  which  hinder  the private  sector. 

infrastructural 

It  can  support  the  introduction  of  policies,  rules  and  practices  governing  competition, 
consumer protection28 and the regulation of monopolies, research and information,  technology 
transfers,  which  complement  economic  reforms  and  privatization. 

• 
Financial  Systems  and  Institutions  The  EU  can  do  more  to  support  local  capital 
markets  and  to  improve  enterprises'  access  to  financial  services.  It  can  provide  technical 
advisory  services and financial  support for the restructuring  of weak financial institutions and 
for  the  strengthening  of  the  legal  and  regulatory  framework  in  which  new,  soundly-based, 
financial  services can be established  to  serve the needs of business, small enterprise,  farmers 
and savers. Particular  attention must be given to issues like (i) strengthening domestic capital 
formation,  (ii)  supporting  diversification  of  financial  institutions  and  services  and  (iii)  the 
improvement  of payment  systems  and  networks. 

Private  Sector  Resources  and  Capabilities  The  EDF  directly  supports  private 
• 
enterprise through national indicative programmes, through enterprise and trade development 
and  through  the  action  of  the  European  Investment  Bank  (EIB)  and  the  Centre  for  the 
Development  of  Industry  (CDI).  The  CDI  has recently  up-dated  its portfolio  of  instruments 
in the light of the positive experience of the European Community Investment Partners (ECIP) 
scheme  operating  in the  ALA  and  Mediterranean  countries  and  in  South  Africa. 

Financial  and technical  support to micro-, small  and medium-sized  enterprises and  industrial 
craft  undertakings  comes through  the EU's  country  programmes in the  form  of  credit  lines, 
guarantee  funds,  advisory  services, training  and technological  assistance. These  programmes 
have proved  their worth and  should probably  be allowed  to develop  further  (in particular  by 
means  of  appropriate  funding).  The EIB also has been a major  player  in providing  loans and 
risk capital. The EU also supports larger enterprises through its industrial investment and trade 
development  actions. 

The  Commission,  in  collaboration  with  the  CDI,  could  enlarge  the  scope  of  its  assistance  by 
financing consultancy and advisory services - both local and external - for use, on a cost-sharing 
basis, by indigenous entrepreneurs seeking to develop their businesses.  It could also do more to 
increase the capabilities of local business and professional associations to provide capacity-building 
services to their members. 

The  EIB  also provides  loans and risk capital,  subsidised  from  EDF resources, to  larger  private 
sector  projects  in  infrastructure,  industry,  mining  and  commercial  agriculture.  A  share  of  its 
resources  are  on-lent  through  local  financial  intermediaries  to  private  small  and  medium-size 
enterprises. 

28 

Discussions  are under  way  in the  Commission  on the role of  consumer  policy  in 
the  framework  of  development  policy  (COM(95)519  "Priorities  for  consumer 
policy"). 

52 

Chapter V 

One option  for  increasing  support to  formal  enterprises  would  be to direct  more EDF resources 
to the Commission and the EIB, in line with the role of both institutions and to satisfy the growing 
demands  of  private  operations  in  ACP  countries.  In  addition,  EDF  funds  could  also  be  made 
competitively  available  to  other  EU-based  development  finance  institutions  (e.g.  the  EDFI 
institutions),  some of which are actively engaged  in developing  innovative financial services  for 
the private  sector  in ACP  countries.  The longer  term goal, however,  must be to encourage  the 
growth of local and regional capital markets, and for the larger and better established  enterprises 
in  ACP  countries  to  finance  their  development  from  the market  sources,  and  not  from  official 
credits.  In  this  context,  the  development  of  local  savings  and  its  channelling  to  productive 
investments is crucial. 

The CDI has been the main instrument in the Lomé Convention for providing technical  advisory 
services  to  the  SMI  sector  -  especially  in  project  preparation  and  appraisal,  and  in  arranging 
financing and partnerships.  It has local antennas in many ACP markets, and is well placed to play 
a  brokerage  role  between  new  and  expanding  enterprises  on  the  one  hand,  and  financial, 
technological and managerial know-how on the other. 

A promising option for the future  would be for the Commission, as part of a policy of increasing 
the provision of demand-led, new technologies and advisory services for the private sector in ACP 
countries, to encourage the CDI, along with other potential service providers in the EU and partner 
countries, to expand its capabilities to assist enterprises on a cost-sharing basis. 

Investment Promotion  The  Lomé Convention  has long  recognised  the  importance  of 
foreign direct investment for the growth and competitiveness of ACP economies.  The Commission 
provides technical assistance in elaborating investment codes and investment protection laws and 
regulations,  and  for  governments'  investment  promotion  initiatives.  It  has  sponsored  sectoral 
investment and partnership forums to acquaint potential external investors with opportunities and 
to promote  partnerships.  These  activities  are  a  useful  complement  to reforms  and  confidence-
building measures which improve the enabling environment  for private  sector development. 

Efforts  to  provide  an  attractive  "shop window"  for  investment  opportunities  in countries  which 
offer  a satisfactory  policy  and institutional  environment  for  investors should doubtless continue. 
Options for  action on investment protection are further  considered  in Section C of this chapter. 

In proceeding with this agenda the EU would have to be sensitive, empirical, and pragmatic about 
what the real  priorities  and the  felt  needs of  stakeholders  are, country-by-country.  It  should  be 
selective  and  carefully  targeted  in  its  choice  of  programme.  In  its  approach  to  private  sector 
development the EU should nevertheless be coherent and well coordinated with other actors - local 
and  external  -  who  are  pursuing  the  same  objectives.  Where  private  sector  development  and 
support for  greater competitiveness feature  prominently  in its cooperation strategies it should, in 
collaboration with other stakeholders, seek to elaborate private sector development strategies which 
lend  a sense of purpose to individual programmes and projects. 

Possible changes in the instruments of cooperation to support an enlarged and refocused policy for 
encouraging the private sector are discussed in Chapter VI. A below. One approach is to consider, 
in  suitable  cases,  earmarking  a  portion  of programmable  country  assistance  for  the  support  of 
private  sector  development  -  both  through  actions  to  ameliorate  the  policy  and  institutional 

53 

Chapter V 

environment  and through measures of direct  support  for enterprises. The private sector could  be 
invited to participate  in defining  priorities for the use of this envelope of resources. 

(b) 

Supporting  public-enterprise restructuring and privatization  programmes 

Privatization  is  often  one  component  of  the  reform  measures  designed  to  relaunch  investment, 
create a more competitive environment and build more flexible  and diverse economic structures. 
However, privatization is not a solution per  se and it should be possible to adopt a case-by-case 
approach.  The  programmes  are often  complex  and difficult  to  carry  out, demanding  substantial 
analytical  and  admimstrative capabilities. Technical assistance, in particular  in the evaluation  of 
the  various  options  (restructuring,  reform  of the economic  apparatus,  etc.)  and  backup  for  any 
social plans required, may provide one possible solution. 

With its ability to mobilize the expertise developed by Member States and exploit the experience 
it  has  gained  across  the  globe,  the  EU  is  well  placed  to  support  privatization  programmes. 
Consideration could be given to developing this type of aid in countries where privatization would 
clearly help attract new private investors and contribute to gains in competitiveness. 

(c) 

Continuing  and stepping up support for  regional  integration 

Since  the  first  Lomé  Convention,  the  Community  has  supported  various  forms  of  regional 
cooperation.  In  terms  of  funding,  the  focal  areas  have  been:  transport  and  communication 
infrastructure,  environment, animal  disease control and training. Progressively  support  has  been 
unified  under the general objective  of strengthening  economic integration.  The underlying  view 
is that for the ACP countries regional economic integration is an indispensable step towards their 
successful  integration  into  the  world  economy.  At  the  same  time  the  EU  has  been  drawing 
attention to the negative effects  of formulating  and implementing economic reform  programmes 
in  a purely  national  context.  By now  the  need  to  take  into account  the  "regional dimension  of 
adjustment"  is generally recognised. 

Over the past few years the EU has actively supported several regional organizations, particularly 
the  newly  created  UEMOA  (West  Africa)  and  the  newly  transformed  and  enlarged  SADC 
(Southern Africa).  Together with three other co-sponsors (African  Development  Bank, IMF and 
World Bank), the EU is supporting the Cross-Border Initiative in Eastern and Southern Africa and 
the Indian Ocean, in which  14 countries are actively participating. 

Two  important  aspects  of  the  CBI  should  be  stressed:  involvement  of  the  private  sector  and 
coherence of the national and regional policy  agenda. 

Through its regional indicative programmes the EU supports infrastructural, environmental, health 
and other initiatives which are of interest to more than one country and which are best conceived 
and  implemented on a regional basis. 

In  order  to  improve  past  performance  it  is  necessary  to  put  support  for  regional  economic 
integration  into  a  coherent  strategy.  Taking  into  account  the  EU's  recent  experience,  such  a 
strategy  should have the following  basic components: 

54 

Chapter V 

1. 
capacity building (including technical assistance, training and endogenous research) on the 
subject  of  regional  economic  integration  both  at  the  level  of  regional  institutions  and  national 
governments; 
2. 
assistance to  the private  sector to facilitate  restracturing in the  larger  regional  and  world 
market.  This  would  also  include  improvements  in  the  financial  sector  to  facilitate  and  secure 
payments; 
3. 
support  for  governments  committed  to  implementing  regional  integration  to  cope  with 
transitional  effects  on  budgetary  resources  (balance  of  payments  or  budgetary  support, 
complementary  to  and fully  consistent with national  economic adjustment  support). 

The instruments that are presently available are well suited to supporting such a coherent strategy. 

There is another novel way for the EU to promote regional economic integration that needs to be 
further  explored,  i.e.  through  its  trade  policy.  The  EU  is  presentiy  involved  in  negotiations  to 
achieve a Free Trade Area (FTA) with several (groupings of)  developing  countries.  Because of 
the influence  of the EU in trade matters, the provisions of such FT As will affect  the integration 
of developing  countries into the world economy. There is an opportunity  to use these provisions 
in a way  that fosters  more regional  economic coherence  of the developing  countries.  According 
to the Commission and Council conclusions of June 1995 on Free Trade Areas, these arrangements 
should  comply with the relevant WTO provisions, and take into account the implications  for the 
Union's common policies and for  its main trading partners. 

(d) 

stepping up trade development support measures 

Trade  development  is  a  specific  arm  of  a  more  comprehensive  policy  which  focuses  on 
competitiveness  and private  sector development.  In addition  to the  instruments peculiar  to  trade 
and investment regimes, which will be discussed below in  Section C, there is also a wide range 
of  cooperation  initiatives  to  assist  trade  development.  This  dimension  was  introduced  into  the 
Lomé  Convention  when  it  was revised  in  1995  and  the  EU  undertook  to  develop  this  area  of 
cooperation  around  a variety  of support programmes: integrated  trade development  programmes 
at national  or  regional  level, multiannual  support programmes  for  trade organizations  involving 
both  ACP  and  European  operators,  programmes  to  assist  enterprises  in  specific  sectors  and 
programmes to support the development of irifrastructure and trade-related services (transport and 
communications, financial and other intermediaries, chambers of commerce, etc.). 

Given the fact that the new challenges posed by globalization and  competitive forces  will create 
changes  in the basic parameters  of international  trade the EU  ought  therefore  to  strengthen and 
intensify  its commitments to supporting ACP States in their efforts to capture the potential benefits 
arising from new trade opportunities. 

Increased emphasis should be placed on targeting of the private sector with concentration on that 
support  being  client-driven  and  participatory.  Priority  should  be  given  to  the  creation  of 
international  partnership  networks,  investment  promotion,  and  development  of  support  service 
industries and institutions. 

Greater emphasis should be given to strengthening mechanisms for the enhancement of networks 
between  European and ACP private sectors. 

55 

Chapter V 

Furthermore in recognition of the revolution in global information technology that will be a feature 
of the next millennium the EU should intensify  its support to ACP States in gaining access to the 
hard- and  software  associated with it and in facilitating  its optimum  utilization. 

