The External Economic Relations of the EU.

University Degree Business and Administrative studies

The External Economic Relations of the EU

Introduction

Foreign policy in the defence and security fields has always been jealously guarded preserve of national sovereignty in the EU. Even with the development of foreign policy cooperation and now security and defence policy, the EU’s role in this field is extremely limited. The differing interests and views of Member States make it difficult to achieve a common policy, it has proved difficult to even adopt and maintain common positions. The presence of neutral states in the EU adds to the complications of actions in this field. So the one area of foreign policy where the EU does power is external economic relations.

The reasons for the Common Commercial policy:

A single market requires a:

Common External Tariff: otherwise trade checks would need to remain in place to prevent trade deflection, the routing of goods through low tariff countries to avoid high tariffs.
Common Commercial Policy: the rules governing trade policy must be the same across the EU, requirements with regard to non-tariff barriers have to be harmonised and preferential trade agreements have to be common.

Bargaining power: The EU can use its size and importance in world trade to pursue its interests in trade negotiations.

Forces shaping trade policy

Member States particular interests: countries, regions or products that are especially important.
History of the Member States: in particular their colonial inheritance, these two factors have led to a host of preferential trade arrangements.
GATT/WTO: rules and negotiations.
Changing conventional wisdom of trade and development policy

The Common Commercial Policy

The EU’s trading policy towards the rest of the world is called the Common Commercial Policy and is established under Articles 100-116 of the Treaty of Rome (Title IX Articles 131-134 of the Consolidated Treaty). “By establishing a customs union between themselves Member States aim to contribute, in the common interest, to the harmonious development of world trade, the progressive abolition of restrictions on international trade and the lowering of customs barriers” (Article 131). The CCP was to be uniform policy (A133.1) and it encompasses

Tariffs and their operation.
Trade Agreements.
Trade liberalisation.
Export aids
Contingent protection: safeguard measures and anti-dumping.

The CCP is operated by the Commission (A133.2). New trade agreements are negotiated by the Commission, in conjunction with a special committee appointed by the Council, under a mandate laid down by the Council of Ministers (A.133.3). Decisions on trade agreements are made by QMV, unanimity is required where agreements contain provisions that go beyond the Community's internal powers, or relate to cultural and audiovisual services, educational services, and social and human health services (A 133.5/6).

These current arrangements tidy up the situation resulting from an ECJ case concerned with the Uruguay Round Agreement. The URA covered not only trade in goods but also services and intellectual property. The Commission sought a ruling as to whether these new areas were part of the CCP and thus decisions relating to them coming under EC procedures. The ECJ ruled in November 1994 that trade in goods and some services (telecommunications, audio-visual services and electronically transmitted financial services) fell exclusively within the Commission’s jurisdiction. Other services were a joint responsibility of the Commission and the Council. Intellectual property was within the jurisdiction of Member States.

GATT Negotiations involving the EC/EU

Dillon Round: 196062, tariff reductions of 20% on a wide range of industrial goods; compensated third countries for trade diversion caused by the formation of the EC
Kennedy Round: 196467, Tariff reductions of about 32% on a wide range of industrial goods.
Tokyo Round: 197379, reduced tariffs on industrial goods by a further 30%, improved legal framework for trade; addressed nontariff barriers.
Uruguay Round: 198693, expanded GATT rules to cover agriculture and services, improved dispute settlement, further reduced tariffs, created the World Trade Organisation (WTO) to replace the GATT.
Doha Round: 2000-? with the failure of the ministerial meeting in Cancun it is uncertain where this round is going.

Regulations in the CCP

Tariffs

Tariffs are no longer the major form of protection the average MFN tariffs is around 4%, although tariffs on some goods are much higher than this. Tariffs on agricultural goods can be over 100%! Tariffs are very low or not levied on raw materials but are much higher on labour intensive products. Poor countries account for less than one-third of rich country imports, but two-thirds of imports subject to tariff peaks, or duties of over 15%. India accounts for less than one per cent of the value of imports into Britain, but over three per cent of the value of British customs receipts (Oxfam, 2003; p. 28). Virtually all tariffs are fixed (bound) under WTO rules, so they cannot be increased.

