The Role and Place of Intra-regional Cooperation in the Framework of Future ACP-EU Relations

Evelyn Pangeti

Issues Paper prepared for the Summit of ACP Heads of State and Government

Libreville, Gabon, 6-7 November 1997

Executive Summary

It is in this context that regional economic integration is seen as the main route towards the restructuring of ACP economies away from their traditional primary exports, away from heavy dependence on EU markets, and towards new and more sustainable, as well as competitive production and marketing structures. The rationale for this is as follows:

1. It is not enough to aim for economic growth alone, but for balanced and sustainable development;
2. pinning ACP hopes in the Lomé convention has already proved to be unrewarding, and will not solve the problems of the ACP in the current climate;
3. globalisation is here now, and the ACP should prepare themselves for meaningful participation in it, instead of trying to delay the inevitable by holding on to Lomé, and
4. for the ACP to participate in the global economy, they need to diversify their economies, but aim for the regional economies first before plunging onto the global market.

The paper sees the EU as a major player in this drive to promote regional integration within the ACP. The EU can facilitate the transitional arrangements that are necessary to buy time for the ACP economies to improve; it can also assist financially and technically in strengthening the various regional efforts, and ensure that its trade with the ACP contributes to both growth and development.

Finally, the proposal to regionalise future ACP relations with the EU should not mean the "death" of the group as such. It is simply an acknowledgement of the diverse experiences and interests of the different ACP regions which cannot be meaningfully and gainfully "bunched" together.

Introduction: The Context

The expiration of the Lomé convention in February 2000 raises a number of diverse problems ranging from fears about short-term economic losses to the ACP, to accusations that the EU is abandoning its responsibilities, and to worries about the geographical form of post-Lomé negotiations. While many in the ACP worry more about the short-term losses to the ACP economies, others see it as a blessing in disguise, in the long term. It is true that the loss of the benefits from the trade and aid provisions of the Convention will, in the short term, be damaging to the ACP states, unless measures are put in place to cushion the impact. However, it can be argued that the imminent expiration of Lomé will provide the necessary push to restructure the ACP economies in a manner that will prepare them for future full participation in the global economy.

The theory and practice of globalisation has a lot of support, especially in the developed countries, but that is mainly because they are the major winners in the game. The ACP and other developing economies are, on an individual basis, too small and too underdeveloped to take on the challenges raised by globalisation of markets, and stand to lose even the small share which they hold in world and EU markets. Developing countries' share of world trade has been declining steadily since the 1970s, and it can be expected to decline much faster under globalisation. On the other hand, developing countries have not attracted much direct foreign investment, 90% of which goes to the rich countries like the United States, Europe and Japan, and the remaining 10% going to the rest of the world which has 70% of the population.

The verdict on the Lomé Convention from the EU, ACP, and independent analysts is that it gives a lot of benefits to the ACP on paper which, for various reasons, have not done much to improve their economies. ACP economies have largely deteriorated since the signing of the first Lomé in 1975, with sub-Saharan Africa being the worst performer. Without dwelling too much on the historical, it needs to be pointed out that European countries are largely to blame for the type of colonial economies which they imposed on Africa and the other ACP countries, the neo-colonial dependent relationships which they encouraged after independence, and the undemocratic and corrupt political regimes which they financed and protected.

The Lomé Convention in particular is, through its trade protocols and preferences, largely responsible for perpetuating these mono-product, primary export economies. Within this context, therefore, it can be argued that the expiration of Lomé should be seen as a blessing in disguise, giving as it does an opportunity for the ACP and EU to build new and mutually beneficial relationships. Such a mutually beneficial post-Lomé relationship must, of necessity, take into consideration the new international environment of globalisation and liberalisation and the challenges that this presents to the ACP, especially the threat of marginalisation. As such, there is need to move away from the Lomé focus on aid and trade, to a focus on sustainable economic development and trade. This requires a thorough restructuring of ACP economies, which cannot be achieved through the current Structural Adjustment Programmes (SAPs).

