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The ACP - EC Partnership Agreement (Cotonou Agreement) Trade Measures

Introduction

The Cotonou Agreement

The Trading Arrangements of the Cotonou Agreement

A) The underlying “philosophy”

B) Main points

C) The renewal of the Lomé regime

D) The transitional period (2002 – 2008)

E) Beyond 2008

F) Commentary

Relations with the WTO

A) Making the ACP – EC trade regime compatible with the WTO

B) The renewal of the Lomé regime until 2008 and the WTO

C) The post-2008 EPAs and the WTO

Conclusion

 

I. Introduction

1. The ACP – EC Partnership Agreement (more commonly referred to as the Cotonou Agreement), was signed by 77 [Note1] countries from Africa, the Caribbean and the Pacific and the European Community on 23 June 2000 in Cotonou, Benin. It represents an historical step in the long relations between these two groups of countries and a milestone in the definition of development policies and North-South relations on a global scale (See Annex 1 for the historical background to ACP – EC relations). In fact, with 93 States [Note2]  party to this Agreement (see Annex 2), it constitutes the world’s largest cooperative grouping for development and involves close to one billion people from half the sovereign States on the planet.

2. The aim of this background note is first to identify the structure and the main innovations of the Cotonou Agreement, then to comment on the arrangements directly linked to trade, concluding with an analysis of how these affect the multilateral rules and regulations of the WTO.

II. The Cotonou Agreement

3. As early as 1996, both EU member countries and ACP States expressed the resolve to revise certain provisions of the Lomé IV Convention which had been in force since 1989. The main reasons for this were as follows:

●    From a political point of view, it was a question of involving “civil society” and the private sector more closely in development strategies. But for the EU, it was also a matter of subjecting its assistance to a form of conditionality linked to respect for the rule of law and to good governance in public affairs.

●    From a trade point of view, it was a way of reacting to the mixed results of the Lomé Conventions’ regime of non-reciprocal trade preferences (part III below). But it was also a way of resolving the issue of the growing “multilateralisation” of tariff concessions granted by the EU through the WTO which deprive ACP States of a substantial part of their advantages in the European market [Note 3]  . Lastly, it was a way of taking into account the new non-tariff based barriers to trade used by the EC, such as health and phytosanitary standards, quality standards or technical barriers to trade.

4. The Cotonou Agreement was the result of eighteen months of intense negotiations held from September 1998 to February 2000. It claims a global approach to development and does not rest solely on trade, as is partly illustrated by the structure of the Agreement. It is based on five independent pillars:

●   The political dimension. The Cotonou Agreement refers to the issues of protecting human rights, resolving armed conflicts and promoting democracy through political dialogue as essential components to development. Furthermore, and this is a considerable innovation on the international front, it incorporates an institutional control procedure to measure levels of corruption and monitor commitment to the principles of good governance in ACP countries, and allows the EU to reduce its assistance should these principles be seriously violated.

●    The promotion of participatory approaches. An overall policy of information and transparency has been instituted with regard to civil society, NGOs, the private sector and even social players in an effort to implement the Agreement efficiently. It also provides support for capacity building, and encourages networking and consultation on economic and social reforms to be undertaken.

●    The central objective of poverty reduction. The Agreement advances that poverty is a complex reality and that strategies aimed at its reduction must be organised on a national basis, integrating economic, social and cultural dimensions, as well as institutional issues and those relating to the environment and the equality of men and women. A means of measuring the reduction of poverty, both quantitatively and qualitatively, has been put in place.

●    The reform of financial cooperation. Part 4 of the Agreement is entirely dedicated to this and is often highly technical in nature. This is because the amount of public European development aid is of paramount importance to ACP States who were, moreover, somewhat “disappointed” by the sums committed for the 2000-2005 period [Note 4] . Whilst the two traditional instruments of European development financing (EDF et EIB) are retained under the Cotonou Agreement, they have been fundamentally overhauled, with procedures in particular being rationalised and streamlined. This should guarantee a better overall view, and above all ensure that financial assistance programmes become more flexible.

