Trade not aid

Background

Countries can improve their standard of living by selling more goods abroad (exports), this gives them money to buy goods from other countries (imports).

Many countries make it difficult for others to export their goods to them by putting a quota, or limit, on the amount of goods they import and having tariffs, or taxes, which are added to the price of imported goods.

The EU has the third biggest economy in the world and the world’s biggest aid programme. Since 1975 the EU has linked trade and aid together under the Lomé Convention, the aim of which is to develop in countries in Africa, the Caribbean and the Pacific (ACPs) ‘a partnership agreement based on mutual independence’. Put simply, Lomé guarantees African, Caribbean and Pacific countries special access to European markets with no reciprocal access for European exporters.

The EU is the worlds biggest trading bloc.

Lomé has two key components: Aid and Trade. The EU’s aid policy is known to be successful because of its focus on development rather than strategic and commercial interests. On the trade angle it has been successful too: with no tariffs to pay, Africa, the Caribbean and the Pacific members have enjoyed a competitive advantage over say Japan and the USA.

Given the ‘life support’ role that Lomé has provided, ACP countries ask why after 25 years is it to be removed? Principally, it is because of poor infrastructure within ACPs it means there’s a lack of development initiative and little entrepreneurial input, ACPs are poor countries. By focusing dependence on the EU, ACPs have not sought out other markets. Globalisation of industry means that the advantages of free access provided by the EU have diminished. Many agree that locking the ACPs into Lomé has been unfair.

A stay of a further 2 years was agreed beyond 2000 for Lomé late in 1999. After

this period Lomé will be replaced with regional free-trade areas, this will reform

reciprocity to importing and exporting, and tariff barriers will have to be removed.

WTO consider Lomé to be unfair.

CASE STUDY - Is the Lomé pact crucial to Pacific Island ACP Nations’ Survival? - Nothing less than the economic survival of island nations in the South Pacific may be at stake as the European Union continues to consider the revision of a special trade and aid pact with African, Caribbean and Pacific (ACP) states.

The lifeline of some of the Pacific island economies, such as the preferential access the canned tuna industry gets to the EU market, is among the key areas up for renegotiation. Tuna is the biggest export earner for most of these countries, this industry is crucial to the longterm survival of most island nation economies.

Vanuatu’s fledgling beef exports and tree crops are other areas which will be badly affected if the Lomé Convention is not renegotiated. So will Fiji’s sugar industry.

The eight signatories to the Lomé Convention from the South Pacific are Fiji, Kiribati, Papua New Guinea, Solomon Islands, Tonga, Tuvalu, Vanuatu and Western Samoa.

Since the Lomé Convention was negotiated in 1975, the eight Pacific island countries have received EU aid worth $1675 billion.

The biggest, Papua New Guinea, with a population of $4.5 million, has received $725 million while Tuvalu, with 9000 people, has benefited from $12 million in aid and trade benefits.

The EU’s ambassador to the Pacific, Germany’s Gerd Jarchow, has hinted that the EU may not be that committed to the Pacific in the coming negotiation phase.

‘Lomé has to be changed because the world has changed so much’. ‘You can’t treat the Pacific the same way as Africa or the Caribbean countries. The interests of the Pacific is more to the Pacific Rim countries than to Europe.’

Further, now that central European nations are about to join the body they will have no interest in paying for the Pacific. They want to pay for themselves and this could have an impact.’

A typical case in point is Fiji’s sugar industry, where Europe pays, under the Sugar Protocol Agreement, a guaranteed price which is sometimes three or four times above the world market price.

This agreement alone is worth some $141 million a year to Fiji. Sugar exports account for 12% of Fiji’s Gross Domestic Product (GDP) and 58% of its agricultural production. In a country of 750 000 people, the sugar industry provides an estimated 105 000 jobs.

Though Fiji’s sugar agreement with the EU technically goes beyond the 2000 deadline for the Lomé Convention, it is likely the agreement will be removed as Lome ends.

Working on this premise, Fiji has planned its economic strategies several years ahead. Whether this confidence is misplaced remains to be seen. Other Pacific Nation members are hoping for the EU to throw out special lifelines for their industries when the Lomé Convention is renegotiated!

Summary

The established end of Lomé will undoubtedly damage developing countries, unemployment will increase and the standard of living will drop, as ACPs have to face up to the fiercely competitive world economic market. ACPs will undoubtedly be further marginalised occasionally and socially; appeasing WTO may spell the death knell for many of the ACPs!