The Green Paper spells out very clearly the changing environment in which any post-Lomé relationships between the EU and ACP will have to be forged. This environment encompasses the expansion of the EU, the process of globalisation in the wake of the WTO, and the geo-political changes in Eastern Europe which, together, have shifted EU interests away from the ACP and Lomé. The enlargement of the EU to include countries with no historical ties to the ACP had a significant role in influencing current thinking in the EU about the future of Lomé. As such, the EU now sees the expiration of Lomé in 2000 as a chance to make fundamental changes to its relationship with the ACP countries. The fact that the ACP countries have become significantly differentiated economically (partly as a result of Lomé), has provided the EU with a possible option as it deliberates on the nature of the post-Lomé relationships, i.e. the option of regionalising the future arrangements.

Within this context of the EU desire to fundamentally change its relations with the ACP, reactions from the ACP have focused mainly on the demand that the Convention be reviewed but renewed (status-quo). They argue that scrapping Lomé would be disastrous to ACP economies in the face of globalisation. A major weakness in this ACP position is that it is essentially an easy way out, ignoring the new international context which has made Lomé type arrangements irrelevant. It needs to be remembered that all preferences are by their very nature temporary, and should be seen as short term measures to buy time while more long-term economic restructuring is undertaken. The ACP should, therefore, not struggle to maintain the Lomé Convention with all that it has done to weaken their economies, but must look at alternative options which encourage balanced and sustainable development.

The debate about the future of Lomé thus needs to consider the following constraints and challenges to the ACP, but more specifically to Africa:

1. that twenty years of Lomé have not brought economic development, but poverty, huge debts and export dependence. This should come as no surprise as preferential trade arrangements by their very nature tie poor countries to the protected /guaranteed markets, but have few long term benefits;
2. that with globalisation, the EU is concerned about the further marginalisation of the ACP, especially Africa, but is looking for a way out of Lomé and its obligations to the poor countries. ACP negotiating strength with the EU has been neutralised by the removal of its bargaining chip (threat to raw material sources) through the globalisation of trade;
3. that while the ACP find it convenient to stick to the Lomé "benefits", these are both WTO and development incompatible;
4. that globalisation by its very nature destroys the North/South view of the world, making nonsense of the primary product focus of developing country economies, and opening new avenues of development to the developing countries, e.g.. industrialisation;
5. that in this context and for the long term, the ACP need to look at relationships and policies that will move them out of the dependent relationships of the Lomé Convention, and into full participation in the global economy;
6. that the ACP market share in both global trade and in the EU have been declining significantly. The ACP economies, on an individual basis, are neither big nor strong enough to try and strive for meaningful participation in the global economy, and should find strength in numbers, through regional economic integration.

The ACP is seen by many as a heterogeneous group with neither political nor economic homogeneity, raising the question as to whether it (the ACP) is still a viable unit with which the EU can negotiate post-Lomé agreements. This has then led to the suggestion that future arrangements with the EU be regionalised. Put briefly, the suggestion emerged as one of the options put forward by the EU in the Green Paper for the post-Lomé negotiations. The argument stems from the fact that the ACP has never been a homogenous group, having emerged out of, and existed only in the context of, the Lomé Convention. Further, this heterogeneous group has had diverse experiences and benefits from Lomé, with the result that it is now very differentiated economically. The Caribbean and Pacific have made significant economic advances, while sub-Saharan Africa has (despite the trade preferences and large inflows of Lomé aid), become much poorer and less attractive to investment. Africa has also built a higher dependence on trade with EU (46%), than the Caribbean (18%) and Pacific (23%). This differentiation is seen as justifying the regionalistion of future agreements with the EU, to cater for the different levels of development and different needs of the regions. Dieter Frisch has recommended that if this option is taken, then only three regions should emerge, with Africa South of the Sahara being treated as one group.