●    The new framework for economic and trade cooperation. In the longer term, the Cotonou Agreement will lead to profound changes in the ACP – EC trade regime.

III. The Trading Arrangements of the Cotonou Agreement

            A) The underlying “philosophy”

5. The main objective behind all the trading arrangements in the Cotonou Agreement is to bring ACP countries into the world economic fold, in other words to involve them in the globalisation movement in order that they gain maximum advantage from it. In the longer term, it is a question of creating framework conditions at home which are conducive to the opening up of their markets, by assuming the principle of free trade, according to which the trading of goods and services between nations stimulates strong development and reduces poverty. Twenty-five years of trade cooperation under the Lomé Conventions have shown, moreover, that tariff concessions alone are insufficient to foster the development of ACP foreign trade [Note 5] . In fact, apart from a few very specific sectors involving tropical products and the case of Mauritius, the Lomé preferential trade regime has not allowed ACP countries to increase their market share in the EU vis-à-vis the Asian countries who, with the Generalised System of Preferences (GSP), enjoy what is nevertheless a “less preferential” import regime in the Community market than ACP States [Note 6] . This is because products from ACP States are generally not competitive internationally, and the time has come, in addition to tariff preferences, to help these countries to efficiently restructure their production methods. Aspects such as limitations on the supply side, i.e. the diversification of products, controlling production costs, and adapting quickly to changes in world demand will henceforth be fully taken into account by the Cotonou Agreement.  

            B) Main points

 6. To summarise, three decisions have been taken which are central to the trading aspects of the Cotonou Agreement. These are outlined below, and then commented upon:

●    The regime of non-reciprocal trade preferences under the Lomé Conventions is renewed, but only for a transitional period up to 2008.

●    From September 2002 onwards, ACP States who so wish can enter into trade negotiations with the EU, on a national or regional basis, with a view to signing a Free Trade Agreement by 2008.

●    From 2008 onwards, the EU will cease trading in the same manner with all ACP States. Various trade regimes will come into force at that time between the ACP States and the EU, according to each country’s level of development (LDC or non-LDC) and/or whether or not it belongs to a regional organisation. 

C) The renewal of the Lomé regime

7. The Cotonou Agreement is not strictly speaking a new trade agreement between the ACP States and the EU. Indeed, apart from a few details, up to 2008 it merely renews the regime which has been in operation for the last 25 years. This Lomé regime, the main aspects of which are outlined in Annex 3, is destined to disappear, but remains important from two points of view. Firstly because it will regulate trade relations between 76 countries [Note 7]  and the largest integrated market on the planet for another seven years. But mainly because, after 2008, it could remain in force for LDC ACP States who request it (see below).  

D) The transitional period (2001 – 2008)

8. This seven year period was foreseen by the Cotonou Agreement in order to allow ACP States to negotiate and adopt new trade regimes with the EU. In practical terms, it means that ACP States who wish it, will negotiate Economic Partnership Agreements (EPA), i.e. standard Free Trade Agreements (FTA), allowing for reciprocal concessions, but with the addition of financial assistance measures to help with implementation. From the EU’s point of view, EPAs should make it possible to simultaneously incorporate the three following dimensions:

●    Facilitating the regional integration of ACP States. The Cotonou Agreement encourages the conclusion of EPAs on a regional rather than a national basis, which stimulates the consolidation of regional economic organisations in ACP countries. This approach should also lead to work rationalisation and economies in available resources both within the EU and in ACP States. Under the terms of the Agreement, the ACP States themselves have to determine whether they wish to enter into trade negotiations with the EU on a national or a regional basis.

●    Taking the special case of LDCs into account. Given the fragile nature of their economies, LDCs (39 of which are in the ACP group) will not be required to negotiate EPAs with the EU in order to retain their present level of access to the Community’s market. In other words, LDCs will be able to retain the Lomé regime beyond 2008, if they so wish it. Although it is not contained within the Cotonou Agreement, attention should also be drawn to the EU’s “Everything but Arms” (EBA) initiative which applies to all 49 LDCs in the world (whether ACP States or not) and which was adopted by the EU at the end of February 2001. This initiative, which came into effect on 5 March 2001, removes all customs duties and quotas in the Community market for products originating from LDCs, with the exception of arms [Note 8] .