(e) 

supporting the development of scientific  and technical expertise as a strategic component 
of sustainable development 

The rapid development of more and more complex technologies, notably in the health, food  and 
communications fields, and the widening  scientific  and technological  gulf between the  majority 
of  ACP  states  and  the  industrial  world  should justify  special  attention  to  this  area  by  the  EU. 
Although  this  dimension  features  in  the  Lomé  Convention,  it  has  not  as yet  given  rise  to  any 
coherent or  sustainable plan of action. 

In view of the  Community's experience, the EU is in a good position to build  up scientific  and 
technological  partnerships  involving  government  R&D  institutes  and  private  enterprises  in  the 
sectors concerned from both hemispheres. Such initiatives should be founded on dialogue with the 
ACP countries on the R&D issue, in particular on a regional basis, with the aim of  encouraging 
them to upgrade their regulatory frameworks (intellectual property rights, movement of goods and 
persons, investment code, etc.) and helping them to provide the budgetary backup required for  a 
policy  to develop research/industry partnerships. 

(f) 

helping the ACP states prepare for  ongoing developments  in the information  field 

Progress towards the information  society concerns not only advanced or emerging economies but 
also those  economies  and societies which  are, or wish to be,  open to the outside  world.  As the 
participants  at the recent conference  in Midrand  recognized,  these changes must form  part  of a 
shared vision of the future associating the industrialized and developing worlds. In the conclusions 
of  its  Chair,  the  Conference  also  highlighted  national  responsibility  and  the  unique  role  to  be 
played by the private sector.29 

The initial stage depends on improvements to telecommunications services which, together, with 
water  and electricity, are used by every branch of the economy. 

This field is an especially attractive one for the private sector in view of its potential  for  growth 
(all  ACP  countries  are  under-equipped)  and  the  recent  emergence  of  new  technologies  which 
provide a more flexible response to the requirements of countries like the ACP group, e.g. satellite 
transmissions, mobile and stationary cellular telephones. The European experience of transition is 
sufficiently  rich  and varied to offer  tailor-made  aid tailored to countries that so wish. 

There  is also the development of new services,  such as the Internet, which is already  accessible 
in  many  countries  and  represents  a  genuine  opportunity  for  its  users,  researchers,  university 
students or entrepreneurs to participate in networks exchanging information  worldwide. 

29 

The  Information  Society and  Development  Conference  (ISAD) was held  in  May 
of  this  year  at  the  initiative  of  President  Nelson  Mandela,  G7  members  and  a 
number  of  developing  and  industrialized  countries. 

56 

Chapter  V 

At  a  subsequent  stage telematics  applications,  e.g.  in  fields  such  as  health,  education,  research 
networks as well as electronic trading, may help solve certain problems in ACP countries. These 
initiatives will be all the more effective  for pilot projects to prepare those concerned and  involve 
them in decisions on the content and use of applications. 

Community models, of which the home shopping experiment is a good example, can thus take the 
place of the largely individualized  applications developed in advanced economies. 

(g) 

monetary  cooperation 

In many  ACP  countries political  and  economic  instability  is a  major  impediment  to  increasing 
investment and accelerating growth. A stable monetary and financial background is a prerequisite 
of an economic policy designed to achieve balanced and sustainable growth. This implies not only 
the  existence  of  effective  and  independent  institutions,  the  implementation  of  a  monetary  and 
exchange policy geared to stability and sustainable budgetary policies but also an extension of the 
banking system's role in the distribution of savings. 

Europe  could  support  the  ACP  countries'  efforts  to  modernize  and  adapt  in  these  areas.  The 
priority goals would be consolidation of institutions and modernization of procedures for managing 
monetary  and  budgetary  policy,  development  of  the  banking  system,  establishment  of  current 
convertibiUty and the progressive liberalization of the movement of capital taking account of the 
degree  of  development  and  macroeconomic  stability  achieved.  The  Union  should  continue  to 
encourage regional cooperation  in macroeconomic  and monetary policy. 

Monetary  Union  and  the  introduction  of  the  euro  will  open  up  new  opportunities  for  ACP 
countries, especially those for  whom the EU is the principal trading partner. The credibility  and 
effectiveness  of their monetary policies would be increased if they decided to gear their exchange 
policies to a stable currency, taking account of the need to maintain the competitiveness of their 
economies.  Selecting  a  single  external  reference  standard  would  also  contribute to  more  stable 
bilateral exchange rates between these countries. This would not only assist in economic and trade 
relations between them but also in the implementation of regional  integration projects. 

These various elements will help lay the foundations  for  a gradual stepping-up of cooperation  in 
the macroeconomic and monetary field between the EU and the ACP states. 

(h) 

EU support initiative to ease the foreign  debt burden 

In the light of the enormity of the foreign debt problem facing many ACP countries, it is hard for 
the  Community  to turn a blind  eye to international  initiatives in this area. Community financial 
cooperation,  which  almost  exclusively  takes  the  form  of  grants,  does  not  have  the  effect  of 
increasing debt. Nevertheless, the Community could act both as creditor and donor by developing 
support mechanisms  and instruments to ease the burden of debt  holding back ACP countries  in 
their pursuit of adjustment  and reform  programmes. 

57 

Chapter V 

2. 

Boosting  employment  and  support  for  social  policies  in  the  framework  of  poverty 
alleviation  measures 

The  EU  has  strong  grounds  for  focusing  its  ACP  cooperation  effort  on  the  goal  of  poverty 
alleviation: not only would this give priority to a problem which is assuming alarming proportions 
in many ACP countries and resulting in a series of interdependencies having an adverse effect  on 
Europe in terms of migratory pressure and various security-related issues, but it would also put into 
practice  the  external  aspect  of one of the  founding  principles of  the Union  - social progress - a 
recurring  theme  in the Treaty  and in the Protocol  on  Social  Policy,30  which  appears  in  various 
forms  (employment, education and training, equality  for women, etc.) in Community policies. 

Poverty  alleviation  is  already  a  priority  theme  of  the  current  cooperation  policy  and  has  been 
further  developed  in recent years by  some new guidelines: 

-  in the  implementation  of structural  adjustment  support  in the ACP countries and  in the use of 
counterpart  funds, priority is given to expenditure  in social sectors; 

- a resolution on measures to combat poverty adopted in  1993 laid down a series of principles to 
take  greater account of that objective in the Union's cooperation policies. The adopted approach 
highlights the need to include the objective of poverty alleviation in all domestic policies conducted 
in  developing  countries  and  in  all  cooperation  activities  and  also  includes  the  possibility  of 
measures targeted at poor sections of the population; 

-  the accent on the role of women is a key factor  in any strategy to alleviate poverty. By taking 
a wider  look at the issue of the contribution  of women, the resolution on this subject  adopted in 
November  1995 is to a large extent complementary to the  1993 resolution on poverty; 

-  Community  action  in the  social  sectors  makes  a  substantial  contribution  in  this direction,  in 
particular  since the  adoption  of  the  recent  resolutions  on  health  and  on education  and  training, 
which give the clearest priority to basic health care and to primary education and training, thereby 
benefiting  the poorest communities more; 

-  the  recent  changes  in food  aid  and  in  particular  the  stress  put  on  food  security  aid  and  the 
problem  of access to foodstuffs  (e.g. by preserving local  food traditions and produce)  constitute 
another important element of action against poverty; 

-  the  areas  in  question  (health,  education, food  security  and  women  and  development)  are also 
priority areas for  stepping up coordination between the Member  States and the Community  both 
at operational  level and in policy-making; 

- another important factor in the poverty issue is the preservation of the environment both in rural 
areas  (problems  of  soil degradation, sustainable  exploitation  of  natural  resources)  and  in  towns 
where  acute  problems  of  sanitation  and  infrastructure  are  being  more  frequently  encountered 

30 

The  Protocol  on  Social  Policy  refers  to  the  implementation  of  the  1989  social 
charter  on the basis of  the acquis  communautaire. 

58 

Chapter V 

against a backdrop of sharply  increasing urbanization in the ACP  countries. The extent to which 
poverty  and the environment are linked was widely acknowledged  at the Earth Summit. 

Environmental concerns are increasingly permeating Community cooperation policies through the 
systematic use of impact studies and specially tailored programmes; 

- finally, a range of other cooperation measures exists to help alleviate poverty: action in the rural 
development sector, vocational training, micro-projects and measures to assist the development of 
private enterprise, often helpful in promoting job creation, cofinancing through NGOs, support for 
population  policy or even consumer policy.31 

These policy guidelines must clearly be retained and confirmed. In future, however, the EU 
and  its  ACP  partners  must  decide  to  what  extent  and  how  the  impact  of  Community 
cooperation  on poverty  alleviation could be improved. 

In view of the diverse nature of poverty in the ACP states, it is absolutely essential to maintain a 
broad  approach involving a vast array  of measures. Nevertheless, the EU could propose a more 
strategic approach to its partners in two areas: 

(a) access to productive resources, employment and human resource development  The pace of job 
creation depends on a set of conditions which can be directly  or indirectly  influenced  by a wide 
range of measures or general or sectoral policies. The EU can support such policies through: 

-  aid to improve capacity to analyse and formulate policies to promote productive  employment; 

- support for reforms designed to improve access to productive resources, notably in the fields of 
education  and  vocational  training,  access to  credit, home  and  land  ownership.  This type of  aid 
could exert a considerable influence by helping to improve living conditions through better access 
to revenue-generating  activities; 

- support for labour market policies designed to build-up an able, mobile and motivated workforce; 

(b) support for social policies  Already committed on a wide scale to cooperation activities in the 
social  sectors, the EU  is endeavouring  to  increase the  impact  of  the  aid  it provides  by  a  more 
comprehensive  sectoral  approach,  gradually  abandoning  the  project-based  approach.  This  trend 
could be intensified  by means  of: 

-  in-depth and continuous dialogue on social policy with a view to formulating  a broad strategy 
and priorities and studying the links - often complementary, but occasionally conflicting - between 
the economic and the social objectives; 

-  financial  aid geared in particular to the financing of current expenditure in the above sectors in 
close association with macroeconomic dialogue and structural adjustment  processes. 

31 

Developing  countries  are  especially  concerned  by  issues  such  as movements  of 
dangerous  or hazardous  goods, product  safety,  use  of  medicinal  products,  etc. 

59 

Chapter V 

The ongoing debate in the international community about the 20/20 concept32 has highlighted the 
interest of mutual undertakings between beneficiaries  and donors to promote social development. 
While recognizing the relevance of the principle of mutual undertakings, the EU prefers  a more 
comprehensive  and detailed approach on account of the nature of its policies. 

Under the future ACP-EU partnership, assuming that aid is more selective and linked to assessment 
of  "good  governance",  one criterion  could  be  how much  effort  is  invested  in  social  and  other 
policies designed to improve access to productive resources and boost  employment. 

3.  Integrating  protection  of the environment  in the development  process 

One of the central insights provided by the theory and practice of sustainable development is that 
effective  environmental  action cannot  be  conceived  as an  afterthought  to  unchanged  social and 
economic  policies.  Rather  environmental  concerns  must  be  integrated  into  the  design, 
implementation  and evaluation of all policies, programs and projects. 

While  the  Community  has  a  long-standing  array  of  policy  declarations  on  environmental 
management, it still lacks a clear strategy and a sense of purpose to make it operationally viable. 
Looking at growing consensus emerging from the Rio process, there appear to be 4 priorities for 
development  cooperation: 

- meeting needs and alleviating poverty. While the cause and effect  relationship between poverty 
and environmental degradation are complex, both poverty and pollution can be seen as the result 
of social and economic forces that tend to externalize human and environmental costs into current 
and future  generations. 

- harnessing market forces to reflect environmental costs and benefits. Agenda 21 is rooted in the 
recognition that markets  need to progressively internalize social and environmental costs, so that 
prices  'tell the ecological truth'. 

- integrating,environment objectives in overall policy formulation and in management systems, so 
that  environmental  protection becomes  and  integral part  of the development process and  not an 
isolated objective. This requires strengthening environmental capacities and taking a participatory 
approach. 