EU support for regionalisation should not be taken out of context, as it fits well into what some will call the EU hidden agenda in the post-Lomé debate, to end Lomé and to encourage full liberalisation which benefits the rich countries more. From an ACP perspective, one is not amused by this apparent selfish motive behind the EU position. However, one can look at this as a blessing in disguise that challenges the ACP to move away from dependent relationships. Regional integration offers the ACP the opportunity to pool resources, to widen their "domestic" markets (South-South trade), and to prepare for future participation in global trade. The need to build up the many capabilities in our regions was acknowledged way back in the African "Lagos Plan of Action", and the idea has been repeated several times since in different fora, but without any concrete expression.

As the most under-developed part of the ACP, Africa needs to take regional integration more seriously. While it is accepted that Africa's economic fortunes have declined under Lomé, it cannot be accepted that Africa is destined to remain perpetually under-developed. The continent is suffering from continued dependence on the production and export of primary commodities, dependence on foreign loans and capital, failure to develop an industrial base, and the heavy dependence on EU markets mentioned earlier, but it is also very well-endowed with resources. It has become quite clear that in the climate of globalisation, the future of Africa and other poor countries will not depend on Lomé type preferences, but on gradual but deliberate policies to improve economic performance and competitiveness.

The challenge for Africa is, therefore, to reduce this dependence, to take charge of its own destiny, and to improve the capacity to take advantage of new economic opportunities brought in by globalisation. This requires that Africa improve its image in order to attract foreign investment, and that measures are taken to promote industrialisation as a way of restructuring inherited economies away from their mono-product dependent nature.

With the declining market share for products of poor countries in the developed countries (Africa's share in the EU market declined from 6.3% in 1980 to 3.3% by 1992), it is suggested that poor countries should look more and more towards each other's markets. Article 15a of the revised Lomé IV defines trade development to mean "developing, diversifying and increasing the ACP states' trade and improving their competitiveness in their domestic markets, the regional and intra-ACP market" as well as the EU and international markets. This means encouraging regional integration (this is also stressed in the Green Paper), which will provide the impulse for both economic growth and trade growth as a first and indispensable step towards sustainable integration in the global economy. Article 6a of the revised Lomé IV stresses the need for a "harmonious and gradual" integration of the ACP economies into the global economy.

Regional economic integration is already attracting a lot of attention in the developing world, and attempts are currently under-way to either revamp dormant regional groupings, to breathe new life into weak ones or to build new ones altogether. The rationale is that integration will deal with the one major weakness of most ACP economies, their small and uncompetitive size. The "strength in numbers" through integration will provide more resources to thoroughly restructure these economies away from the colonial production patterns encouraged by the Lomé Convention. Since the "colonial" production structures led to a duplication of the same primary products, making it impossible for neighbouring economies to trade with each other (lack of complementarity), the new focus would be on diversifying the product range.

The case of Europe shows how regional integration substantially improved the economic performance of the smaller countries like Belgium. These small European economies register much higher produc- tivity rates, are highly competitive, and command a more effective market share than the whole of sub-Saharan Africa. The European experience can thus be taken as an example of what the small, poor countries of the ACP can expect from regional integration, though it will take time for results to emerge. Overall, the benefits to be derived from economic integration can be briefly outlined as follows:

1. enable the restructuring of national economies along regional priorities, using both comparative advantage and the need to stimulate complementarity in production;
2. facilitate economic reforms at regional level and improve the investment climate, i.e. attracting capital on a regional platform or ticket;
3. freeing the movement of raw materials, labour and capital within the region to promote specific industries for the regional market, as well as setting up inter-regional industrial enterprises;
4. develop industries which cater first for the regional (domestic) market before extending to the international, thereby promoting intra-regional (South-South) trade as a first step towards participation in the global market, and
5. improve the political climate in the region (peace and stability, political cooperation) to create the right environment for sustainable economic development (not just growth).

