Has the Lome Convention failed ACP trade?

• Author: Cosgrove, Carol
• Position: Trade between African, Caribbean and Pacific states and the European Community - Contemporary Issues in World Trade

Carol Cosgrove(1)

In 1975, when the first Lome Convention between the European Community (E.C.) and the African, Caribbean and Pacific (ACP) states was signed, ACP exports accounted for 3.4 percent of total E.C. imports.(2) However, they failed to keep pace with the growth in E.C. trade, declining to 3.2 percent of E.C. imports by 1985 and to only 1.5 percent of E.C. imports by 1992.(3) Average E.C. import growth between 1985 and 1991 amounted to more than 12 percent per annum, while ACP exports to the European Community expanded less than 7 percent per annum over the same period. The Lome Convention, therefore, did not provide the essential supporting infrastructure to enable the ACP states to maintain their market share. Could they ever have done so? Was it realistic to expect that the Lome Convention alone could deliver ACP export success? What should the ACP do to achieve this goal? To what extent is it possible to reform the trade provisions of the Lome Convention to provide more substantial trade development support for the ACP economies?

This article examines the record of ACP exports to the European Community and explores the wide range of problems associated with ACP trade performance in the E.C. marketplace. It is divided into five main sections: The first assesses the record of ACP exports to the European Community from 1976 to 1992; the second section comments on the preferential position of the ACP states in E.C. markets, incorporating a brief investigation of the implications of the Single European Market program; the third section reviews the problems of ACP trade development, including the apparent marginalization of ACP trade in the E.C. market; the fourth section briefly probes E.C. trade policy and the likely implications of the 1993 General Agreement on Tariffs and Trade (GATT) for the ACP states; and the fifth section considers the future prospects for ACP-E.C. trade and suggests possible innovations for future Lome Conventions.

THE ACP Export RECORD

The fourth Lome Convention (Lome IV), which entered into force in 1991, commits the European Community and the ACP states to promoting and diversifying ACP exports. It perpetuates the close, contractual relationship originally established in 1975 as a successor to the older post-colonial arrangements that had existed between various E.C. member states and their former colonies. The aim of the general trade provisions of Lome IV is to "provide a firm and solid foundation for trade cooperation between the ACP states and the Community," based on the principle of free access to the E.C. market for products originating in the ACP states, with special provisions for agricultural products and a safeguard clause.(4) The signatories of Lome IV reaffirmed the commitment made in the preceding Lome Conventions to promote ACP development through duty-free access to the E.C. market.

However, the value of duty-free access to the European Community is not as significant as it might at first seem. In 1993, the E.C. Commission calculated that 63.4 percent of imports from ACP states would enter the European Community duty-free anyway, under the most-favored-nation provision and generalized system of preferences (GSP).(5) Thus, duty-free access confers no significant preferential advantage on the ACP states for almost two-thirds of their exports.

Duty-free access is most significant for ACP exports that would otherwise face non-tariff barriers, common external tariff duties or common agricultural policy (CAP) levies. For this one-third or so of ACP exports to the European Community, duty- free entry represents a potential advantage. Realizing this advantage depends on the nature of the E.C. market restrictions that competing suppliers face, including duties, as well as the common commercial policy and CAP quantitative restrictions. There are varying degrees of preference. Exports of temperate agricultural products subject to the CAP, for example, receive only a limited degree of preference. Given the general structure of the common external tariff, the more processed the product, the higher the tariff. This implies that the ACP states have a substantial incentive to add value to primary commodities, thereby increasing their preference margin in E.C. markets.

As indicated, however, the ACP share of the E.C. import market has declined fairly steadily since 1975. Fearing a continuing dismal trade performance, the European Community and the ACP states are committed to reviewing the Lome IV record, beginning in June 1994. In this midterm review, the ACP most likely will focus on certain aspects of the relationship, such as aid and broader aspects of development cooperation, instead of the trade provisions of the Lome Convention. While recognizing that the impact of the current recession on the European economies is likely to dampen E.C. generosity, the ACP states are fearful that any concessions on the trade regime could be at the expense of future aid commitments. Similarly, the European Community has relatively less room for maneuver given the results of the tropical products round of the GATT talks, which will generally reduce and eventually eliminate tariffs on most of these commodities.