Table 1 Tariff levels

Source: Oxfam, 2003

Rules of Origin

Rules of origin are used to decide where exactly a product is produced. For the EU such rules are important, where the Community has granted preferential access to its market for the products of one country, only products of that country will enjoy the concessions.

Rules of origin can be determined by:

value added within a country (typically 50%)
sometimes it may be defined by a particular process e.g. a silicon chip’s origin is defined by the etching of the circuit.

Rules of origin can make it difficult for a less developed country to benefit from preferential access, because they require a large part of the production process to take place within that country. Allowing cumulation among a group of countries can alleviate this problem.

Antidumping measures

Dumping is charging an export price below its normal value, usually the domestic price. Action may be taken where the dumping is causing material injury. Action could be anti-dumping duties equal to the dumping margin or the offending company can make an undertaking to raise its prices.

EC antidumping actions have in the past concentrated on a narrow range of industries (chemicals, steel and increasingly electronics,VCRs, CD players, portable televisions, DRAM chips and video cameras) and countries (Japan , USA, SE Asian NICs). These measures have been criticised as being applied in a rather arbitrary manner and as an instrument of industrial policy. Although antidumping actions apply to less than 1% of EC imports, they can have a large impact on particular industries, the tariff equivalents of EC antidumping duties have been estimated at 23%. They can also be used as a threat to extract some other concession.

The EU has increasingly used anti-dumping investigations against developing countries, with India the country most commonly affected by anti-dumping duties. In the second half of the 1990s, the EU launched 53 anti-dumping investigations on garments alone, with more than 80 per cent targeted at developing countries. In many cases the high cost of contesting an anti-dumping investigation is enough to persuade developing country exporters to raise their prices – a fact that helps to explain why 40 per cent of EU anti-dumping investigations are terminated before their conclusion. (Oxfam, 2003; p.24)

Safeguard measures

Where a surge of imports threatens a particular industry, the EC can impose Community or national quotas. In this case it is not the price of the imports but the rapidity of their growth. The other unusual feature of such measures is the use of quotas, physical limits on imports for protection. These procedures are not used frequently but they were invoked in 1993 to limit imports of meat from Poland.

Grey measures

In the past the threat of protective measures can sometimes be used to encourage exporters to agree to 'voluntary' export restraints. This ...

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Safeguard measures

Grey measures

In the past the threat of protective measures can sometimes be used to encourage exporters to agree to 'voluntary' export restraints. This was a common response in the EC where industries were under pressure from imports from a particular country. Rates of protection associated with such measures were high with tariff equivalents of 350%, but paradoxically the major benefits went to foreign exporters. Quotas raised exporters profits because prices were raised to limit exports to the quota. This increase in profits provided foreign exporters with the resources and the incentive to improve their profits. This upgrading process meant that increasingly the producers challenged the EU’s traditional competitive advantage. The improved regulation of international trade under the WTO and changing attitudes have led to a phasing out of such measures.

Clothing and Textiles are still covered by the Multi-Fibre Arrangement (MFA, 1975), under which developed countries are allowed to negotiate bilateral quotas to restrict imports of these products from developing countries. The Union originally negotiated a EC wide level and then disaggregated it according to regional quotas. These were phased out under the Single Market. The MFA is due to be phased out between 1995-2005 in line with the Agreement on Textiles and Clothing (ATC) of the Uruguay Round of the GATT.

Clothing and textiles are the most important export for many developing countries, especially South Asia. In India, the sector accounts for about four per cent of GDP and one quarter of merchandise exports, in Bangladesh 80% of exports. The effect of developed country tariffs and quotas on textiles and garments costs developing countries export revenue losses of about $40bn, India alone loses almost $10bn, and 27 million jobs. Over half of the quotas should have been eliminated as a result of the Uruguay Round Agreement but the EU had only removed 27%. Even these cuts were ‘backloaded’ with products not subject to quotas being the first coming under the ambit of the ATC, and liberalisation has concentrated on low value products such as yarns rather than clothing (Oxfam, 2003, p.29).