- 'greening' the investment portfolio, by assessing environmental impact through the project cycle 
and by  financing  priority  investments in environmental conservation and pollution abatement. 

Certain topics merit special attention: 

32 

The  "20/20"  concept  was  first  propounded  by  the  UNDP  in  its  1994  report  on 
human development.  The Action  Programme  produced  by the  World  Summit  on 
Social  Development  (Copenhagen,  March  1995)  also  refers  to  it.  It  advocates 
mutual  undertakings  between  beneficiaries  and  donors  based  on the principle  of 
spending a minimum of 20% of domestic budgetary  and foreign  aid resources on 
the  basic  social  sectors. 

60 

Chapter V 

- for  many ACP countries the problem of the quantity and quality of water resources is reaching 
critical  proportions  in  both  urban  and  rural  areas.  The  relationship  between  water,  population 
pressure and  soil degradation  is assuming crucial importance; 

-  deforestation  is becoming a major  problem  in numerous countries with repercussions not only 
at local  level but globally too insofar  as it affects  biodiversity; 

-  ACP  island  states  are particularly  exposed  to  the  potential  dangers  linked  to  climate  change, 
especially the increasing frequency of violent storms. In sub-Saharan Africa too, there is the danger 
from the worsening drought problem; 

-  support  is  required  to  build  up the  ACP  countries'  capacity  in  environmental  policy,  both  as 
regards  formulation  and  implementation, especially  in relation to the  follow-up  of  international 
conventions that have been ratified  or are in the pipeline. 

B. 

The institutional  dimension 

Chapter  Ill's  analysis  of  socio-economic  and  political  developments  in  the  ACP  countries 
highlights the  shortcomings  of the  state  and the  seriousness  of  problems  of  governance.  These 
problems  are  hindering  development  in  a  number  of  countries,  delaying  structural  adjustment 
programmes (or preventing them from being completed) and aggravating instability and the "trust 
gap" which jeopardizes investment and the legitimacy of development aid. This analysis has also 
demonstrated the need to restore or bolster the rule of law in order to create the basic preconditions 
for development  and reducing inequality and poverty. The Fourth Lomé Convention, as revised 
in  1995, recognises these factors as  fundamental. 

The European Union has so far not come up with a firm  policy regarding government and  legal 
reform,  improving  capacity to analyse and formulate  development policy or strengthening those 
institutions  active  in  civil  society  which  are  capable  of  counterbalancing  the  authorities. 
Community  action  to  back  institutions  and  good  governance  has  focused  on  encouraging 
democratic  elections,  providing  technical  assistance  to  help  with  development  projects  and 
programmes and providing targeted financial  assistance to help with or offset  the effects  of some 
reforms.  However, recent years have seen greater focus on the institutional backdrop as a whole 
rather than the agency or institution responsible for a particular project.  Structural-adjustment  and 
sectoral-policy  support have encouraged this change in focus, which has enabled the Community 
to be more active in improving the policy environment (in individual sectors and in general). This 
approach  is destined to become more common, especially as evaluation  studies have shown that 
institutional  matters  will  have  to  be  considered  as  a  matter  of  course  and  in  greater  depth  if 
Community  cooperation is to be made more  efficient. 

Are  there  not  grounds  for  going  beyond  such  detail  changes,  however,  which  are,  after  all, 
perfectly  compatible with current policy. In the new international economic and political climate, 
the  state  is  becoming  a  structure  which  is  seen  as  responsible  for  laying  the  groundwork  for 
sustainable and equitable development. Under these circumstances, should there not be a rethink 
of this dimension of ACP-EU relations, and should the EU itself not be giving more strategic 
backing to the political  and social transition which is needed? 

61 

Chapter V 

Change  in a country's  institutions is basically  a political process. No reform  can succeed  unless 
it has support on the ground, and there will always be many obstacles (because it affects the power 
structure and will inevitably meet with resistance). Institutional development consequently has two 
complementary  sides: a political  side and a more "technical" side. 

In  this  situation,  should  the EU  play  a  more  active  role  in  institutional  development  and 
become  involved  in  the dialogue  with  other donors  on such  matters?  And  how  can  it  set 
about  playing such a role? 

There are compelling  reasons for  the EU to  step up its activities  in this area, give  them 

1. 
greater priority  and indeed make them a major  plank of its relations with the ACP countries: 

The ACP countries themselves are now having to redefine  their concept of the  functions 
of the state and improve the way the state fulfils  those functions.  The aim is to serve the 
general  interest.  The  political  motivation  behind  the  EU's  activity  in  this  area  has  no 
overtones of national interest: the EU has no prototype to force on other countries, and the 
Member  States  organize  their own  social  and  political  systems  in  a variety  of  different 
ways. 

The fact  that respect for  human rights and fundamental freedoms and the application of 
democratic  principles  are  deemed  essential  by  the  Union.  Because  there  have  been 
problems  with the current  policies  for  backing  democratization  (see  Chapter  III), a  less 
formalistic  and more constructive approach needs to be adopted. 

The  efficiency  and  impact  of  Community  aid  are  closely  related  to  these  institutional 
questions. Most Community aid in the economic and social fields would be improved by 
more decisive action on institutional development. As evaluation studies have shown, the 
impact  and  viability  of Community  aid programmes are often  adversely  affected  by too 
little account being taken of the limitations and obstacles connected with the institutional 
setting. If the EU backs economic reform,  it should in its own interest and in the interests 
of efficiency,  tackle the related institutional matters.  If adjustment policies are to succeed 
in the ACP countries, there must be a predictable legal framework, transparent  decision 
making  and  administrative  and  budgetary  management  procedures,  and  good  public 
services. 

The partnership that the EU is seeking to develop with the ACP countries is an appropriate setting 
in which to tackle institutional development issues because it allows the countries involved to take 
primary  responsibility  for  reform  and  allows the  EU  to  provide  technical, financial and  policy 
support on the basis of reciprocal medium-term  commitments. 

Furthermore, the experience of reform which the Union has gained from the process of European 
integration gives it a special know-how. 

2. 
From the points of view of content and procedure, there are three complementary lines of 
action which could be contemplated to further  the EU's capacity- and institution-building  efforts: 

The EU could re-examine ways of  mobilizing local and Community expertise for transfers 
of know-how  between Europe and the ACP countries. The  establishment  of a  specialist 

62 

Chapter V 

network  for  analysis  and  technical  assistance  would  provide  ongoing  support  over 
sufficiently  long periods of time and build up genuine experience and  know-how. 

The EU could specialize in particular fields, depending  on the  "added  value" it was able 
to contribute relative to other donors (bilateral or multilateral). A number of fields may be 
identified  within the EU's main spheres of action: 

(a) 

promoting  respect for  human rights; 

(b) 

assistance for  regional organizations; 

(c) 

restructuring  of  public  services  (in  consultation  with  those  immediately  involved), 
improving capacity to analyse and formulate economic and social policy, preparing reform, 
helping to decentralise the civil service; 

(d) 

managing budgets  (in conjunction  with support for  structural  adjustment); 

(e) 

(f) 

developing  certain  capabilities  needed  to  cope with  the operation  of  a  market  economy 
(business  law,  consumer-protection  law  and  consumer  associations,  investor  protection, 
preservation of the environment,  competition rules, etc.); 

decentralized cooperation, as a way of adding to (not supplanting) assistance for the public 
sector, in order to improve interaction between the public and private sectors and to bring 
what the EU does closer to those active in civil  society; 

(g) 

strengthening  parliamentary  institutions  to  promote  policy  transparency  and  sound 
management  of public  affairs. 

The  EU  could  use  new  aid  practices  to  try  and  reduce  negative  effects  on  local 
capacity-building. 

The  advantages  of  using  more  local  expertise  have  already  been  recognized  in  the  Lomé 
Convention, but more fundamental  changes need to be contemplated. In certain situations, and for 
a limited time, some substitutions will probably be inevitable, but a clear political signal backing 
a  change  of  approach  and  a  reduction  of  the  adverse  effects  of  aid  on  local  institutional  and 
administrative capacity-building will probably give rise to a number of changes (simplification  of 
procedures, reduction of the range of instruments and abandoning of the project-based  approach). 
This would constitute a strategy realignment because local capacity-building is destined to become 
one of the main influences  on the choice of practical arrangements for aid. The different  options 
in this connection are discussed in Chapter VI. 

C. 

Trade and  investment 

Suitable integration of the ACP group into the global economy, and in particular the definition  of 
its  proper  place  in  the  evolving  external  economic  relations  network  of  the  EU,  as  a  major 
dimension of their integration into the world economy, constitutes the challenge for new ACP-EU 
relations  post-2000,  relations.  Failure  to  devise  an  appropriate  framework  may  result  in  the 

63 

Chapter V 

breaking  up  of the  ACP group, the  drifting  away  of  some ACP  regions and  countries from  the 
present link with the EU, and further  marginalization  of the poorest ACP countries. 

Trade arrangements. 

Many  options  are  possible  for  a  future  ACP-EU  trade  relationship  after  the  year  2000.  These 
options  should,  in theory,  allow the  ACP  countries  to  accommodate  their  preferred  integration 
strategies. These options should also be reviewed in respect of the dimensions of the  partnership 
principle underpinning the ACP-EU trade relationship: 

Single trade arrangement versus multiple trade arrangements 

(i) 
(ii)  Differentiated  versus generalized 
(iii)  Reciprocal versus non reciprocal 
(iv)  Contractual (providing long-term security, bilateral or multilateral) versus unilateral (at EU 

political discretion). 

As the principle of partnership carries a major political value for the ACP countries as well as for 
EU  members,  the  different  options  considered  would  have  to  be  assessed  in  the  light  of  then-
impact on that principle: Would they undermine it or reinvigorate it? Would they narrow it down 
or  broaden  it? These are important  political  considerations to take  into account when assessing 
the different  options; the technical constraints relating in particular to the negotiation of free trade 
should also be considered  (see Box 5 for  a discussion of the trade options). 

The menu which could  be offered  for consideration of the ACP countries could be composed of 
the following  items: 

(i) 

(ii) 

"Status quo".  Preservation of the current non-reciprocal, differentiated  (in respect of other 
LDCs), contractual, uniform scheme focusing on strict market access terms. An "enhanced 
status quo" variant could involve improvements in market access, together with relaxation 
of  rules  and  procedures,  agreements  on  trade-related  matters  (standards,  environment, 
competition  policy,  intellectual  property,  etc)  and  an  agreement  on  services.  Another 
variant would restrict this option only to the least advanced ACP countries, proposing to 
the  more  advanced  group  any  of  the  options  below  according  to  their  wishes  or 
capabilities.  Finally,  an  element  of  reciprocity  could  be  introduced  into  this  option  by 
requiring all ACP countries to submit and bind a tariff  schedule offer  to the GATT. 

"Integration  into the GSP". This option consists in removing  the trade package from the 
Lomé  Convention, which will  be reduced to an aid package. The least-developed  ACP 
(LLDC-ACP)  countries would  be grouped with the  least  developed  non-ACP countries, 
while the more advanced ACP countries would graduate into the normal scheme. To avoid 
too drastic a loss of preferences for the LLDC-ACP, the general preferences granted to the 
least-developed  countries  could  be  upgraded  to  reach  parity  with  the  level  of  Lomé 
horizontal preferences. Being a unilateral policy of the EU, the concessions granted would 
not  be  the  object  of  negotiation  with the ACP countries. Nothing  could  be  asked from 
them  in  exchange.  Alternatively,  the  EU-LLDC  preferential  arrangement  could  be 
embedded into a multilateral (possibly GATT-bound) preferential arrangement for LLDCs. 

64 

Chapter V 

(iii) 

(iv) 

"Uniform  reciprocity".  Require all  ACP countries  to  extend  reciprocity  (consistent  with 
WTO  rules), after  a common transitional  period, to EU  exports. As a variant, allow  for 
different  transitional periods for the LLDC-ACP  countries on one side, and for the more 
advanced  ACP  countries  on  the  other.  As  an  enhanced  variant,  this  option  could  also 
involve  agreements on  trade-related  areas, and  an agreement  on  services.  It  would  also 
entail full  integration of the ACP countries into the WTO  framework. 