The midterm review of Lome IV probably will deal only minimally with trade issues, adjusting the already established trade regime at the margin, rather than taking the opportunity to look at how the Lome Convention could be reshaped to meet a stated objective of the Treaty of Maastricht (the Treaty on European Union which entered into force on 1 November 1993): the integration of the ACP countries into the world economy.(6) The midterm review most likely will only fine-tune existing Lome trade provisions, especially rules of origin and measures to help the ACP states take greater advantage of their preferential relationship with the European Community.

TABLE 1 Trends in E.C. Trade with Developing Countries, 1976 to 1992 (in billions of Ecu) E.C. Imports from: 1976 1980 1985 1990 1992 ACP 10.5 19.4 26.8 21.9 18.C Asia 6.7 16.0 26.0 50.9 66.4 Latin America 8.3 13.7 25.8 25.7 24.8 Me iteffanean 9.6 16.4 32.3 29.8 30.3 Rest of the world 273.51 453 717.3 1021.4 1067 Total 308.61 518.9 828.2 1127.8 1207.2 E.C. Exports to: 1976 1980 1985 1990 1992 ACP 9.6 15.7 17.4 16.6 17.0 Asia 7.5 13.1 29.7 41.0 47.1 Latin America 7.7 12.0 13.5 15.6 20.4 Mediterranean 12.3 19.8 29.8 28.5 28.6 Rest of the world 255.1 414 1 721.41 975.3 1023.9 Total 292.91 475.01 811.81 1077 1137 ACP-E.C. Trade 1976 1980 1985 1990 1992 Balance Imeorts-exjgorts 0.9 3.7 9.4 5.3 1 Source: Eurostat; calculations by CTA Economic & Export Analysts Ltd. Table 1 indicates the overall evolution of ACP-E.C. trade from 1976 to 1992, comparing the ACP performance with that of other developing countries, principally those in Latin America and Asia. In 1992 the European Community imported 17.95 billion Ecu in goods and services from the ACP states, compared with 24.8 billion Ecu from Latin American countries, 30.3 billion Ecu from Mediterranean countries and 66.4 billion Ecu from Asian developing countries (i.e. Asia excluding Japan and Hong Kong). Over the period 1976 to 1992, the average annual growth in exports to the European Community for each of these areas was respectively: ACP, 2.28 percent; Mediterranean, 5.87 percent; Latin America, 5.97 percent; and Asia, 11.7 percent.

Structure of ACP Exports

ACP exports are donated by a small group of primary commodities: crude petroleum, uncut diamonds, cocoa beans, wood, coffee beans, copper and fruit (especially bananas). These 7 commodity groups accounted for more than 54 percent of ACP exports in 1992, as shown in Figure 2. In recent years, a decline in world market prices for most of these commodities has further depressed ACP export performance.

Approximately 27 percent of ACP exports in 1992 were classified in the processed/manufactured category, representing a shift of only 7 percent from 1976 to 1992.(7) When examining unit values of ACP exports, it is clear that even modest processing significantly adds value. For instance, in 1992, cocoa beans were valued at 1000 Ecu per ton, whereas cocoa butter had a value of 2500 Ecu per ton. The sawing of rough wood adds a value of 207 Ecu to its unit price of 260 Ecu per ton.

Value-added Exports

There are some successes, however, at the individual product level. Most of these successes have occurred in products where ACP states enjoy a significant preferential advantage in the E.C. market, whether by virtue of the CAP or special restrictions on competing exports from other developing countries under the GSP or the MultiFibre Arrangement. In 1989, Matthew McQueen and Christopher Stephens identified a range of non-traditional ACP exports that they believed had benefitted substantially from the Lome Convention.(8) They examined instances of rapid ACP export growth and measured the preference margin enjoyed in the E.C. market. In particular, they identified canned tuna, leather and leather products, fresh flowers and some vegetables (notably green beans) together with textiles and garments as exports that had benefitted. Many of these exports are also subject to the CAP, which has an even more restrictive impact on third countries than on the ACP.

Subsequent research undertaken for the European Commission in 1992 and 1993 has confirmed much of the McQueen and Stephens study. In the case of Africa, fish and fish products account for many success stories.(9) Much of the success of fish products dates from 1982, when the Lome 11 trade regime emphasized the E.C. commitment to opening its markets to ACP products. Similarly, in the case of the Caribbean countries, the market share of spirits and other alcoholic beverages grew, not least as a result of the rum protocol attached to successive Lome Conventions which gave special access conditions to ACP states.

Assessment

When reviewing ACP export performance to the E.C. market, it...