It must be acknowledged that regional integration is not new to the ACP in general. The Caribbean and Pacific both have well-developed regional organisations such as CARICOM and NAFTA. Africa has, since the colonial period, had several regional experiments, such a the East African community (EAC), the Central African Federation (CAF), and the Southern African Customs Union (SACU). More regional groupings emerged after independence, the most prominent being the Economic Community of West African States (ECOWAS -1975), the West African Economic Community (WAEC -1966) which became the West African Economic and Monetary Union (WAEMU -1994), the Southern African Development Coordination Conference (SADCC -1980) which is now the Southern African Development Community (SADC-1992), and the Common Market for Eastern and Southern African States (COMESA).

These regional groupings have largely failed to meet expectations, although some have done better than others. The reasons for this poor performance include the following:

1. the wide economic development disparities inherited from the colonial era (Kenya in EAC and Zimbabwe in CAF),
2. the fact that the economies are largely competitive rather than complementary, due to the inherited (colonial) duplication of commodities. As such, intra-regional trade in Africa has remained very marginal (5% in the case of SADC, and 7% in WAEC);
3. institutional weaknesses, such as transport problems, weak marketing networks, banking and monetary problems among member states;
4. fear among smaller states that the larger would dominate (e.g. Zimbabwe within SADCC, South Africa and Zimbabwe within SADC, Kenya in EAC and Nigeria in ECOWAS);
5. political instability, lack of political commitment to the integration process, and existence of old rivalries, and
6. the duplication of effort through the creation of too many groupings with no logical justification.

It can generally be concluded that regional economic integration has been a failure to date, in terms of:

1. failure to achieve meaningful economic growth and development,
2. failure to restructure and diversify the economies and promote industrialisation, and
3. failure to improve the scope of intra-regional trade and to diversify exports and export markets.

The Lomé Convention puts regional cooperation as one of its priorities, and this is supported financially under the Regional Indicative Programmes. Under Lomé IV, some ECU 125 billion was allocated to for regional cooperation. As with the impact of Lomé in general, RIPs have largely been a failure. The focus of RIP funding includes transport and communication, natural resources and environment, human resources development, food security, veterinary services, as well as support to the regional organisations themselves. While these areas are important to the regional economies, the basic weaknesses in the RIPs is that they focus on selected and diverse projects, instead of on improving the whole process of integration through greater regional cohesion. More emphasis should be put on strengthening the integration structures, on improving investment in production, and especially on narrowing the development gaps between the economies.

Post -Lomé Negotiations and Regionalism

Regionalisation of the post-Lomé negotiations means basically the break-up of the ACP into regional groupings which will then negotiate with the EU. This would result in the emergence of several regional or sub-regional agreements. Europe seems to favour relations with regional groups, and its recent focus towards Latin America, the Mediterranean, and Asia is proof of this. From the ACP and EU perspectives, the major thrust of any future development policies is to promote sustainable development in the developing countries. The Maastricht treaty sees this as the means to eradicate poverty, and to achieve a smooth and gradual integration into the world economy. The rationale behind this is that integration into the world economy can only come once the ACP economies are competitive. Regional integration provides the inevitable first step to encouraging both competitiveness and smooth and gradual integration into the world economy.

The rationale for promoting "regional" agreements between the EU and several ACP groups (as opposed to continuing with the global agreement), is that this would allow for more emphasis to be placed on the specific needs and priorities of each region. The global agreement has, on paper, done a good job in taking into consideration most of the needs of the ACP as a group, but the practical benefits of the agreement has been very varied. Taking the case of trade preferences as an example, we see that (a) the three main protocols (sugar, beef and bananas), apply to only a few of the ACP countries which produce these products, and (b) that among these few producers, even fewer have derived maximum benefit (Mauritius, Kenya, Jamaica, Zimbabwe and Fiji). The question arises, therefore, whether we want to maintain an agreement whose benefits are not and cannot be globally and equitably distributed to the group. This would be tantamount to accepting that most of the ACP economies will remain forever marginalised.