"Differentiated  reciprocity".  Variable  geometry  reciprocity  (consistent with  WTO  rules) 
with the EU on one side, and with homogenous regional groups of ACP countries, or with 
single  ACP  countries  on  the  other  side,  on  the  model  of  North-South  regional  trading 
arrangements. As an enhanced variant, this option would also involve agreements on trade 
related areas and an agreement on services, and full integration into the WTO framework. 
Another variant would envisage regional trade arrangements between the EU, on one side, 
and a regional integration area made up of ACP and non-ACP countries. 

Finally, two additional options combining the four options reviewed above may also be considered: 

(v) 

"Differentiation  under a single framework".  This option would encompass  options (i), to 
(iv)  as  items  of  a  single menu  for  the  EU  and  the  ACP to  choose from, depending  on 
levels of development, perceived needs and the will of the ACP to deepen the relationship, 
political  conditions and the level of reciprocity the ACP were willing to grant to the EU. 
It  would  maintain,  for  all  ACP  countries,  the  contractual  character  of  the  present 
relationship but might require major modifications to certain horizontal preferences  of the 
current relationship (commodity protocols and agricultural preferences), notably as regards 
country  eligibility. 

This option would contemplate a set of trading arrangements organised  in four tiers: 

(a) Region-to-Region FT As. along the model of option (iv); 

(b) Bilateral  FT A,  same as option  (iv) but with  willing  single ACP countries  which  are 
outside  any  regional  integration  process  and  are  large  and  capable  enough  (examples: 
Nigeria, Zaire), and provided that political conditions are right; 

(c)  Non-reciprocal  preferences,  maintained  for  the  least-developed  ACP  countries 
(established unilaterally or within a multilateral framework), those whose per-capita income 
lies  below  an  internationally  recognised  level,  and  are  outside  any  regional  integration 
process falling  under option a) above; 

(d) Graduation into GSP. in respect of the horizontal, non-reciprocal preferences, dealing 
with those ACP countries not willing to come under options (a) or (b), but showing a level 
of  development  which  would  make  them  ineligible  for  option  (c);  "graduate"  ACP 
countries could, perhaps, maintain the preferences under the commodity protocol, but only 
for  a transitional  period (a waiver could be required  in this case). 

Within this framework, the ACP countries would be able, in agreement with the EU,  to 
select the trade option that best fitted the integration strategy chosen and their needs and 
capabilities. However,  issues of trade and investment  diversion effects  among groups  of 

65 

Box  5.  Discussion  of  the  trade  options 

integrity  and  contractuality 

The  "status quo"  option,  which  has  the  advantage  of  already  being  a  known  quantity, 
maintains  the 
characteristics  of  the  present  trade 
arrangement,  thus  providing  long-term  security  (up  to  a  certain  point,  see  below),  and 
because  of  the  preservation  of  its  differentiated  features  (relative  to  other  LDCs)  will 
still  convey  the  message  that  the  ACP  trade  relationship  is  still  at  the  top  of  the  EU 
pyramid  of  trade  privileges.  It  also  has  the  specific  advantage  that,  with  regard  to  a 
number  of  agricultural  commodities  which  are both  sensitive  within  the  Union  market 
and of  major  -  indeed decisive  -  importance  to several  of the  ACP  countries,  it  enables 
the  Union  to  offer  access  provisions  subject  to  precise  limitations.  These  limitations 
provide  a clear planning framework for the  ACP  and enable the quantities concerned to 
be absorbed by the Union's agricultural market. This option could also provide breathing 
space  for  the  common  agricultural  policy  to  evolve  under the  impulse  of the  next  stage 
of  the WTO  and enlargement  of the Union. 

The  shortcomings  of  this option are that: 

-Being  differentiated,  it will  continue  to  require  a WTO  waiver  which  needs  to 
be  reviewed  every  year.  As  a  result,  the  security  of  the  preferences,  one  of  the 
main assets of the Lomé trade package, will  be severely  undermined. 

-  Because  of the diminished  security  of the preferences,  it will  also  be  unable to 
help  attract  significant  levels  of  FDI  and  to  counteract  the  diversion  effect  that 
other EU-led regional trading  arrangements  may  have on European FDI. 

-It  will  not give the necessary  security  and credibility  to the trading  (import and 
export)  and regulatory regimes of the ACP countries, in order to reduce the level 
of  risk  and  thus  make 
the  ACP  countries  more  attractive  as  investment 
locations. 

-It  will  not  provide  any  additional  impetus  to  the regional  integration  processes 
under way  among  ACP  countries. 

-It  will  prevent  any  ACP  country  or  group  of  countries  from  joining  regional 
trading  arrangements  involving  other  developed  economies,  as  it  would  be 
politically  and economically  unacceptable for the EU to be discriminated against 
in ACP  markets relative to other developed  economies. 

In  any  case,  this  option  should  be  supplemented  by  the  requirement  that  the  ACP 
countries  submit and bind a tariff  schedule under the  GATT; this could  be  instrumental 
in mustering  support for an article XXV.5  waiver. 

65 «. 

The  second  option,"integration into the GSP". will  have as major  advantage, seen from 
the EU point of view, of harmonizing  the non-reciprocal  preferential  trade policy  of the 
EU and bringing  full  conformity  with WTO rules. It will  create a level playing field,  in 
respect  of  access  to  the  EU market,  for  all  LDCs other  than  those  engaged  in  regional 
trade  arrangements  with  the  EU.  It  will  also  allow  some  ACP  countries  or  groups  of 
countries  to  engage  in  regionalism  with  other  developed  economies  (Caribbean  within 
NAFTA,  or  FTAA,  Pacific-ACP  in  respect  of APEC).  On  the  minus  side,  this  option 
will: 

-Permanently  dismantle  the  Lomé  package  in  several  respects.  It  will  treat 
different 
types  of  ACP  countries  differently  according  to  their  level  of 
development  It will also uncouple the aid from the trade policies which are now 
integrated into the Lomé Convention. 

-Reduce  drastically,  at  least  for  the  more  advanced  ACP  countries,  the 
preferential  margin  received  under  the  Lomé package,  since the preferences  on 
agricultural  products will  have to be aligned  to GSP  levels  and the  commodity 
protocols could no longer be provided. Under this option, the continuation of the 
Sugar Protocol could pose certain problems, not least problems of a legal nature. 

-Reduce  security  in  respect  of  the  market  access  terms  previously  enjoyed, 
although the reduced  level of preferences,  while at the discretion of a change in 
policy by the EU or submitted to the graduation mechanism  of the GSP, will be 
unchallengeable  under the WTO. The more advanced ACP countries will find  it 
more  difficult  to  attract  FDI  under  this  option.  However,  the  multilateral  GSP 
option  for  LLDC  (ACP  and  non  ACP),  bound  in  the  GATT,  would  achieve  a 
high level of security. 

-Provide no additional pull  on FDI, nor would  it provide a counterweight  to the 
trade  and  investment  deflection  effects  resulting  from  EU-led  regionalism 
involving other LDCs. 

-Be  neutral  in  respect  of  the  viability  of  South-South  regional  integration 
processes  under  way.  Give  no  additional  protection  to  the  surge  in  EU 
regulations on trade related areas. 

Finally,  this  option  will  fundamentally  weaken  the  principle  of  partnership 
embodied  in  the  Lomé  Convention,  which  would  be  reduced  to  its  political, 
institutional  and aid dimensions. 

The  third  option,  "uniform  reciprocity"  (within  the  meaning  of  article  XXIV  of  the 
GATT), would conform to WTO rules. It would fundamentally  reinforce the principle of 
partnership, as it would make more equal  the contract between both parties, and would 
make  it  of  indefinite  duration  (at  least  where  the  trade  part  of  the  Convention  is 
concerned). 

bh 

-It will maintain, even enhance, the security and predictability of the preferences, 
and by opening and "locking in" the import regime of the ACP countries  it will 
lend  credibility  to  their  trade  policies  in  the  eyes  of  domestic  and  foreign 
investors.  As a consequence  an  enhanced  pull  on FDI  can  be  expected,  as well 
as a further  impulse from domestic investors. 

-It  will  also  level  the playing  field  in respect  of  other  LDCs  engaging  in  FTA 
agreements with the EU and allow certain ACP countries to join regional trading 
arrangements with other developed economies and get a fair  share of the benefits 
of regional economic dynamics. 

-On  the  minus  side, by  imposing  a  uniform,  horizontal framework, this  option 
will  not address the existing marked differences  among ACP countries  in terms 
of  levels  of  integration  and  development,  as well  as  in terms  of  both  the  need 
and the ability to engage en free trade negotiations with the EU. 

Feasibility is certainly the main problem: How could all ACP countries agree on a single 
"plan"  and  "schedule"  (as  required  by  article  XXIV.5.(c))  for  the  formation  of  a 
ACP-EU  FTA  which takes into account their trading patterns, their  differing  needs  for 
industrial  restructuring,  for  changes  in  fiscal  policy  which  could  be  required  to 
accompany  the  dismantling  of  tariffs,  etc  ?.  It  would  be  impossible  for  a  single 
framework  to  accommodate  the  needs  and  the  conditions  of  all  ACP  countries. 
Furthermore,  many  ACP  countries  lack  the  human  skills  and  the  administrative 
capability to engage in free trade negotiations with the EU. 

"Differentiated  reciprocity",  would  carry  all  the  benefits  of  the  previous  option  while 
allowing for the different  levels of integration and development, as well as for the needs, 
conditions, abilities  and willingness of  the  different  groups of ACP  countries. For  each 
ACP  region,  a  "plan" and a  "schedule"  for free trade with the EU  which best  fitted  its 
particular needs and abilities, could be defined.  This option would give a major  impetus 
to the regional  integration processes under way among ACP countries. 

-A  major  casualty  of  this  option  would  be  the  loss  of  the  integrity  of  the 
relationship  and  the fragmentation of  the partnership  principle  (which  however 
would be reinvigorated within each agreement). Furthermore, since this approach 
must  build  on  existing 
regional  integration  processes  among  ACP  countries 
(UEMOA,  SADC,  CARICOM,  etc),  those  ACP  countries  not  party  to,  or 
unwilling  to join,  any  of  those  processes  would  have  to  enter  into  single  FTA 
negotiations with the EU. This option could  also accommodate  FT As  involving 
the EU on one side and  ACP and non-ACP countries which constitute "natural" 
regional areas on the other. 

é îC 

-The  option  will  also  involve  the  demise  of  the  commodity  protocols  and  the 
agricultural  preferential  scheme.  The  negotiation  of  preferences  under  these 
particular  instruments would give rise to certain problems. 

-Feasibility is also a major problem with this option, since it can not be expected 
that  all  ACP  countries,  or  all  AC?  regional  integration  groupings,  meet  the 
conditions (political, commercial, administrative and other), are capable of,  or are 
willing  to  enter  into,  FTA  negotiations  with  the  EU.  Furthermore,  if  the 
arrangements  negotiated  do  not  fully  meet the  requirements  of  article  XXIV,  a 
derogation (art. XXIV. 10) would have to be requested. If too many arrangements 
of  this  type  were  to  be  considered,  the  management  of  the  derogations  in  the 
WTO  could  constitute  a  major  problem  for  the  EU.  Under  this  option,  and 
according  to  the  Commission  and  Council  conclusions  of  June  1995  on  Free 
Trade Areas, these agreements should comply with the relevant WTO provisions 
and  take  into  account  the  implications  for  the  Union's  common  policies  and 
main trading partners. 

i$d 

Chapter V 

ACP countries will be unavoidable as the pattern of preferences and the pull on FDI will 
vary  for  each group according to the option selected. 

This framework option would preserve the integrity of the existing Lomé Convention but would 
allow for reciprocity, differentiation  and graduation considerations to be added as additional basic 
dimensions  of  the  partnership  principle.  They  would  work  as  inside  dynamic  elements  pulling 
individual  ACP  countries  from  a  given  stage  of  the  relationship  into  higher  stages,  as  their 
individual  conditions,  and  their  wishes,  allowed.  In  respect  of  WTO  compatibility,  this  single 
framework would most  likely have to be joined by a request for an Article XXIV. 10 derogation 
(i.e. derogation  in respect of the minimum compatibility  conditions for  FT As). 