EU trading patterns

The EU is the world’s largest exporter and the second largest importer (Table 1). The EU’s trades particularly with North America, Asia, Central and Eastern Europe including Russia, and non-EU Western Europe, the main trade partners being the USA, Switzerland, China and Japan.

Table 1. Shares of World Trade 2002

% total merchandise trade

Source: WTO, 2003

Table 2 EU 15 trade by geographical region 2002

% total merchandise trade

Source: WTO, 2003

Table 3 EU 15 main trade partners 2002

% total merchandise trade

Source: WTO, 2003

Table 4 EU 15 Commodity composition of trade 2002

% total merchandise and services trade

Source: WTO, 2003

Differentiation in external trade relations

The Union has developed a very extensive range of preferential trade agreements these are mainly with developing countries and more recently with the countries of CE Europe and with EFTA. Thus the Common Customs Tariff only applies in full to five countries: USA, Canada, Japan, Australia and New Zealand.

The EC operates a hierarchy of privilege:

European Economic Area Agreement (EEA): Norway, Iceland Liechtenstein (Switzerland has FTA with the EU). The EEA provides for full access to the Single Market for all four freedoms, but requires acceptance of EU laws, ECJ jurisdiction (Competition Policy) and some contributions to the EU budget.
Europe Agreements: Czech Republic, Estonia, Hungary, Latvia and Lithuania. Poland, Hungary, Slovakia, Slovenia, Bulgaria and Romania. After May 2004 EAs will only apply to Bulgaria and Romania. The SE European countries Croatia, Bosnia, Serbia and Macedonia have Stabilisation and Association Agreements that are similar to EAs but include requirements for regional cooperation.
Customs Union: Turkey
Contonou Agreement: 69 least developed African, Caribbean and Pacific (ACP) countries.
Mediterranean Agreements: applies to nonEC countries around the Mediterranean, some like Turkey, Cyprus have full customs union agreements.
Partnership and Cooperation Agreements: with CIS countries including Russia and the Ukraine, these offer the potential of a customs union but the requirements for this make it unlikely. At the moment concessions are limited.
Generalised System of Preferences: applies to the remaining developing countries, offering limited concessions on tariffs.

Trade Relations with Developed Countries

EFTA

Harmonious relations because:

Intra-industry trade and EFTA multinational production in the EU.
Similarity of the countries in terms of income levels and social systems.
Agricultural exports are not important.

USA

Trade frictions over agriculture and other products eg aircraft and steel. These frictions have been prevented from developing into a full blown trade dispute by the importance of the mutual trade links and before 1989 by shared values in particular the mutual defence and foreign policy interests.

Japan

Trade relations were problematic in the 1980s, because of the persistence and size of the EU’s trade deficit, and the narrow range of products that Japan exported to the EU. There was also a belief that the Japanese market was heavily protected from imports by NTBs. The Japanese business model also seemed to represent a competitive threat that the EU would find difficult to match. The deficit with Japan persists but concern has ebbed, because:

It has reduced in size
Substantial Japanese production in the EU and some EU multinationals in Japan.
European manufacturers have proved able to compete.
Japan’s poor economic performance in the 1990s and the difficulties of many Japanese companies, has reduced concerns.

Trade Relations with Developing Countries

Developing countries are divided into three as far as their relations with the EU are concerned:

Lome Convention
Mediterranean Agreements
Generalised System of Preferences

All trade preferences to developing countries suffer from similar problems:

