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3. Trade Co-operation in a New Convention

3.1 The EU has tried to defend the validity of the Lomé Convention with the GATT in terms of a combination of Article XXIV (covering customs unions) with Part IV (on Trade and Development), but this was never a credible defence and Lomé has now been placed on a GATT compatible basis by the EU, obtaining a waiver under Article XXV from the provisions of Article I. If the EU has the political will to do so, a further waiver could be granted for the period after 2000.
3.2 The EU has argued that a further waiver would create uncertainty and therefore undermine the benefit of a renewed Convention compared to a free trade area, but this underestimates both the security of a waiver and the possibility of challenge to an FTA.
3.3 A more important question is whether a renewed Convention is in the long term interests of the ACP or particular groups of ACP countries such as the Caribbean countries.
3.4 An ACP-EU free trade area (or areas) would create complex costs and benefits which would vary significantly between different ACP countries. The measurement of these effects is subject to a large margin of error and the most important effects are long term and a matter of informed judgement based on future development strategies.
3.5 Most of the benefits from an FTA can be obtained from unilateral and multilateral trade liberalisation and would avoid the trade diversion costs of an FTA.
3.6 An FTA must therefore offer benefits which could not otherwise be obtained through trade liberalisation, and the weaknesses in EU free trade agreements with other groups of countries raise doubts about the possibility of the ACP countries obtaining such additional benefits. Conversely, the strengthening of GATT rules and procedures and the more rapid growth of non-EU markets reinforce the importance of the ACP countries, especially in SSA, increasing their exports to non-EU markets.
3.7 The strengthening of GATT rules, especially the Understanding on Article XXIV, and the disputes procedures, means that the EU practice of greatly limiting the liberalisation of trade in agricultural products in its FTAs is now much more likely to be challenged and undermines the EU’s assertion of the superior security of an FTA over a renewed Lomé Convention.
3.8 The substitution of the GSP for the Lomé Convention would, in general, result in a reduction in the present security of access to the EU market, although differences in the margin of preferences between the EU’s enhanced GSP and Lomé preferences are almost nil on industrial products and limited in the case of agricultural products.
3.9 This raises the option of increasing the acceptability of a renewed waiver for the Convention in the WTO and reducing the possibility of challenge, by extending the Lomé trade co-operation provisions to all least developed countries or to the wider group of developing countries (Andean and Central American) covered by the enhanced GSP. Even greater security in the WTO could be obtained by opening trade co-operation to all developing countries with a similar economic structure to the ACP (e.g. a GDP of $50,000 million or less).
3.10 Regional ACP-EU agreements do not appear to be a viable option, given the heterogeneity of the various regional groupings.
3.11 The divergent interests of the ACP group could be accommodated through an ‘umbrella’ agreement’ under which, for example, the least developed (UN definition) ACP countries could be covered by a renewed Convention, and the remaining ACP countries could negotiate an FTA or rely on the GSP. Alternatively, individual ACP countries could elect either to join a renewed Convention or an FTA or rely on the GSP.
3.12 An FTA would best be negotiated by the ACP countries acting as a group for all those interested in such an agreement, with a general timetable being agreed for trade liberalisation covering transitional arrangements over a period, which for WTO compatibility, could probably not exceed 15 years. The negotiation of such an agreement would be complex and in the meantime would probably need a WTO waiver extending the Convention for all ACP countries.
3.13 It is essential that the variations between ACP-EU agreements be kept to a minimum, otherwise the growth of intra-ACP trade could be harmed. It is also essential that the negotiation of an ACP-EU agreement does not distract attention and resources from the more important task of trade liberalisation by the ACP countries, binding these reforms in the WTO and integrating their economies more closely into the world economy.