In addition, it has already been shown that Africa in particular, has experienced serious economic decline (compared to the Caribbean and Pacific) under the Lomé Conventions, and there is nothing to convince anyone that maintaining the global agreement would improve the fortunes of Africa. In fact, while we are still debating the future of Lomé, a major challenge to the preferences is being mounted on the Banana Protocol by the USA, under pressure from its banana transnationals. The USA has accused the EU of practising "unfair trade" by allowing duty-free imports of Caribbean bananas into the EU market, discriminating against the so-called dollar bananas from Latin America. This challenge is both a warning to the ACP of what the future holds, and a pointer to what needs to be done as a reaction to this challenge. The writing is on the wall: we must diversify and restructure our economies or be pushed out of the world economy for good.

From the above and from a "regional cooperation" perspective, there are more of disadvantages than advantages in continuing with the Lomé Convention as it is.

Advantages:

1. The guaranteed prices and quotas, but only for those countries able to utilise them;

2. the non-reciprocity of the preferences, and

3. the stability that comes with Lomé preferences.

Disadvantages:

1. Lomé is too large or too heterogeneous to cater for the needs of each member, or each region/sub-region. The argument that the ACP has negotiating strength in its numbers is yet to be proved in practice, and seems an excuse to keep the group together;
2. the trade preferences and protocols under Lomé have not encouraged a diversification of products and export markets, and have impoverished ACP economies. The value of trade preferences should not be over-estimated as preferences can never compensate for the unbalanced development and lack of competitiveness of ACP exports;
3. the trade preferences have failed to boost the ACP share of the European market. The ACP share in both the EU and world markets has fallen in the 20 years of Lomé, while the share of non-ACP developing countries in the EU market has increased;
4. the global agreement has not promoted regional economic cooperation, resulting in a worsening of the economic disparities between countries in the ACP regions, and
5. preferences tie beneficiaries to the specific (but limited) range of products covered in the agreement, and yet are only temporary, apart from being WTO incompatible.

It is quite clear that more has been achieved in terms of promoting the sub-regional groups like SADC or ECOWAS than with the regional/continental ones. This is a logical development which starts with small groupings which can then be merged to form larger ones. For sub-Saharan Africa, this means that the hoped-for African Economic Community would come out of a merger of the sub-regional groupings. In fact, the AEC was top on the recent Organization of African Unity (OAU) meeting in Harare, which saw the launching of the AEC. In launching the AEC, the OAU meeting acknowledged that "the AEC will greatly depend on economic successes of individual countries which ultimately will dictate the pace and extent of regional integration".

It must also be acknowledged that with the level of economic disparities discussed earlier, the sub-regional groups must seriously try to synchronise their development programmes with the AEC in mind. Emphasis must be put on the need to produce competitive products as a way into the international market. The suggestion from Mr. Frisch that Sub-Saharan Africa should stand as one group is therefore accepted, but as the long-term goal of African economic unity.

For the post-Lomé negotiations, it is recommended that emphasis be put on strengthening or consolidating the sub-regional groups which already exist, or creating new ones where necessary. Such regional efforts must also take into consideration the following conditions which are essential for successful integration:

1. there has to be some historical basis for cooperation, e.g.. geographical proximity, old trading relations, common or complementary resources, existing communications links;
2. levels of development which are not too unequal, or the potential to level-up in a short period;
3. existence of potential for future economic expansion through abundance of human, natural and other resources, or potential to attract key resources;
4. the need for political commitment to push through integration measures, e.g.. willingness to hand over certain key powers to supra-national institutions;
5. creating conditions for peace and political stability (democracy, respect for human rights, good and accountable governmental systems), which provide a conducive investment climate to attract both domestic and foreign capital, and
6. the rational use of existing "development centres" in the region (without marginalising others), to act as the hubs for future expansion.