Reductions in tariff levels have reduced the benefits of tariff concessions.
Countries exporting primary products gain little because these products do not usually have tariffs applied to them.
Tariff escalation and the effective rate of protection: The EU tariff on yarn is less than 4% but the tariff on garments is 14%. This means the effective rate of protection on garment production is much higher than 14%, because the 10% additional tariff only applies to a proportion of the value added. This practice discriminates in favour of domestic producers and makes it difficult for developing to develop production in the higher growth, higher value-added segments of the market. Cocoa is another example the EU tariff on beans is 0 but on paste and chocolate it is over 15%. “Such arrangements help to explain why Germany processes more cocoa than Cote d’Ivoire, the world’s largest producer. Developing countries account for more than 90 per cent of cocoa bean production, less than half of cocoa butter production, and less than five per cent of world chocolate production.” (Oxfame, 2003; p.31)
Granting concessions to so many countries also reduces the benefits of the concession to any individual country.
NTBs are generally not subject to concessions.
Sensitive products are often excluded entirely from concessions or the concessions only apply to a limited amount of production. A cynic might argue that a sensitive product is anything the country could export to the EC in quantity. Products classified as sensitive have included food, chemicals, steel, televisions, videocassettes cutlery and footwear. The Multi Fibre Arrangement (MFA) limited exports of clothing and textiles to developed countries by quotas.
Rules of origin make it difficult for exports from less developed countries to qualify for concessions.
If a country is too successful in exporting it is likely to face antidumping or safeguard measures or the demand for voluntary export restraints.
The extreme complexity of the system and its rules work against its successful exploitation by exporters in developing countries.
DCs might be better off with a simpler system of nondiscriminatory trade arrangements which would operate under the WTO. The existence of these extremely wide preferential trade agreements undermines the WTO by effectively reducing its jurisdiction and significance.

The Lomé Conventions

The EU traditional relations with some 70 African Caribbean and Pacific (ACP) developing countries, was based on agreement known as the Lomé convention, first signed in 1975 and renewed on four occasions. The main objective of Lomé was ‘to promote and expedite the economic, cultural, economic and social development of the ACP states and to consolidate and diversify their (ACP and EU) relations in a spirit of solidarity and mutual interest’.

The Conventions were based on the following principles:

Equality between partners and respect for sovereignty, mutual interests and interdependence.
The right of each state to determine its own political, social and cultural economic policy options (although this is now partly in abeyance);
Security of relations based on the achievements of the co-operation system.

The main characteristics were:

The contractual relationship between the industrialised EU Member States and the ACP developing countries which contains obligations and rights for both partners.
The partnership principle, which attaches great importance to the equality of partners, their sovereignty and dialogue between them.
The combination of trade and aid provisions in a single agreement, with a diversity of instruments.
The long term perspective brought to the Convention by five-yearly duration and programmed allocation of funds.

Lome provided for:

Tariff-Free Entry on a non-reciprocal basis to over 95% of the exports of the ACP countries.
Sensitive Goods such as textiles were subject to special safeguard arrangements whereby free access can at any time be suspended if imports threaten to cause serious disturbance. In practice the Union has not resorted to this instrument.
Strict rules of origin also mean that free entry is assured for products with 50-60% local content (lowered to 45% under Lome IV).
Special Arrangements put in place for agricultural products, which were also produced by the EC and, therefore, governed by CAP (See notes).
Stabilisation Funds, known as Stabex and Sysmin.
Restributive Funds, through the European Development Fund.

The development of the Lomé Conventions reflects changing attitudes to the process of development, shifting EU priorities and the experience of the operation of the agreements. Lomé I and II concentrated heavily on the promotion of industrial development. During Lomé III this objective was overtaken by a more pressing concern: self-reliant development on the basis of self-sufficiency and food security. In addition to these priorities, Lomé IV put greater emphasis on the promotion of human rights, democracy and good governance (art. 5), strengthening of the position of women (art.4), the protection of the environment (art.6, 14), decentralised cooperation (art.20–22), diversification of ACP economies (art.18), and the promotion of the private sector (see also below). The Conventions were consistently committed to regional cooperation. With each Convention, the ACP group expanded, more ‘areas’ of cooperation were added (now twelve compared with four in Lomé I) and new instruments were introduced. The main provisions and instruments of the Convention could be divided into: (i) technical and financial cooperation (including cooperation in the area of commodities); (ii) trade cooperation including the special protocols; and (iii) other areas of cooperation.