●    Liberalising trade between ACP States and the EU on a reciprocal basis in conformity with WTO rules. The Lomé regime does not allow for reciprocity in trade concessions, which contravenes the Most-Favoured Nation clause contained within the WTO Agreements (point IV below). This means that ACP States will in the future, via Economic Partnership Agreements, have to grant the same trading preferences for Community products entering their territory as they enjoy for their products entering the EU. ACP States will therefore have to open up their markets to European competition, and the financial assistance measures contained within the EPAs will help with the transformation. For those non-LDCs who do not wish to negotiate EPAs with the EU, the Community’s Generalised System of Preferences regime (accepted by the WTO) could then be applied.

9.  There are therefore several choices on offer to ACP States with regard to the status of their future trade relations with the EU, and it is not immediately clear which will bring the greater benefits:

●    For non-LDC ACP countries: should they negotiate an EPA or instead opt for the EU’s GSP regime in its 2004 revised form? [Note 9]  And if they choose an EPA, should they negotiate alone or on a regional basis?

●    For LDC ACP countries: should they negotiate an EPA or opt to retain the Lomé regime? And if they choose an EPA, should they negotiate alone or on a regional basis?

10. In order to allow each ACP country time to make a choice, APE negotiations as such are not timetabled to commence before September 2002, leaving the ACP States almost two years for preparations. Thereafter, that is to say between September 2002 and January 2008, the various stages in the negotiations have been planned along the main lines detailed in the table in Annex 4.  

E) Beyond 2008

11. One can sense that the standard structure of trade relations between ACP States and the EU is likely to be complex at the very least, after 2008.  Allowance has in fact been made for a lengthy implementation period of the agreements through to 2018 or 2020. Whatever the case, distinctions will be drawn between LDC and non-LDC members of the ACP family, as well as between the signatories and non-signatories of EPAs. In fact, the one single global agreement for ACP States will be fragmented into a number of ACP - EC trade regimes, the outlines of which are as yet still difficult to make out. From a political point of view, the cohesion of the ACP Group will be strained. 

F) Commentary

12. Four types of criticisms can be levelled at the “trade scenario” provided for by the Cotonou Agreement :

●    The complexity of the standard structure. The multiplicity of trade links between ACP States and the EU which will come into play after 2008 will make treaty administration costly and difficult. From a technical point of view, and in the probable situation where neighbouring ACP countries are not subject to the same EU trade regime, it will become necessary to strengthen regulations on origin status, as well as frontier controls. Regional integration may then fail to be consolidated, trade will be hampered and the administrative load on ACP States will increase.

●    The regional dimension. Whilst the EU’s approach is well-intentioned, the prospect for ACP States of negotiating EPAs on a regional basis could entail a lot of complications, as it requires several preconditions. Firstly, the regions which are “eligible” to negotiate an EPA with the EU need to constitute real trade zones, in other words they have to be organised into free trade zones or customs unions. Secondly, it will require the member States of these trading zones to agree a mandate for negotiation, which implies holding discussions of a technical nature amongst themselves before September 2002. Finally, and in a great many cases, it will mean delegating the Treaty making power for international agreements to a supranational authority. Now, as things stand, there are very few regional organisations within ACP States who have the genuine political willpower and the necessary resources to meet all these conditions. In fact, in the view of certain analysts, the only organisations which might be able to negotiate an EPA directly with the EU are: CARICOM, the “Pacific Islands Forum”, WAEMU, SACU and possibly COMESA.