The Lomé Convention, as discussed earlier, has not achieved much in terms of promoting meaningful and sustainable regional cooperation in the ACP. The EU can contribute quite significantly to successful integration by increasing the financial allocations to the RIPs; by cancelling ACP debts to make them more credit-worthy; by encouraging direct investment by EU private companies in regional projects, and by encouraging intra-regional trade through promoting projects directed at the regional market. The EU can also facilitate the transfer of appropriate production and communications technologies to the ACP.

The Next Steps

The EU/South African negotiations need to be looked at in the context of the historical position of South Africa in Southern Africa: i.e. geographical, political and economic links between South Africa and her neighbours. These historical links mean that no regional organisation in Southern Africa can afford to ignore or sideline South Africa. The existence of SACU, for example, which has linked Botswana, Lesotho, Namibia and Swaziland (BLNS), which are also members of the larger SADC; and the fact that South Africa has historically been a major source of investment capital as well as a major market for products of the region all show how central it is to successful integration. Currently, South Africa only receives 10% of SADC exports, but accounts for between 30-40% of SADC imports. Individually these SA exports to SADC countries range from 20% for Mozambique, to 90% for Botswana and Swaziland.

The EU/South Africa negotiations to create reciprocal free trade with the EU would bring in over 80% of EU manufactured products duty-free into South Africa, from which they can flood the regional market. The first impact will be felt in South Africa itself where the economy has had a bias towards traditional exports (mainly minerals) to Europe. This means that any attempts to restructure the South African economy towards manufacturing production for the EU market will be negatively affected by the flood of European manufactures.

Major disruptions to the SACU trade and revenue-sharing arrangement will destroy the BLNS economies, while also destroying the attempts by SADC to improve industrial production and competitiveness. Worse still, the FTA will affect the current attempts to strengthen SADC investment and production structures using the stronger economies of South Africa and Zimbabwe. The impact of the FTA on SADC must be seen in the context of a regional bloc that has been making significant gains in integration. The grouping has improved its communications sector through SATCC, it has developed common approaches to energy and water development, and is working on improving the political environment. As such, the EU must respect these efforts and strengthen the regional grouping, instead of dividing and destroying it.

It has been suggested that the EU/SA FTA should be taken as an indication of what the EU plans for the post-Lomé trade regimes with the ACP, especially since the FTA is WTO compatible. The geographical form of such FTAs would still have to be worked out, with regional or sub-regional groupings being the most favoured.

The lesson to be drawn from this case is that bilateral agreements are disastrous to both the individual country concerned (e.g. South Africa), and the region (Southern Africa/Africa). As an example for regional FTAs, the option would be WTO compatible, but problematic in implementation. In this sense, it would have to be something for the long term to allow the regional groupings to put themselves on a firm footing prior to negotiations with the EU.

From the discussion above, one sees that the ACP have a tough decision to make choosing which stand to take. In making this decision, they should be informed by the following facts and criteria:

1. Globalisation does not provide solutions to the problems of poor countries, especially in the short-to medium term, but provides opportunities for access to non-EU markets;
2. for the ACP to look beyond the EU market and the preferences it offers, it should focus on improving internal production structures, and domestic/regional markets;
3. in the interim, use the Lomé regime to increase investment, encourage diversification and competitiveness to allow for a smooth transition to the liberalised world markets, and
4. encourage regional cooperation as a necessary first step towards integration into the global economy;

As such, what is suggested is that there should be some transitional measures following the expiration of Lomé in 2000. This might mean extending the Lomé Convention and the WTO waiver for an additional specified period. While this will meet with criticism from many quarters, the ACP and other poor countries have a legitimate claim that the playing field must be levelled. What the WTO has done is to introduce wholesale liberalisation without regard to the special problems and needs of the small economies. Large members of the WTO, like the EU, must not treat the WTO rules as "sacred cows" that cannot be amended or changed in the interests of the poor countries. In considering this option, rich countries must remember that any further marginalisation of the poor economies will, in the long term, catch up with them and put a brake on their own development efforts. Assisting the weak now will be of benefit to the international economy as a whole.