The aid component of the Convention was financed from the European Development Fund, an EU development fund financed from national contributions, separate from the EU budget. Flows could be divided into programmable and non-programmable allocations. The programmable allocations are the National (NIP) and Regional (RIP) Indicative Programmes, that are allocated from each EDF to individual ACP countries and regions. The allocation is effected every five years on the basis of a formula, which captures objective criteria of a geographic, demographic and macroeconomic nature (GNP per capita, economic situation, external debt, etc.). The formula includes considerations of physical elements (landlocked and island states), the status of least developed countries (art.8 of the Convention), and other factors not precisely specified. After notification by the Commission of the amount of programmable resources for each ACP country, the NIP is drawn up jointly by the recipient government and the Commission. It records priority areas for the spending of the NIP. The implementation of these country allocations differs by country, but commitments and especially disbursements can be subject to considerable delays. The implementation cycle of each Lomé Convention is therefore longer than the five years of the Convention itself, and the Commission thus manages several funds simultaneously.

In June 1998, the Director General of DG Development issued guidance for Country Reviews, to be carried out at least annually. These are formal meetings that will bring together relevant staff from the different units of DG Development, the Delegations, and where appropriate from other services. These reviews are to provide a compete and up-to-date overview of the Commission’s actions, to examine the adequacy of the Commission’s strategy, in particular with a view to facilitating complementarity with Member States and other donors. The Country Reviews will be followed by in-country meetings with ACP representatives. The Convention attached special importance to regional cooperation among the ACP countries and devotes a significant share of EDF funds to this purpose (see Box 3.2). RIPs are organised according to six geographic regions plus a linguistic grouping (for Portuguese-speaking countries). For RIPs 1000 m euro was available from Lomé III and 1250 m euro from Lomé IV, 9.3% and 9.6% respectively of all programmable resources. The non-programmable funds from the EDF (ie those excluded from the NIPs and RIPs) are generally quick-disbursing instruments. Although their overall amount is fixed by each Convention, their allocations to the individual countries are not defined. These funds are granted to ACP countries case-by-case, depending on their eligibility for the particular non-programmable instrument. The main non-programmable resources of Lomé are the three categories within programme aid (support for structural adjustment, Stabex and Sysmin) and humanitarian and rehabilitation assistance. The latter two are additional to the budget lines that exist in parallel for the same purpose. These will be included in the discussion of main instruments in the section below. During Lomé I–III certain instruments were given as loans (eg Sysmin, Stabex to a few countries), but with Lomé IV the EDF has become entirely concessional, with the exception of risk capital (8% of flows allocated to the ACP countries in EDF 7).

Trade preferences: The EC offers duty and quota-free access, on a non-reciprocal basis, to exports from ACP countries. This excludes exports covered by the Common Agricultural Policy, which nonetheless receive better treatment than they would through the EU’s Most Favoured Nation (MFN) regime. On the whole, since 1975, of all the Community’s ‘preferential’ trading partners, ACP countries have enjoyed the greatest preferential market access to the EU: 92% of the products originating in the ACP countries enter the Community duty free, without quantitative limits. A further 7% are agricultural products subject to a tariff quota with zero duty. Four-fifths of the agricultural products covered by Chapters 1 to 24 of the Combined Nomenclature (CN) are completely liberalised, and all industrial products falling within Chapters 25 to 97 have a tariff exemption under Lomé. In 1997, imports originating in the ACP totaled 22 bn euro, with 62.5% of them consisting of industrial products (including commodities such as oil) and 37.5% of agricultural products. The preferential margin granted to the ACP countries above MFN tariffs (excluding protocols) is around €750 million, or 3.6% of the 1997 value of imports. The preferential margin over the Generalised System of Preferences (GSP) regime is 2.5% (500 m euro). In addition, protocols exist for EC imports of beef/veal and for sugar that grant selected ACP countries guaranteed import quota-type ceilings. Protocols for bananas and rum also offer the beneficiaries a special import regime. These four commodity protocols account for 7.4% of all imports, and generated €1.6 billion in exports in 1997. The banana and sugar protocols have been particularly significant in boosting the export revenues of certain ACP countries, Mauritius being the best example. It should be noted that the overall value of the Lomé trade regime, generous as it may be, has been declining over time. First, in the context of continuing trade liberalisation, both at the multilateral and regional levels, the value to the ACP of tariff preferences is bound to erode, although it may remain substantial for several years in specific products and for specific countries. For instance, in 2000, the preferential margin for manufactured goods over the GSP will be down to 1.6%. Sectors where the margin will remain relatively significant are chemicals, footwear, and textiles for clothing. As for agricultural products, in 2000, 50% of agricultural exports will no longer enjoy preferences (among which coffee and cocoa), while the other half will still have a margin of preference of some 10%. Second, the four protocols also are threatened by the process of multilateral trade liberalisation, which is eroding the benefits they provide, and by the enforcement of WTO rules that seek to limit or ban such discriminating trade arrangements. Each also faces different challenges: the WTO panel ruling on the EU banana regime has meant that the EU is unable to continue discriminating in favour of ACP bananas.