●    The difficult choice facing ACP States. The Cotonou Agreement means that ACP countries are obliged to make certain choices which could prove crucial for their external trade, and have very little time to do so (from now until September 2002). With only meagre resources at their disposal, most of these countries have to involve themselves in a complex “cost/benefit analysis” of the various trade regimes which are on offer in a changing environment, and at a time when nobody has answers to all the questions. Indeed, who can clearly predict today what the EPAs will contain? What course will the EU’s review of its GSP follow in 2004? What form will the “alternative possibilities” take for non-LDCs under article 37.6 (see note n°8)? More generally, how will the WTO evolve over the next seven years? Will a new round of multilateral negotiations significantly change the obligations of ACP States, of whom 55 are WTO Members? Will the European Commission pursue its external trade policy with ACP States on a “bilateral” basis through EPAs or will it adopt a new multilateral approach inside the WTO? etc.

●    The impact on development. It is not certain at this stage whether the regime of regional or national EPAs foreseen by the Cotonou Agreement will have an entirely positive impact on the development of ACP countries. In particular, the introduction of reciprocity into trade concessions could considerably reduce customs duty income [Note 10]  for ACP States, with no accompanying global reform of the fiscal system. There is also a fear that the greatest effect of reducing customs duties on goods imported into ACP countries from the EU might be to increase the profit margins of exporters in the Community, rather than reducing prices for consumers in ACP States. Some people would also suggest that the Cotonou timetable for opening up the ACP markets is too tight, and that ACP States will have insufficient time to implement all the necessary structural changes to their economies that such a liberalisation requires. Finally, one could observe that the complexity of the trade negotiations which lie ahead for the ACP States might, given their meagre resources, have the effect of turning them away from trading partners other than the EU, on a bilateral level as well as on a multilateral level within the WTO [Note 11] .

IV. Relations with the WTO

A) Making the ACP – EC trade regime compatible with the WTO

 13. One of the main reasons for the EC wishing to negotiate the Cotonou Agreement was to bring its regime of non-reciprocal trade preferences for ACP countries into line with WTO regulations, in particular with the fundamental rule governing non-discrimination. This is because the legislation governed by the WTO holds as one of its basic principles the “Most-Favoured Nation” (MFN) clause, which requires that within the system, any preference granted to one Member should automatically be granted to every other Member of the Organisation [Note 12] . WTO regulations only allow for a derogation from the MFN  principle in two situations:

●    When Free Trade Agreements providing reciprocal tariff concessions are in force. Under article XXIV of GATT, three other conditions must be met for an FTA to be compatible with the WTO regime (point C below).

●    When the 1979 habilitation clause, which authorises special and differential treatment for Developing Countries (or for the subgroup of LDCs recognised by the WTO), is applied. In this case, an industrialised country is authorised to grant non-reciprocal trade preferences, on condition that these apply to Developing Countries as a whole (or to all LDCs). The GSP is legitimated within the WTO framework on the basis of this provision (Note 5).

14. As we have seen, the Lomé regime is not a Free Trade Agreement guaranteeing reciprocal trade concessions, neither does it concern Developing Countries as a whole. It cannot therefore be legitimated by the WTO under either of the above provisions. It is, in fact, only thanks to an exemption from compliance with the MFN clause, that the non-reciprocal trade preferences of Lomé IV have remained operational until today. This being so, the EC was faced with only three options to regularise its trade regime towards ACP States with the WTO:

●    Under article XXIV, to transform its non-reciprocal preferences towards ACP States into reciprocal preferences via Free Trade Agreements.

●    Under the habilitation clause, to extend its non-reciprocal preferences towards ACP States to all Developing Countries via a reform of its GSP.

●    To adopt a “utopian” approach, await the next round of WTO multilateral negotiations, and extend the same level of non-reciprocal preferences granted to ACP States to all Members of the WTO on an MFN basis.

15. The second option – which in fact amounts to ignoring the specific political nature of the ACP group – does not satisfy anyone, whilst the third goes way beyond the framework of straightforward trade relations between the EU and ACP States. As we have seen, the first option was chosen looking forward to 2008, with the Lomé regime being maintained in the intervening period. There are however two question marks regarding the provisions of the Cotonou Agreement and compatibility with the WTO: How does the WTO regard Lomé up to 2008? What will happen to EPAs after 2008, with respect to the conditions of article XXIV?  