(vi) 

"Differentiation  leading to a variety  of arrangements". In this  scheme the alternatives  (i) 
to (iv) lead naturally to a variety of trading arrangements, possibly coexisting with a single 
aid package. The integrity of the Lomé Convention is obviously the first  casualty  of this 
approach.  Contractuality  and  security,  and  certainly  the  strength  and  scope  of  the 
partnership principle, will vary between arrangements, and the current level of preferences 
will  likely  be  eroded  for  some  groups  of  ACP  countries  or  enhanced  for  other  groups 
according to the option chosen. 

This multiple framework will be quite incompatible with the preservation  of the  benefits 
provided  under  the  commodity  protocols  as  well  as  with  the  horizontal  scheme  of 
agricultural  preferences.  Issues  of  unequal  treatment  and  of  deflection  of  trade  and 
investment between groups of ACP countries will become even more serious than under 
the single framework option above. 

The advantages and disadvantages associated with each option, as discussed throughout this 
note, will accordingly apply to the group of ACP countries covered by each. In respect of 
compatibility with the WTO, an Article XXV.5 waiver would have to be requested for the 
non-preferential  scheme  for  the  least  advanced  ACP  countries.  This  may  be  easier  to 
obtain. 

Whichever option chosen, it should be remembered that the EU has embarked on harmonizing the 
rules of  origin used in preferential  trade arrangements.33 

Investment  Protection and Promotion 

Under the provisions of the fourth  Lomé Convention, ACP countries have undertaken to accord 
fair  and  equitable treatment to private investors, to create and maintain  a predictable  and  secure 
investment climate, to improve the business environment, and to foster a legal, administrative and 
incentive  framework  conducive  to  the  emergence  and  development  of  dynamic  private  sector 
enterprises  (Article  258(c)  to  (g)).  Countries  have  striven,  individually,  to  implement  these 

33 

A decision to harmonize the  rules of  origin was taken by  the  Heads of  State  and 
Government  at  the  Essen  European  Council  in  1994.  This  was  because  the 
existence of disparate rules was impeding trade relations between the EU and non-
member  countries, while  a single  set of origin provisions would  help to ease and 
expand  trade. 

66 

Chapter V 

objectives,  but  not  always  with  the  desired  result  of  a  revival  of  private  sector  investment. 
Investors still hesitate.  The business environment and the policy  and institutional context do not 
yet always inspire sufficient  confidence. 

Countries will continue, domestically, to implement confidence-building  measures.  However the 
transparency  and predictability  of these measures can be enhanced  if they are seen to  be related 
to a common, well-understood  and intemationally-accepted framework of rights and obligations. 
In  1992 the EU proposed  for the consideration  of ACP countries a set of Investment  Protection 
Principles,  covering,  inter alia, national  treatment, the  most  favoured  nation  principle,  fair  and 
equitable treatment, the full  protection of law, compensation  for  expropriation  and remittance  of 
earnings and capital.  The draft Principles gave textual effect  to the objectives of the Convention. 
They  have not,  however,  been widely  discussed  or  implemented.  Since  1992 there have  been 
extensive discussions in the OECD on the proposed Multilateral Agreement on Investment which 
sets out a more ambitious and comprehensive framework for the protection of investors. 

The  issue  of  investment  protection  standards  has  now  been  taken  up  in  the  WTO  where 
negotiations on principles acceptable to a wider spectrum of countries are soon to commence.  If 
these negotiations lead to agreement on transparent and enforceable principles, investors and capital 
markets are likely to be attracted by the lower risk of investing in  countries which agree to abide 
by them. 

An option for ACP countries wishing to accelerate the revival of investor confidence  would be to 
adopt and apply an internationally recognised standard of investor protection having the force  of 
law. The EU would naturally be open to requests for assistance in building capacity for introducing 
this  in those countries which chose to adopt it.  The larger the number  of ACP countries  which 
feel  able to subscribe to the standard,  the greater the confidence  of international investors in the 
ACP countries as a group will be, and the more the ACP countries will feel that they are a group. 

Options for ACP countries wishing to revive investor confidence through more credible investment 
protection  are to: 

a. 

b. 

Pursue  current  policies  of  concluding  bilateral  investment  protection  agreements  with 
countries of the EU and the home countries of other foreign investors. These agreements 
cover  the  basics of  compensation  for  expropriation,  but  are  otherwise  limited  in  scope, 
offering  little  redress  against  discriminatory  or  discretionary  decisions  by  host  country 
governments.  They have not been conspicuously successful  in attracting new investment, 
particularly  in  Africa. 

Enter into regional investment protection arrangements.  One example to follow might be 
the UEMOA, whose members are introducing a common investment code, common trade 
law and common  investment protection  standards. With regional  arrangements  it  should 
be relatively easy to police compatibility with rules and undertakings, and judicial  redress 
should be relatively accessible for aggrieved investors.  Successful  regional arrangements 
might be extendable to other interested ACP states, thus creating an acknowledged  ACP 
standard of practice. 

c. 

Subscribe to an internationally recognised standard of investor protection - based perhaps 
on  principles  agreed  in  the  WTO.  The  advantage  for  ACPs  of  adopting  international 

67 

Chapter V 

norms  of  investment  protection  lies  in  their  greater  visibility  and  familiarity  to 
investors,and  thus in their greater confidence-building  effect. 

However, as there is at present no internationally agreed model, the most advantageous option for 
ACP  countries,  in  the  interim,  is  likely  to  be  to  collaborate  -  with  EU  support-  in  regional 
arrangements which satisfy  the basic principles outlined above.  In their  longer term  interest the 
EU  and  ACP  countries  should  simultaneously  work  together  towards  agreement  on  a  wider 
international  standard. 

68 

Chapter  VI 

CHAPTER  VI. 

OPTIONS  FOR  A  NEW  PRACTICE  IN  THE  FI^LD  OF 
FINANCIAL AND TECHNICAL  COOPERATION 

There are three considerations which militate in favour  of a fundamental  revision of the practical 
methods of providing financial  and technical assistance: (i) the move towards a partnership based 
on reciprocal rights and obligations and a more explicit allocation of the partners' responsibilities, 
(ii)  the  need  to  alter  Community  assistance  to  take  more  account  of  the  fact  that  some  ACP 
countries have reached a substantially more advanced  stage of development than others and  (iii) 
the need to reconcile the predictability of accumulated aid practice with the requirement for better-
tailored  and more efficient  aid. 

These  aims  mean  that  a  new  thinking  will  have  to  be  developed  in  connection  with  aid 
instruments, that the nature of support activities will have to be changed, and that a new way of 
managing resources will have to be promoted. In addition, the Commission is recommending, as 
it has done in the past and as the European Parliament has long been urging, that the  European 
Development Fund (EDF) be incorporated  into the budget34 to help rationalize the Community's 
activities outside its borders and to improve their cohesion  and transparency. 

A. 

A single source of funds  or multiple smaller sources? 

One of the most common criticisms levelled at assistance under the Lomé Convention has  been 
the  large  number  of  instruments  which  have  been  set  up  over  the  years  and  adapted  as  one 
negotiating exercise succeeded the next Cooperation with the ACP countries is now overburdened 
with instruments which are tailored to predetermined uses and are increasingly difficult  to run in 
a coherent way. 

Drawing up strategy papers for  each country doubtless reduces the risks of lack of cohesion, but 
the use of a multiplicity of instruments which all have different  purposes, procedures and methods 
of operation inevitably makes the EU's policy for each individual country less transparent.  Despite 
the substantial effort  the Community has put into information, the complexity of the system  often 
impedes access to the various financing  and technical  assistance  facilities,  particularly  for  those 
active in civil society. 

EDF  instruments  and  the  range  of  specially-targeted  budget  headings  also  tend  to  make  the 
implementation of policy guidelines rather rigid. As the situation currently stands, it is impossible 
to  reorient  or  adapt  aid  policy  within  a  reasonable  space  of  time,  but  this  is  just  what  is 
increasingly called for. This is because economic and political circumstances can change fast, and 
we have to be able to react to new concerns connected with policy initiatives, respond to public 
opinion  in the ACP countries  or in Europe,  or give  effect  to the  findings  of evaluations  in  the 
interests of increasing the efficiency  and impact of cooperation. 

Under  these  circumstances,  is  there  any  justification  for  keeping  a  range  of  special 
instruments,  or  should  there  be  a  radical  change  of  direction  focusing  on  the  setting  of 

34 

See  inter alia  the  Report  on  Arrangements  and  Possibilities  for  Budgetizing  the 
European  Development  Fund  (  SEC(94)640  final  ). 

69 

Chapter  VI 

overall aUocations of funds allowing aid to be administered in a more flexible way which can 
cope with  needs which are more and  more changing and  divergent? 

There are three possible options: 

(1)  Maintaining the current division of allocations 

Though  this  is  an  option,  it  carries  all  the  disadvantages  described  above  and  will  not 
encourage relations between donor and recipients to move in a direction of independence 
and responsibility. 

(2) 

Gathering all aid operations under the umbrella of a single source of  funds 
This  would  provide  a  maximum  of  flexibility  in  the  organization  and  subsequent 
development of financial assistance. 

(3) 

Creating two or three separate allocations 
These would group together activities of the same nature: 

One  allocation  would  be  set  aside  to  fund  long-term  assistance  for  the  public 
sector. This indicative overall allocation would be used (depending on needs and 
on the outcome of an assessment of the most appropriate action) to support sectoral 
policies or institutional reform, to provide budget assistance or to fund  more one-
off activities; 
A second allocation would be used for resources to cope with emergencies, which 
by their very nature are not foreseeable,  and for all very short-term measures. 
A  third  allocation  might  be  needed  for  direct  assistance  to  non-governmental 
agents, the private  sector, associations, consumer  organizations, NGOs, etc. such 
operations need different administrative arrangements (though EU eligibility criteria 
must always be adhered to). 

The clear distinction between short-term and long-term operations would help to make Community 
action more visible by preventing the confusion  which can be caused by instruments like Stabex 
and the  food-aid  arrangements, which both  have an  "emergency" component  and  a  component 
providing  assistance with more long-term aims. 

A  move  in  this  direction  would  make  Community  aid  policy  more  flexible,  cohesive  and 
transparent. The ability to alter and adapt aid policy for. a given country or group of countries is 
also, however, connected with programming arrangements. These are dealt with in Chapter VLB. 

B. 

Should  aid be granted according to need or according to merit? 

Resources for programmable aid are currently according to the needs of each country relative to 
the  needs  of  others,  human  development  indicators,  the  size  of  the  country,  geographical 
considerations  (such  as  the  country  being  an  island  or  being  landlocked).  Resources  for 
non-programmable  aid (support for  structural adjustment  programmes, arrangements to make up 
for  loss of export earnings, etc.) are governed by separate criteria. 

The automatic nature of the allocation of programmable resources has already been substantially 
modified  (this was done during the mid-term review of the Lomé Convention). Allocation is now 
in  two  tranches.  The  first  is  70%  of  programmable  resources  and  is  intended  to  allow  the 

4 

70 

Chapter  VI 

allocation of resources to be reviewed in the light of the degree to which the recipient  countries' 
undertakings (especially as regards sectoral policy) have been adhered to, the general consistency 
of  the government's  development policy, plus any unforeseen  outside events. 

The new system of allocation by tranches thus introduces a new qualitative criterion by which the 
aid  for  each country  can be  adjusted  according  to  its government's  general  and  sectoral  policy 
performance.  This development translates into action the EU's greater requirements for  efficiency 
and a new concept of partnership based on reciprocal undertakings, foreign aid being used to back 
domestic  reform. 

The EU should continue to act along these lines. However, the fact that programming over several 
years has the advantage of giving developing countries a predictable flow of outside financing and 
of requiring at least a basic level of strategy framework  means that there are grounds for  keeping 
a  system  of  multiannual  programming.  A  number  of  options,  which  will  have  to  reconcile 
flexibility  and predictability, efficiency  and responsibility,  should therefore  be considered. 