Although the fourth Lomé Convention was agreed for a period of ten years, the financial protocol was subject to a mandatory renewal after five years (art. 366 of Lomé IV). A mid-term review took place in 1994–95, in the context of changes in the economic and political situations of the ACP countries (democratisation process, structural adjustment), in Europe (enlargement, increasing attention to East European and Mediterranean partners) and in the international environment (Uruguay Round Agreement). Several amendments were approved:

Political aspects: respect for human rights, democratic principles and the rule of law became essential elements of the Convention;
Trade preferences: a small extension of preferential access for ACP agricultural exports to the EU in a few areas; a minor relaxation of the rules of origin;
Aid: EDF 8 was agreed at a level similar (in real terms) to the previous EDF —despite conflicts over the contributions of individual Member States to the new financial protocol. Phased programming was introduced, with an aim at ‘building-in’ additional flexibility.

EU ACP policy after Lomé

The problems with the Lomé Agreement:

Poor economic performance of ACP countries: The Lomé Agreement was undoubtedly important to the ACP countries in the 1990s the EU supplied 50% of their imports, 45% of their exports and they received 52% of EU aid. Despite this favourable trade and aid arrangement with the EU this group of countries economic performance was poor. The ACP’s share of EU imports declined from 8% of the total in 1975 to only 4% in 2000, whilst non-ACP countries of Asia and Latin America more than doubled their share of EU imports. Exports remained concentrated on a narrow group of primary products (80% of the total), which had tariff free access to the EU wherever they came from. These countries external debts increased substantially. Economic growth was very slow and 40 of the 63 countries categorized as least developed were ACP member states. There were a few success stories, such as Mauritius, Seychelles and the Caribbean member states but the performance of the rest and current level of development is very poor.
International trade liberalization: duty free entry for ACP products violates the WTO’s most basic rule that of non-discrimination, the Most Favoured Nation (MFN) clause. The fact that these concessions were non-reciprocal meant the arrangement could not be justified as a regional trade group, and while the WTO permits non-reciprocal North-South arrangements these are meant to be temporary.
Erosion of privelege: the ACP countries favourable position had been eroded by EU concessions particularly to CEE and the Mediterranean countries.
Questioning of the ACP as a concept: why single out this particular group of diverse countries, in the increasingly post-colonial era the grouping was seen as increasingly anachronistic.
Changing EU priorities: with the end of the Cold War the EU’s external relations priorities were dominated by Central and Eastern Europe.
Conditionality: was imposed in the CEE and seemed to be successful, so this seemed to be a model to be pursued in external relations. This was especially the case, as the rule of law, human rights, pluralist democracies and economic liberalization came to be seen as increasingly essential not only on ethical but also on efficiency grounds.
Different priorities in a wider EU: the new EU in 2004 will be a very different one, this will downgrade the importance of the ACP relationship.
Changing EU trade patterns: the ACP have become victims of their own failure! The EU is more concerned with ensuring access to the increasingly important North American, Asian and CEE markets than with defending privileges of the ACP.