B) The renewal of the Lomé regime until 2008 and the WTO

16. The regime of non-reciprocal trade preferences allowed for under the Lomé IV Agreement (signed in December 1989 for ten years) had required a WTO exemption from compliance with the MFN clause, prior to coming into effect. This derogation was granted for the duration of the Agreement, that is to say until 29 February 2000. The same now applies to the extension of the Lomé regime until 2008, which in turn requires the WTO to grant an MFN derogation. The EU made it clear to its partners during negotiations for the Cotonou Agreement, that it would only apply to the WTO for one additional derogation, before finally bringing its trade regime with ACP States into line with multilateral rules.

17. In this case, it is article IX.3(b) of the Marrakech Agreement instituting the WTO which lays down the rules and procedures governing the granting of an exemption from compliance with an obligation contained in a WTO multilateral agreement. It is therefore up to the Members of the Organisation acting within the Council for the Trade of Goods, to “present” the request for a derogation [Note 13] . Once the matter has been presented, the Members have 90 days to reach a decision by consensus regarding the derogation request and to transmit their decision to the General Council for endorsement.

18. A formal request for an exemption from compliance with article I.1 of GATT (MFN clause) was lodged with the Council for the Trade of Goods jointly by the European Commission and by Tanzania and Jamaica, acting on behalf of the ACP States, on 29 February 2000 (published 2 March 2000, G/C/W/187), that is to say the very day upon which the exemption for Lomé IV expired and before the actual signature of the Cotonou Agreement on 23 June 2000. This request for a waiver was completed on 5 April 2000, and a draft decision from the EC was then circulated on 14 April 2000 (G/C/W/187/add2 and add3). Finally, the actual text of the Cotonou Agreement, as well as its Annexes and Protocols in the three official languages of the WTO was forwarded to Members on 4 May 2000 (C/G/W/204), replacing previous communications.

19. The Council for the Trade of Goods (CTG) has discussed the request for a waiver relating to the extension of the Lomé regime until 2008 on four separate occasions, during the following meetings:

●    5 April and 18 May 2000 (G/C/M/43)

●    7 July 2000 (G/C/M/44)

●    16 October 2000 (G/C/M/45)

●    14 March 2001 (G/C/M/47)

To date (end March 2001), and almost 13 months after the first request for a waiver lodged by the EC and the ACP States, WTO Members have not yet agreed to present the matter, and the 90 day time limit allowed for under article IX.3(b) has still not begun. This means that since 29 February 2000, when the Lomé IV waiver lapsed, the EU has been applying a trade regime to ACP States which contravenes its multilateral obligations under the WTO.

20. Two groups of countries are opposed on this issue. The EC and Jamaica (on behalf of the ACP States) on the one hand and some Central and South American countries (Colombia, Ecuador, Guatemala, Honduras, Nicaragua, Panama, Paraguay) on the other [Note 14] . The first group advances as its main argument for obtaining a waiver that this only actually involves renewing the Lomé IV [Note 15]  derogation.  It also insists on the fact that the new waiver only covers the transitional period, which in any case is essential for negotiating the Free Trade Agreements which will finally bring the ACP – EC trade regime into line with WTO rules. It will also allow ACP States to carry out the necessary associated reforms.  The second group, on the other hand, has registered opposition to the waiver partly on the basis of its content, but also with regard to form and procedure in particular.

21. Regarding the content, there are two main arguments against a derogation:

●   The first refers to the very principle of non-discrimination in the multilateral trading system. It holds that, given the large number of Developing Countries involved, the Lomé regime cannot be considered as a Regional Trade Agreement in the spirit of what was agreed in Marrakech. Renewing it would in fact create a discriminatory trading system operating in parallel with that of the WTO, in defiance of WTO Members from Developing Countries who do not belong to the ACP Group. That is why, should the waiver be granted, it should be accompanied by substantial compensations to Developing Countries.