Two  questions  arise:  what  should  determine  how  programmable  resources  are  allocated 
among the ACP countries? How can programming be reworked to restore flexibility  to aid 
policy? 

The  growing  gap between  different  categories  of  ACP  country  (between  the  poorest  and  those 
which have more resources to devote to development, and between those which are still in the grip 
of serious political and  social problems and those which have embarked on economic and  social 
reform  and progress) makes this issue all the more important. 

Combine incentives and development  indicators 

The  substantial  importance  attached  to  the  conduct  of  domestic  policy  and  the  incentive-based 
approach which the EU is seeking to promote through  its aid policy  suggest that the concept  of 
"need" (which dictates remedial action) be supplemented by the concept of "good management", 
which would take account of how the state and local authorities assumed their responsibilities. This 
would  mean  that  performance  criteria  for  political  and  economic  life  would  come  into  play 
alongside  social  and  economic  indicators  and  levels  of  poverty.  This  option  would  entail 
establishing  "governance"  criteria  which  were  accepted  by  the  partners.  As  in  the  case  of 
conditionality (dealt with in section C below), it seems preferable to have an assessment of general 
policy  rather  than  very  specific  criteria,  and  historical,  political  and  institutional  considerations 
should not be divorced from social and economic considerations. Whatever the criteria, they should 
be able to be agreed by the parties in advance in order to prevent arbitrariness. 

This option would inevitably make aid more selective. It would enable the EU to focus its  efforts 
on the poorest  countries  and the countries where the impact of its operations is likely  to be  the 
greatest. 

71 

Chapter VI 

Introduce ongoing  programming 

Introducing incentive-based criteria for granting aid would bring a chcnge in the contractual nature 
of  ACP-EU  relations. There would  be no  point  in adopting performance  criteria while  keeping 
five-year  fixed  allocations:  standards  of  governance  can  change  very  rapidly  (i.e.  improve  or 
deteriorate).  This  option  would  also  be  more  compatible  with  a  financing  arrangement  which 
differed  from  the  EDF  (in  which the  Member  States  establish  their  contributions  in advance). 
Budget  arrangements  which  allowed  multiannual  programming  of  expenditure  in  tandem  with 
greater  flexibility  would undoubtedly be more appropriate. 

However, predictability of flows could be preserved by adopting ongoing prograrriming covering 
three, four or five years with regular (yearly, for instance) reviews. This method has been adopted 
for the Euro-Med partnership, for example. It reconciles the goals of predictability and  flexibility 
against the background of a "contract" between donor and recipient which centres on a requirement 
for  efficiency. 

C. 

Types of aid 

The critical appraisal in Chapter II of cooperation past and present is based mainly on the  findings 
of  recent  evaluations  and throws up a number of operational  pointers. It highlights the value of 
increasing  the  sectoral  emphasis  and  support  for  reform,  of  formulating  long-term  strategies  to 
improve  institutional  frameworks  and local capacity to devise economic and social policies, and 
of restricting project  aid to very specific, reform-linked  operations. 

Given the intention of sharing out responsibilities more equitably, encouraging ACP governments 
to implement sustainable development policies, reduce instability and define their own development 
strategies, the best way forward  might be to channel Community  aid  in a lump sum to national 
budgets  instead  of financing sets  of  individual  projects.  This  could  of  course  only  be  done  if 
economic and social performance  criteria were used to decide how much aid should be given and 
only those countries with a proven ability to manage resources would be eligible. 

The evaluations also suggest that the Stabex and Sysmin systems need to be abolished or at least 
amended. 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 and reduce 
the risks faced by some exporters, particularly those in the agricultural sector. Stabex and Sysmin 
are  also  increasingly  being  used  to  support  economic  and  institutional  reform  in  the  affected 
sectors.  However,  the  automatic  triggering  of  these  types  of  instrument  is  making  them  less 
relevant. 

Recent  developments  in the  world  economy  have  increased  the  supply  of  investible  resources 
seeking profitable placement in developing countries, and have increased the number of developing 
countries  offering  good  investment  opportunities  to  investors.  Successful  developing  countries 
receive  their  external  financing  and  external  professional  and  technical  support  essentially  on 
market  terms. It  seems reasonable  for  the  EC to  wish, post  Lomé,  to  concentrate  its grants  on 
assisting  countries  which  are  poorest  and  least  favourably  placed  to  attract  foreign  direct  and 
portfolio  investment. The EU could therefore  think about a new instrument to make it easier  for 
ACP  countries to gain access to capital markets. 

72 

Chapter  VI 

The whole issue of the type of aid to be provided by the EU prompts a number of questions: 

Should support  for macroeconomic  reform  and  sectoral  policies be stepped  up? 
Should project  aid  be phased out in favour  of direct budget  aid? 
Should the EU carry on with its export  earnings compensation  mechanisms? 
What  type of conditionally should the EU  envisage? 
Should the EU think about new ways of  facilitating ACP  access to private capital,  be it in 
the form  of direct investment, project financing  or government  loans? 

- Towards direct budget aid. 
The EU could think about a switch to direct budgetary  aid for  ACP countries. This would work 
well with the structural adjustment  support facility,  which still plays a big part in improving the 
budget planning  and management in the countries concerned. 

In  this case, the  disparate macToeconomic  support  instruments  could  be combined  into  a single 
package of direct budget aid linked to an appropriate macroeconomic framework. There are two 
arguments for this: 

-  it would be a sign of a mature relationship between the EU and ACP countries, based on trust 
in which responsibility  for managing development resources lay with national authorities; 
- unlike project  aid, budget aid does not knock the allocation of expenditure out of kilter. 

Flawed budgetary management and opaque spending decisions constitute the main barriers to any 
move towards budget assistance and mean some minimum attendant conditions would have to be 
imposed. The switch would therefore be seen as a process, marking a stage in the development of 
local capacities and providing an opportunity  for  much more effective  cooperation. 

- From  support for  structural adjustment  to support for  sectoral policies. 
As  explained  earlier,  the  EU-backed  reforms  under  way  in the  ACP countries  are  a  long-term 
process, especially the institutional reforms. In a rapidly changing world that demands the constant 
reworking and reappraisal  of economic policies and social systems, adjustment  itself  becomes a 
permanent process in every country. Within the process, however, different  stages can be singled 
out, in particular the move from an initial phase of structural reforms  concerned with the general 
running  of  the  economy  and public  sector  to  a complementary  stage  centred  on  more  specific 
sectoral aspects. 

As  reforms  progress,  the  EU  will  have  to  be  able  to  redirect  its  aid  towards  sectoral  and 
institutional  support if it is to respond appropriately to the priorities of the moment. 

Community  support  for  reforms  could  therefore  be  tailored  to  whatever  stage  of  structural 
adjustment  a  particular  country  is  at.  This  means  that  within  a  given  set  of  conditions,  direct 
budget aid could be explicitly targeted towards reforms  in specific  sectors. 

- Retaining compensation for export earnings 
In order to compensate  for  sharp drops in export earnings, the EU could  consider  giving  extra 
support  for  individual  sectors  on  top  of  the  total  aid  package  for  the  country  in  question. 
Depending  on whether the export difficulties  were structural or cyclical, the extra funding  could 
be allocated  as sectoral  support or macroeconomic assistance. 

73 

Chapter VI 

-  Reforming  conditionality 
Conditionality is another vital issue in any discussion on the type of aid to be given. Explicitly or 
implicitly,  every  cooperation  programme  has  some  form  of  conditionality.  It  implies  a  certain 
degree of aid selectivity and is designed to encourage recipient countries to modify  their policies 
or  carry  out certain reforms.  The conditions  imposed may concern the kinds of results that  are 
expected  or  the  means to  be  targeted  at  an  objective.  Given  the  experimental  nature  of  many 
reforms, particularly those of an institutional type, an approach based on a searching appraisal of 
the overall impact of a government's policies seems far preferable to just imposing highly specific 
conditions. 

As part  of the  Special  Programme for  Africa,  the Commission  has presented  other donors with 
new proposals for structural adjustment  conditions. This new approach would aim to: 

- encourage recipient countries to internalize  reforms; 
-  apply realistic conditions which take due account of the political  and administrative context; 
-  make a  full  assessment of what has been achieved  in terms of  sustainable  development  rather 
than making  do with à partial appraisal of a few specific  indicators.  Such an assessment  should 
be carried  out in conjunction  with all other donors. 

This comprehensive coordinated approach should also prevent any "stop and go" in aid payments. 

It would also avoid the drawbacks of current practice and change the donor-recipient relationship 
into more of a partnership based on reciprocal undertakings designed to achieve long-term goals. 

- Access to capital for  investment 

At  present  Lomé uses  a  variety  of «instruments to  help countries  find  the  capital  necessary  for 
investment: EDF grants, venture capital also funded  by the EDF and some lending from the own 
resources of the European Investment Bank. 

With  a  view  to  increasing  availability  of  sources  of  finance  at  the  prime  market  rate  for 
investment, in particular infrastructure,  a first option would be greater access to EIB lending. As 
part of the proposed budgétisation of the EDF, EIB lending to ACP countries could then be subject 
to the same modalities that apply to lending in other third countries (in particular with respect to 
provisioning of the Guarantee Fund for  external actions). 

A further  option to be explored could be to adapt present instruments to encourage greater access 
to  private  sources  of  finance.  For  example,  partial  guarantees  (possibly  via  the  EIB)  are  an 
instrument already used with some success by several multilateral agencies in mobilizing long-term 
market finance to cover part or all of the political and/or commercial risk. 

The  application  of these options  as part  of  post-Lomé  cooperation  requires  further  study  and 
consultation. Most of the better-off ACP countries have already established some track-record for 
sovereign credit-worthiness and would probably see little advantage in external guarantees for their 
sovereign borrowing.  On the other hand they may find the idea of guarantees, eg for  privately-
financed  large infrastructure  projects, very attractive because of the many contractual risks which 
continue  to  inhibit  the  market  financing  of  such  projects  and  because  of  the  importance  of 
infrastructure  in sustaining economic expansion. 

74 

Chapter  VI 

Providing guarantees or market-financed  lending through the EIB could be advantageous both for 
both the creditworthy,  or nearly creditworthy, countries and for  the poorer ACP countries.  The 
former  should receive more external  financing from the markets, and their credit ratings should, 
over  time  improve -  giving them  access to more  and cheaper financing  in future.  Less  well-off 
countries might expect to receive a higher  share of available EDF  grants as better-off  countries' 
need for  official financing reduces. 

D. 

Co-management, EU-only management or autonomous  management  by  recipients 
themselves? 

The current Lomé system whereby commitment decisions on cooperation activities and expenditure 
monitoring  are both jointly managed has shown its limits. In practical  terms, the frequent to-ing 
and fro-ing between national  and chief (i.e. Community) authorizing officers  is time-consuming 
and so makes aid less effective.  The system also makes it difficult  to co-finance  operations with 
other donors. 

In operational terms, co-management does little to encourage recipients to take responsibility  for 
the  development  programmes  and  reforms  supported  by  the  EU  even  though  all  Community 
evaluation studies have concluded that this is vital if aid is to be effective.  The gradual shift away 
from irifrastructure-based  aid towards support for socio-economic policies and institutional  reform 
makes it all the more necessary. 

Joint  aid  management  therefore  has to  be reviewed. What  alternatives would  provide the 
reliable  system  needed for managing  Community  aid while  encouraging recipients  to take 
more  responsibility, itself a prerequisite for more effective  cooperation? 

A phased and individualized approach should be adopted in which the degree of responsibility  for 
administrative  and financial management  of the aid grows as good  governance  improves  in the 
recipient state. 

The  aim  would  be to give beneficiaries  steadily more responsibility  for  managing programmes, 
justifying  and monitoring expenditure and assessing the economic and social impact of assistance. 
The best way of doing this would be through direct budget aid. 