The Contonou Agreement

Thus unlike the previous rounds, the post-Lomé IV negotiations foresaw a substantial transformation of ACP-EU cooperation and triggered a wide debate. After the publication of the Green Paper (November 1996), the EC invited written reactions and contributions by all Member States, and organised meetings in all EU countries, as well as in Africa, in the Caribbean and in the Pacific. The Commission’s initiative to launch a broad-based consultation on the future of ACP-EU relations changed the very nature of the traditional negotiation process. Both in Europe and in the ACP, new constituencies emerged. Negotiations began in 1998 and the ACP-EU Partnership Agreement was signed in Contonou in 2000.

Although it can be argued that the Contonou Agreement is largely a continuation of Lomé (Forwood, 2000), there are some significant changes in the Agreement:

Framework rather than rule system: Thus although the agreement is for 20 years the trade and financial cooperation are in annexes apply to a shorter period and will be renegotiated.
Objectives: are now made consistent with Article 177 of the EC Treaty with the primary goal of poverty reduction consistent with sustainable development and the gradual integration of the ACP in the world trading system.
Principles of cooperation: Lomé IV’s principles of cooperation were equality between partners, right of self-determination and the security of the ACP-EU partnership. In Contonou equality remains but with due regard for human rights, democratic principles and the rule of law. There are three additional principles: the participation of all sections of society especially the private sector (the development of which is a priority); dialogue and fulfillment of mutual obligations; differentiation and regionalisation. This makes possible conditionality and variation in treatment according to the policies of the country. Appropriate measures can be taken for failure to adhere to these principles, with suspension as a last resort.
Political dialogue: comprehensive, balanced and deep political dialogue, leading to commitments on both sides. Subjects: the arms trade, military expenditure, durgs and organised crime, ethnic, religious or racial discrimination, human rights, democracy, rule of law, good governance and conflict prevention.
Financial support: aid will be distributed according to explicit criteria related to need and performance, this replaces indicative EDF distributions under Lomé. Aid will be available for civil society and for private sector companies. STABEX and SYSMIN have effectively been abandoned.

Trade regime: the trade regime in the Contonou similar to Lomé only lasts to 2008, during this period ACP countries are to negotiate regional trade agreements with reciprocal trade concessions called Economic Partnership Agreements (EPAs). These would be likely to also include free entry of EU exports to ACP markets to ensure WTO compatibility. Schematically, there are two ways to make Lomé WTO-compatible: either by taking the trade chapter out of the Convention and harmonising the regime with the existing Generalised System of Preferences, or transforming non-reciprocal preferences into GATT-compatible free trade agreements. The EU proposes a flexible, mixed arrangement, in the form of several free trade agreements to be signed with different ACP regions or countries, after several years of transition during which current preferences would be rolled over. This would preserve the principles of a comprehensive aid and trade agreement, covering an increasing number of areas, and of a specific ACP-EU trade link.

Bibliography

Babarinde, O. and Faber, G (2003) ‘From Lomé to Contonou: Business as Usual?, paper presented to the 8th biennial EUSA conference, Nashville, March 27-29

Forwood, G. (2001) ‘The Road to Contonou: Negotiating a Successor to Lomé’, Journal of Common Market Studies, Vol. 39, pp. 423-442.

Holland, M. (2002) ‘The European Union and the Third World’, Palgrave: Basingstoke.

Holland, M. (2003) ‘20/20 Vision? The EU’s Cotonou Partnership Agreement’, in Petchsini, A, Suthhisripok, P and Thontiravong, P. (2003) ‘Comparative Regional Integration’, Interdisciplinary Department of European Studies, Chulalongkorn University, Thailand.

Oxfam (2003) http://www.oxfam.org.uk/what_we_do/issues/trade/bp53_cancun.htm

WTO (2003) ‘Trade Statistics’, www.wto.org

The External Economic Relations of the EU.