●   The second basic argument relates to the matter of the Community’s regime on the import of bananas. It is shared by a larger number of countries than the first, and more or less includes the above-mentioned Latin-American banana exporters and the United States. A comprehensive review of the “banana conflict” would be well outside the scope of this Background Note. However, the Community’s regime on the import of bananas, which is favourable to ACP exporters, has been condemned by the Dispute Settlement Body (DSB) of the WTO – and prior to that, twice by the GATT Dispute Settlement Panel which had no executory power – and that the EU has been summoned to reform its regime along the lines of the DSB’s conclusions. A second Banana Protocol modifying Community legislation and leading to the eventual elimination of the preferential regime for ACP States was therefore incorporated into the Cotonou Agreement. It stipulates that the ACP countries involved and the EC will engage in consultations aimed at revising regulation 404/93 of the banana import regime so as to bring it into line with WTO requirements [Note 16] . Now this is where several Members of the WTO feel the pinch, insofar as the new ruling from the Banana Council, (216/2001) dated 29 January 2001, was only recently forwarded to WTO Members, on 12 March 2001 (G/C/W/254). Prior to this, many WTO Members stated their inability to express an opinion on the waiver without knowing exactly what form the new Community banana import regime would take. During the last CTG meeting, on 14 March 2001, the same Members who had opposed the waiver felt that two days were insufficient time for them to study the new ruling and that it would be necessary to return to the problem at the next CTG meeting on 18 April 2001.

22. Next, regarding the numerous procedural issues, opponents of the waiver referred to a number of points during the CTG discussions, in particular with respect to when the 90 day time limit provided for under article IX.3(b) should commence. Some, for instance, felt that the time limit should only start from the moment when each delegation was in possession of all the documentation necessary to form an opinion, in the three official WTO languages. This argument was obviously directed at the new banana ruling, but also at the text of the Cotonou Agreement itself which was only forwarded in its entirety on 4 May 2000 [Note 17] . Others argued that, before being able to reach a decision, it was necessary for them to obtain answers to a variety of questions they had yet to forward to the EC. Finally, quite a lot of time was lost in deciding who should draft the plans for the decision on the waiver, as well as how the CTG President should report to the General Council on the progress of discussions. Many of these matters have now been resolved, and it would seem that most of the procedural conditions have been met, allowing the 90 day time limit to finally begin during the next CTG meeting to be held on 18 April.  No one can, at this stage, pre-judge the outcome of the decision on the waiver.

C) The post-2008 EPAs and the WTO 

23. In essence, the Free Trade Agreements aimed at reducing tariff and non-tariff based barriers between a limited number of WTO Members distort the MFN principle, whose objective is to reduce barriers to trade between all Members within the system in parallel. However, the WTO uses the free trade argument to allow them, and considers them to be complementary to the multilateral process of liberalising trade, fostering the development of trade between nations. In a legal context, they are legitimated under article XXIV of the 1994 GATT Agreement. According to the terms of that article, other than a few conditions of form relating to the notification of any new FTA to the WTO, three other basic conditions must be met to legitimate an FTA within the framework of the multilateral trading system. These are as follows:

●   The Agreement must not lead to an increase in the level of protection vis-à-vis third Member countries of the WTO [XXIV.5(b)].

●   The Agreement must cover almost all trade, in other words it must not exclude too many sensitive products [XXIV.8(b)].

●   The Agreement must be implemented within “reasonable time limits”, in other words within a period not exceeding ten years, barring exceptional circumstances [XXIV.5(c)].

24. Given these three conditions, will the EPAs which come into force between the EC and ACP States after 2008 be compatible with article XXIV of the 1994 GATT Agreement? It is very difficult to gauge the current state of affairs. On the one hand, no one yet knows what the EPAs will really contain, and in particular which products will be excluded (e.g. agricultural products) and what the time limits will really be for implementation. But on the other hand, the terms of article XXIV are somewhat vague and could be subject to a variety of different interpretations in the WTO. There is likely to be a degree of bargaining on the WTO Committee on Regional Trade Agreements when the EPAs are submitted for its approval, a similar sort of bargaining to that which is currently taking place concerning discussions on the waiver.