In countries where institutional and administrative conditions would rule out this approach in the 
short-term,  the  EU  would  take  sole  management  responsibility  but  would  simultaneously  help 
strengthen the local skills needed to take over responsibility. It would be best not to set up specific 
units but to work.within existing local structures. 

Here too, the type of  management appropriate  in each case would  be decided  on the basis  of  a 
number  of  criteria and would depend  upon the quality of ACP-EU  dialogue, the willingness  of 
recipient countries to match additional Community funds with a contribution of their own and the 
existence of units or machinery for coordinating foreign aid. 

This issue, like many other aspects of ACP-EU relations raised in this Green Paper, will have to 
be  addressed  through  a  case-by-case  approach  tailored  to  individual  countries  or  groups  of 
countries.  The  chosen  system  will  have  to  be  seen  as  evolutionary,  with  management  tasks 
gradually passing into the hands of all ACP beneficiary  countries as administration  gets better. 

75 

Chapter VI 

Generally speaking, any potential changes in the way resources are managed should aim to redirect 
day-to-day consultation and dialogue on cooperation towards substantive issues, and the conditions 
which affect  the impact of programmes and determine the contribution they make to sustainable 
development  in the country concerned. This is one area in which both EU and ACP partners can 
demonstrate their sense of responsibility to their respective electorates. 

76 

FOLLOW-UP 

FOLLOW-UP  TO THE GREEN PAPER 

The  Green  Paper  is  one  stage in the consultation  process  launched  by  the Commission  on  the 
future  of  ACP-EU  relations  and  in  the  related  debate  between  all  those  bodies  involved  in 
development It aims to raise awareness of the need for an effective EU cooperation policy towards 
ACP countries and sets out the main issues on which the Union will have to decide before starting 
negotiations with the ACP. The Paper does not claim to be authoritative or exhaustive, it simply 
outlines a number of different  ways  forward. 

In publishing the Paper, the Commission is inviting all those concerned to examine the options and 
arguments presented and to give their reactions and suggestions. The Commission  will  continue 
to stimulate the debate through meetings and seminars. Feedback can also be sent in writing to the 
Directorate  General for  Development 

In accordance with the institutional provisions, the Commission will formulate detailed proposals 
for  renewing the framework for ACP-EU relations during the second half of next year. 

77 

Green Paper on EU-ACP Relations 

Annex 

Tables - Graphs 

Resource Flows to all ACP Countries 

Resource Flows from EU to ACP Countries 

OECD Countries ODA  1990-95 

ODA as Share ofGNP 1995 

European Development Fund : Breakdown of Aid by Instrument 

EÙ'- Developing Country Trade 1976-1994 

ACP Countries'Exports to the US, Japan and the EU 

Developing Countries' Performance and Prospects 

Economic Performance of Special Programme for Africa (SPA) Countries 

~?ï 

EXTERNAL RESOURCE FLOWS TO ALL ACP COUNTRIES 

Net flows from all sources  US$ million  current prices 

ODA 
Other Official 
Private Flows net 
Total 
«mix»: OECD-DAC 

1983 

1984 

1985 

1986 

1987 

1988 

1989 

1990 

1991 

1992 

1993 

8306 
1972 
2983 
13261 

8647 
2644 
-247 
11044 

9579 
1583 
-259 
10903 

11505 
2156 
1006 
14567 

13353 
2988 
779 
17120 

14968 
2169 
436 
17573 

15941 
2370 
2059 
20370 

IB 808 
3068 
-1057 
20819 

18275 
1604 
339 
20218 

19561 
1620 
1094 
22275 

17639 
1126 
1439 
20204 

25000 -\ 

20000  4—• 

^  15000  -I 

P 
g 

loooo  H 

5000  4 

0  I  ^à 

C  I 

-5000 -

Years 

-•-ODA 
»  Other Official 
•*—Private Hows net 

Total 

RESOURCE FLOWS FROM EU TO ACP COUNTRIES 
NetFtawj  US J million  in current prices 

ODA 
BU Member Countries 
EU Institutions 
TolalEUODA 
Othe Official  Flore  (OOF) 
EU Member Countries 
EU Institutions 
Total EU  OOF 
Net Private Fluwi 
Net Private  Flows from EU 
Total Flows 
EU Member Countries 
EU Institutions 
Total EU 
source: OECD-DAC 

1983 

1984 

1  1985 

| 

1986 

1987 

1988 

15*89 

1990 

1991 

1992 

1993 

2653 
591 
3244 

752 
56 
808 

2812 
700 
3512 

1375 
23 
1398 

2869 
657 
3526 

606 
43 
649 

4289 
854 
5143 

643 
51 
894 

5184 
915 
6099 

LB63 
40 
1903 

5906 
1462 
7368 

1252 

1250 

5951 
1458 
7409 

1290 
23 
1313 

7387 
1655 
9042 

1352 
45 
1397 

25221 

356 

400 

•143 

-899 

-729 

1091 

•1275 

5926 
647 
6573 

4543 
723 
5266 

3875 
700 
4575 

4989 
906 
5895 

6147 
955 
7102 

6428 
1460 
7888 

8332 
1481 
9813 

7463 
1700 
9163 

6555 
1713 
8268 

789 
44 
833 

116 

7460 
1757 
9217 

7081 
2432 
9513 

743 
188 
931 

6449 
1671 
8120 \ 

314 
-48 
266 

599 

1619  | 

8423 
2620 
11043 

8382 
1623 
10005 

—•-TolalEUODA 
-•—Total EU OOF 
—•*—Private Flews from EU 
—**—Totaf Flows from EU 

1993 

Official  Development Assistance (ODA) disbursements of DAC countries 1990-1995 
{Net dtsborsenicnu at current prices and exchange r*t«s in millions of US lollarf) 

Country 

Total  ODA 
1990 

Total  ODA 
1991 

Total  ODA 
1992 

Total  ODA 
1993 

TbUl  ODA 
1994 

Total ODA 
1995 

1995 ODA 
asa%of 
Total DAC 

Australia 

Austria 

Belgium 
Canada. 

Denmark 

Finland 

France 
Germany 

Ireland 

Italy 
Japan 

Luxemburg 
Netherlands 

Nov» Zealand 
Norway 
Portugal 

Spain 

Sweden 
Switzerland 
United Kingdom 

United States 
TOTAL DAC 

955 
394 
889 

2.470 

1.171 
844 
6.874 

6J2Û 
57 

3.395 
9.054 
25 
2.526 

95 
1.205 

148 
965 
1.998 

750 

2.630 
10.194 
S2.9S1 

1.050 

543 
831 
2.604 
1.200 

930 
7.386 

6.890 

72 
3.347 
10.945 
42 

1517 
100 
1.178 

213 
1.262 
2.116 

863 
3.184 

9.407 
56.680 

1.011 
531 
840 

2.515 

1.392 
644 

X.162 
6.963 

70 

4.122 
11.119 
38 
2.742 

97 
1.226 

302 
1.518 

2.45.3 
1.139 

3.153 

10.813 
60.850 

953 
544 
810 

2.373 
1.340 
355 
7.915 
6.954 

81 

3.043 
11.259 

50 
2.525 

98 
1.014 
248 

1.304 
1.769 

793 
2.920 

10.123 
56.471 

1.091 
655 

726 

2550 

1.446 
290 
8.466 
6.818 

109 
2.705 

13.239 
59 

2.517 
110 

1.137 
308 
1.305 

1.819 

982 
3.197 

9.927 
59.156 

1.136 

747 
1.033 

2.113 
1.628 
387 
8.439 

7.481 
143 

1.521 
14.354 
u.c. 

3.321 
123 
1.247 
269 

1.309 
1.887 

1.084 
3.185 
7.3Û3 
58.710 

1.9% 
1.3% 
1.8% 
3.6% 

2.8% 
0.7% 

14.4% 

12.7% 
0,2% 
2.6% 

24,4% 

5,7% 
0,2% 

2,1% 
0,5% 
2,2% 
3.2% 

1.8% 
5,4% 

12,4% 

100,0% 

Mem»: 
EUco*uurieaM 
-ofwkickEC0 
source: OCDE - DAC 

25.000 
3.02t 

26.944 
3.818 

29.302 
4.461 

27.190 
3.948 

27.656 

4.825 

31.411 
5.501 

53,5% 
9,4% 

(1) • Total of the EU countries at end 1994 (excluding Austria, Finland and Sweden), excluding Greece who u nol yd a m< 

:mher ofthe DAC. 

(2) - i.e. thai portion of EU Member States' total ODA chanoUcd through die Commission  (EDF & General Community Bi 

jdget), included above. 

%t 

DAC Members' ODA  Disbursements 
USS Million, current prices 

1990 

1991 

1992 

1993 

1994 

1995 

1995 ODA 
as share of 
DAC toul 
(%) 

United States 

Japan 
EU member States 
Other DAC countries 
TOTAL 
•of which EC 
• Community aid is included in member states' aid; Greeee is not a. DAC member. 

11.259 
27.J90 
7.899 
56471 
3.948 

9.407 
10.945 
26.944 
9.384 
56.6*0 
3.816 

10.813 
11.119 
29.302 
9.616 
6O8S0 
4.461 

10.194 
9.054 
23.000 
8.713 
52.961 
3.028 

10.123 

9.927 
13.239 
27.656 
8.334 
59.156 
4.825 

35.000 

30.000 H— 

25.000 

3  20.000 

| 

15.000 

10.000 

5.000 

7.303 
14.354 
31.350 
5.703 
58.710 
5.501 

12% 

24% 
53% 

10% 
100% 
9% 

•United 
Sûtes 

•Japan 

• EU member] 
states 

Other DAC 
countries 

•"of which 
EC 

1990 

1991 

1992  Years  1993 

1994 

1995 

source: OECD-DAC 

1% 

ODA as % of GNP in 1995 
(source OECD-DAQ 

EU Member States 

TOTAL DAC 

0,00% 

0,10% 

0,20% 

0,30% 

0,40% 

0.50% 

0,60% 

0,70% 

0,80% 

0,90% 

1,00% 

& 

A n n u al  S h a r es  of Aid by  Instrument 
(Decisions:  all EDF) 
1993 

1994 

Programmed aid 
Structural  Adjustment 
Risk  capital 
Interest  rebates 
Emergency aid 
Aid to  refugees 
Sysmin 
Stabex 
T O T AL 

1014,39 
378,00 
53,65 
21,51 
83,15 
29,30 
50,03 
1,17 
1631,20 

1041,94 
222,35 
214,43 
53,85 
249,98 
25,61 
57,25 
.615J2 
2480,53 

1995 

828,58 
145,50 
256,82 
35,53 
33,68 
4.40 
84,49 
131,09 
1520,09 

MECU 

Percentage of  decisions 
by instrument in 1995 

Emergency aid 
refugees 
3% 

Intercala rebatea 
2% 

Riak. capital 
17% 

Structural Adjustment 
10% 

Programmed aid 
55% 

The European Development  Fund  (EDF) is the principal  financial  instrument of the Lome  Convention, 
providing  grants to the  70 ACP  countries party to the Convention.  EDF  resources come  from ad  hoc 
contributions from member  countries  and do not form paît  of  the Union  Budget 
A  new E DF  is established  to finance  each new  Convention, for example EDF 6 for L o me  III and EDF  7 for the 
first  five  years  of Lome  IV.  E DF  8 has just been established  and will  finance  cooperation over the  final 
quinquennium of Lome  IV.  Its'rcsources will be committed to meeting priority  needs 
arising within the  objectives of human  resource  development,  food  security, infrastructure  development,  industria 
investment  etc. 

source:  European  Commission 

- Infofinance 

.1995 

^ 

EU - Developing Country Trade -  1976-1994 ( ECUs billion) 

Imports into the EU 
ACP 
Asia 
Latin America 
Mediteranean 
AULDCs 
All non EC 

Exports from EU 
ACP 
Asia 
Latin America 
Mediterranean 
AULDCs 
All non EC. 
World 