V. Conclusion

25.  Speaking generally, it can be said that changes triggered by the Cotonou Agreement in the area of trade threaten existing non-reciprocal preferential trade regimes. In fact, the international trade rules in force in a number of Developing Countries are currently being restructured, and the asymmetrical regimes which the latter have enjoyed up to now will soon make way for arrangements which conform more closely with the multilateral rules of the WTO. As a result, Geneva will take on more importance in discussions of a trade-related nature, which doubtless explains the recent decision by the Secretariat of the ACP States, whose headquarters is in Brussels, to open a trade mission in Geneva.

Note 1 : The ACP Group is constituted by 78 countries. Cuba is a member of the Group but is not a signatory to the Cotonou Agreement. (Return to text)

Note 2 : In addition to its 15 Member States, the European Community as such is also a signatory to the Agreement. (Return to text)

Note 3 : The EU has also signed several bilateral Free Trade Agreements, in particular with Maghreb and Mashreq countries, Turkey, South Africa, Mexico and several countries in Eastern Europe. (Return to text)

Note 4 : 13.5 billion Euros from the 9^th European Development Fund (EDF) and 1.3 billion Euros from the European Investment Bank (EIB). (Return to text)

Note 5 : The ACP countries’ share of the European market has declined from 6.7% in 1976 to only 3% in 1998 and 60% of ACP exports are still concentrated in only 10 products. (Return to text)

Note 6 : The GSP is a system which was developed towards the end of the 1960s under the aegis of UNCTAD. As is the case with Lomé, it is a non-reciprocal trade preferences regime. But unlike Lomé, it is aimed at Developing Countries as a whole and is adopted unilaterally by each industrialised country without negotiations (and can therefore also be unilaterally denounced). The tariff-based and non-tariff exemptions it includes are generally less generous than those provided for under Lomé and they cover a more restricted number of products (in the case of the EU, agricultural products are excluded). Twenty-seven industrialised countries currently have a GSP for Developing Countries. By virtue of a special clause in the WTO Agreements, the GSP is compatible with the rules of the multilateral trading system. The EU will review all the provisions contained in its GSP in 2004. (Return to text)

Note 7 : South Africa, although a member of the ACP Group and a signatory to the Cotonou Agreement, does not apply the trade measures. Its trade relations with the EU are governed by a Free Trade Agreement signed in 1999, which guarantees reciprocity and includes agricultural products. (Return to text)

Note 8 : The trade in three sensitive products, sugar, rice and bananas, will nevertheless be progressively liberalised during a transitional period, leading to free trade in bananas in 2006 and for rice and sugar in 2009. (Return to text)

Note 9 : It should be mentioned that during negotiations for the Cotonou Agreement, several non-LDC ACP countries requested that they be allowed to benefit from an extension of the Lomé regime beyond 2008, in the same manner as LDCs. Whilst the EC did not rule out this option during negotiations, it has been very reticent about it. This problem will be reexamined in 2004, and in the case of LDCs who declare themselves not in a position to sign EPAs, the Agreement provides for “other” possible trade regimes which would be both “equivalent to their existing situation and in conformity with WTO rules” (art. 37.6). (Return to text)

Note 10 : At the present time, it is estimated that from 45 to 65% of the public revenue generated by Developing Countries comes from customs duties (see AITIC Background Note: The administration and implementation of the WTO Agreement on Customs Valuation, October 2000) (Return to text)

Note 11 : It should be noted, however, that the EU is a very important trading partner for ACP countries. It is estimated that almost 40% of ACP exports are to the EU (close to 50% for African ACP States). (Return to text)

Note 12 : The MFN principal is so central to the philosophy of WTO legislation, that it is announced very ostentatiously in article I of the GATT Agreement and in article II of the GATS. It is also repeated in several other provisions of the various WTO Agreements. (Return to text)

Note 13 : It should be noted that the presentation is, so to speak, “obligatory” inasmuch as every Member has the formal right to request a derogation. (Return to text)

Note 14 : The United States and Malaysia (on behalf of ASEAN) have also expressed views on the subject. (Return to text)

Note 15 : It is perhaps appropriate to recall here that the Lomé IV derogation had itself only been obtained with some difficulty at a period when the then GATT regulations were more flexible than those of the WTO today. (Return to text)