1976 

1980 

1985 

1990 

1992 

1994 

10,5 
6,7 
8,3 
9,6 
70,7 
157,7 

19,4 
16 
13.7 
16.4 
114,3 
269,9 

26.8 
26 
25.8 
32,3 
128,9 
399,7 

21,9 
50,9 
25,7 
29,8 
143,8 
461.5 

18,0 
66.4 
24,8 
30,3 
145,6 
487,6 

18,61 
84.3 
27,6 
30,8| 
160,71 
540 

1976 

1980 

1985 

1990 

1992 

1994 

2A 
7,5 
7,7 
12,3 
550,9 
141,3 
292,9 

15.7 
13,1 
12 
19,8 
83,4 
221,1 
475,1 

HA 
29,4 
Ihl 
29,8 
121,7 
380,8 
811.8 

16,6 
41 
15,6 
28,5 
134,2 
415a3 
1076,6 

17,0 
47,1 
20,4 
28,6 
153,1 
436,1 
1137,8 

14,9| 
70,51 
29,61 
33,11 
18MI 
539 

1976 

Share of Imports from 
outside RUr%) 
ixZ 
ACP 
4,2 
Asia 
A3 
Latin America 
6,1 
Mediteranean 
AULDCs 
44^8 
100 
AU non EC 
source: EUROSTAT - ODI - March 1996 

1980 

1985 

1990 

1992 

1994 

7.2 
JL2 
5,1 
ii 
42,4 
100 

6,7 
6,5 
6.5 
11 
34,7 
100 

4.7 
11 
5,6 
6,5 
31,2 
100 

3,7 
13,6 
5,1 
6,2 
29,9 
100 

2$ 
13,1 
5.4 
6.1 
34.2| 
100 

g£ 

A CP  C o u n t r i e s'  E x p o r ts  to  t he  U S,  J a p an  a nd  t he  EU 

Countries 

US average 
1990-92 

Japan 
average 
1990-92 

L 

1 

ANGOLA 
BENIN 
BOTSWANA 
BURKINA FASO 
BURUNDI 
CAMEROUN 
CAPE  VERDE 
CENTR.AFR.REP. 
CHAD 
COMOROS 
CONGO 
COTE  D'IVOIRE 
DJIBOUTI 
EQUAT.  GUINEA 
ERITHREA* 
ETHIOPIA 
GABON 
GAMBIA 
GHANA 
GUINEA 
GUINEA BISSAU 
KENYA 
LESOTHO 
LIBERIA 
MADAGASCAR 
MALAWI 
MALI 
MAURITIUS 
MAURITANIA 
MOZAMBIQUE 
NAMIBIA** 
NIGER 
NIGERIA 
RWANDA 
SAO TOME and  PRINCIPE 
SENEGAL 
SEYCHELLES 
SIERRA LEONE 
SOMALIA 
SUDAN 
SWAZILAND 
TANZANIA 
TOGO 
UGANDA 
ZAIRE 
ZAMBIA 

1453,92 
11.75 
0.00 
0,26 
6,03 
76,59 
0,02 
0,55 
0f18 
6,75 
330,98 
149,52 
0,02 
0,10 

8,09 
583,35 
1T08 
87,64 
97,28 
•  0,03 
50,48 
0,00 
7.30 
34f85 
47,17 
1,16 
96,26 
7,46 
15,04 

V4 
3661,32 
4,26 
0,14 
8,07 
0,75" 
38,72 
1,77 
9,29 
0,00 
9,33 
3,40 
11,29 
191,87 
37,94 

20.89 
0,93 
5,96 
5,76 
2,26 
10,57 
0,39 
0,14 
9,05 
0.37 
2,04 
26,05 
0,05 
0,01 

47,71 
117,98 
47,77 
68,40 
3,23 
0,14 
20,09 
0,08 
16,26 
33,61 
64,89 
4,63 
3,25 
132.41 
18.21 

0,16 
8,56 
1,00 
0,02 
12,39 
0,45 
2.51 
.0,23 
31,23 
5.77 
25,39 
0,73 
4,56 
78,18 
338,06 

EU average 
1990-92 

ACF Ex ports In million $ US 
World 
average 
1990-92 
3873,30 
109,70 
345,00 
171,00 
119,00 
2075,00 
12,30 
133,70 
95,70 
29,00 
.  1314,00 
3525,30 
59,00 
41,30 

O E CD 
average 
1990-92 
3466.14 
77,11 
199,19 
61,18 
73.99 
1708,58 
7,24 
113,43 
76,67 
27,73 
1280,67 
2293.10 
5,36 
41,13 

1260,30 
54,23 
98,61 
53.95 
57.12 
1543,48 
.6,69 
109,86 
65,08 
18,62 
785,72 
1963,90 
4.76 
40,91 

129,72 
1208,74 
120,96 
645,71 
379,61 
7.47 
657,62 
23,93 
624,42 
209,36 
195,33 
92,79 
1004,63 
295,99 
92,25 

210,02 
5571,01 
69,79 
3,89 
398,71 
55,40 
213,77 
28,47 
137,16 
150,69 
215,57 
97,06 
H7,76 
1126,72 
363,55 

213,85 
2229,50 
173,41 
908,31 
582,40 
7.86 
830.62 
27.52 
1151,92 
311,30 
355,34 
108,26 
.  1198,65 
444,78 
148,78 

237,18 
12280,55 
87,51 
4,40 
433,56 
57,18 
280,75 
32,42 
195,49 
195,07 
272,63 
145,28 
177,13 
1558,71 
768.65 

342,30 
2700,70 
198,70 
1228.30 
687.30 
30,30 
1387,30 
68,30 
1178,70 
783,00 
413,00 
317,70 
1267,00 
552,70 
391,70 

263,00 
14190,00 
122,00 
14,30 
717,70 
94,30 
292,00 
131,30 
444,00 
365,70 
465,00 
289,00 
197,00 
1767,00 
1300,70 

US «s V. of 
world 

EU as "/. of 
world 

37,54 
10,71 
0,00 
0,15 
5,07 
3.69 
0,17 
0,41 
0,19 
23,26 
25,19 
4,24 
0,03 
0,23 

2,36 
21,60 
0,55 
7.13 
14,15 
0,11 
3,64 
0,00 
0,62 
4,45 
11.42 
0,36 
7,60 
1,35 
3,84 

1.04 
25,80 
3,49 
0,95 
1.12 
0,79 
13,26 
1,35 
2,09 
0,00 
2,01 

1.18 
5,73 
10,86 
.  2,92 

32,54 
49,43 
28,58 
31,55 
48,00 
74,38 
54,37 
82,17 
68,00 
64,22 
59.80 
55,71 
8,06 
99,05 

37,90 
44,76 
60,88 
52,57 
55,23 
24,66 
47,40 
35,03 
52,97 
26,74 
47,29 
29,21 
79,29 
53,55 
23,55 

79,85 
39,26 
57,20 
27,20 
55,55 
58,75 
73,21 
21,68 
30.89 
41,21 
46,36 
33,58 
75,00 
63,76 
27,95 

u 

Countries 

US average 
1990-92 

Japan av. 
1990-92 

EU average 
1990-92 

69,43 
7124,18 
3,48 
365,13 
21.28 
36,74 
3,64 
1488,05 
5,51 
71,31 
135.94 
420,71 

ZIMBABWE 
AFRICA 
ANTIGUA 
BAHAMAS 
BARBADOS 
BELIZE 
DOMINICA 
DOMINICAN REP. 
GRENADA 
GUYANA 
HAITI 
JAMAICA 
ST KTTTS& NEVIS*** 
ST VINCENT 
ST.  LUCIA 
SURINAME*** 
TRINIDAD &  TOBAGO 
CARIBBEAN 
FUI 
KIRIBATI*** 
PAPUA  NEW  GUINEA 
SOLOMON ISLANDS 
TONGA 
TUVALU*** 
2,40 
VANUATU 
0,00 
WESTERN  SAMOA 
83,51 
PACIFIC 
10391,37 
TOTAL  ACP 
source; EUROSTAT - ODI - March 1996 

610,04 
3183,68 
41,51 

35,75 
0.52 
3,33 

4,12 
17,73 

OECD 
average 
1990-92 

912,16 
35762,69 
17,54 
988,17 
88.10 
111,17 
57,23 
2328,53 
22,69 
265,86 
301,46 
1249,83 

World 
average 
1990-92 

1616,00 
45719,30 
26,70 
1038,00 
149,30 
131,70 
111,30 
2418,30 
38,70 
329,00 
311,70 
1496,30 

144.48 
1316,85 
0.32 
17,26 
0,86 
1,44 
1,99 
18,51 
1,05 
16,27 
1,83 
16,36 

586,93 
21128,26 
10,42 
239,29 
44,03 
49,46 
48,21 
182,43 
12,11 
151,42 
35,21 
328,09 

7,17 
0,08 

71,47 
103,52 

92,98 
131,28 

120,00 
147,00 

25,26 
108,40 
34,91 

358,08 
45,41 
10,78 

218,52 
1494,18 
138,16 

1250,64 
6905,48 
318,83 

1903,00 
8221,00 
397,00 

272.64 
21,18 
0,70 

798,22 
69,00 
19,09 

1375,30 
93,30 
20,30 

5,09 
2,49 
454,27 
1879,52 

15,04 
1,19 
447,72 
23070,16 

25.08 
18,24 
1230,22 
43898,39 

28,30 
14,70 
1914,20 
55854,50 

* Eritrea has become the 70th ACP Country in Oct.  1993, following independence 
** Namibia has become the 69th ACP Country in Dec.  1990,  following independence 
*** Not available 

US *.<  % of 
world 

EU as  % of 
world 

4,30] 
15,58 
13.03 
35,18 
14,26 
27,89 
3,27 
61,53 
14.23 
21,67 
43,61 
28,12 

3,44 
12,06 

32,06 
38,73 
10,46 

2,60 
0,56 
16.41 

8,49 
0,00 
4,33 
19,00 

36,32 
46,21 
39,04 
23,05 
29.49 
37.56 
43,31 
7,54 
31,30 
46,02 
11,30 
21,93 

59,56 
70,42 

11,48 
18,18 
34,80 

19,82 
22,70 
3,43 

53,15 
.  8,10 
23,27 
41,00 

%î 

Developing Counlries Performance and Prospects 

Real GDP Growth 

Developing Countries* 

East Asia 
South Asia 
Sub-Saharan Africa 
Latin America & Caribbean 
Middle East and North Africa 

* Excl Eastern Europe and F SU 

Source: World Bank: Global Economic Prospects 

1986-95 

1991-94  1995(est.)  1996-97 

1996-2005 

Forecasts 

4,2 

8.1 
5.1 
1,8 
2,4 
1.1 

5,0 

9,4 
3.9 
0,7 
3.6 
2,4 

4,9 

9.2 
5,5 
3.8 
0,9 
2.5 

5,1 

8,2 
5,5 
3.7 
2.6 
3,2 

5,4 

7.9 
5.4 
3,8 
3,8 
2.9 

o4 

SPA Countries* Performance 

Annual Growth (%) 

GDP 

weighted average 

median 

Exports 

Imports 

Savings and Investment as % of GDP 

Saving 

Investment 
of which private investment 

SPA-1  21 countries 
SPA 2 27 countries 
SPA-3  31 countries 
Source: World Bank - SPA Phase Four May 1996, 

SPA-1 
1988-90 

SPA-2 
1991-93 

SPA-3 
1994-96 

5,2 
3.8 

4.3 

2.5 

3.7 

19.3 

3,5 
1.6 

0,6 

-2.3 

2^2 

18,8 
9,2 

5.1 
4,1 

6.8 

12,5 

5,9 

19,8 
10,6 

ISSN 0254-1475 

COM(96) 570 final 

DOCUMENTS 

EN 

11 

Catalogue number  :  CB-CO-96-604-EN-C 

ISBN 92-78-11793-5 

Office  for Official Publications of the European  Communities 

L-2985 Luxembourg 

ISSN 0254-1475 

COM(96) 570  final 

DOCUMENTS 

EN 

11 

Catalogue  number  :  CB-CO-96-604-EN-C 

ISBN 92-78-11793-5 

Office  for Official  Publications of the European  Communities 

L-2985  Luxembourg