Note 16 : Technically, this involves implementing a banana regime by 2006, under which ACP States only benefit from preferential customs duties with respect to third countries, and where quotas are no longer used. During the transitional period leading up to 2006, the system for awarding import licences would be revised on a “first come, first served” basis, which from the US point of view, continues to discriminate against non-ACP banana producers, and is contrary to the DSB decision. The matter has yet to be settled and is subject to intense negotiations between the EU and the United States. (Return to text)

Note 17 : It should be mentioned in the EC’s defence that, at the time of the request for a waiver being lodged, the trade provisions under the Cotonou Agreement which concerned the WTO (and which constitute only a small part of the Agreement as a whole) had in fact been forwarded to the Members of the WTO in the three official languages. Demanding the entire Agreement in the three official languages therefore constitutes a purely procedural argument, since the vast majority of the provisions in the Cotonou Agreement do not concern the request for a waiver. (Return to text)

Annex 1 : Historical Background to ACP - EC Relations *

Before the Lomé Conventions (1957 - 1975) The first Convention associating French-speaking overseas countries and territories and the European Common Market, aimed at their economic and social development, was signed on 25 March 1957 for a period of five years within the framework of the Treaty of Rome. After they became independent in the early 60s, links with the EEC were not broken. The Convention defining their status as associated States was periodically renewed. On 20 July 1963, the new Convention, that of Yaoundé, established financial, technical and trade cooperation between the EEC and eighteen Associated African States and Madagascar (AAMS). The free trade regime which had existed between the EEC and these States since 1957 was maintained, procedures were streamlined to encourage the import of tropical products from these countries, and customs duties were abolished for most products imported into the EEC. The Convention established a customs preference zone between the EEC and the associated States. Additional resources were made available to the European Development Fund (EDF) to finance agricultural development projects in Africa. The European Investment Bank (EIB) was authorised to intervene with loans and advances to regulate the prices of tropical products, completing the actions of the EDF. This first Yaoundé Convention was followed by a second, signed in 1969, broadening the attributions of the EDF, and providing capital for African industry and help in exceptional circumstances to compensate for the drop in price of primary products. The Lomé Conventions (1975 - 2000) With the enlargement of the EEC in 1972, the Conventions of Yaoundé and Arusha for English-speaking countries were replaced by the Lomé Conventions, now including English-speaking countries in Community cooperation. Together, these countries were referred to as ACP (African, Caribbean and Pacific) States. Four Conventions have succeeded one another over twenty-five years. The first, Lomé I, was signed on 28 February 1975 by the EEC and forty-six ACP States, (nineteen States already associated to the EEC, twenty-one States belonging to the Commonwealth and six East African States with no particular links to EEC countries). The first three Conventions were signed for five years: Lomé II on 31 October 1979 with fifty-seven ACP States ; Lomé III, on 8 December 1984 with sixty-six ACP States ; Lomé IV on 15 December 1989 for ten years, linking the EEC to seventy ACP States. These Conventions covered trade, industrial, financial and technical cooperation. Lomé I introduced STABEX, a system for stabilising the export earnings of ACP States in case of price fluctuations affecting certain basic products from these countries (coffee, cotton, cocoa, peanuts). Lomé II introduced SYSMIN, which guaranteed prices for mining products when market prices dropped to such an extent that they threatened production capacity or export earnings from ACP mining products. Under Lomé IV, nearly all the products from ACP States could enter the EEC without restrictions on quantities or customs duties, and without any reciprocal obligation. The Agreements extended cooperation to the environment, the fight against desertification, agriculture, fishing, industry, services, and were completed by financial and technical cooperation. The EEC became the developing countries' biggest trading partner. The Cotonou Agreement The EEC wished to make the provision of financial assistance to ACP countries conditional on their willingness to engage in a process of democratisation and respect of human rights. Discussions therefore began in 1996, followed by negotiations from 1998 onwards, in an effort to revise some provisions of Lomé IV. On 23 June 2000, the European Union and the 77 ACP States signed a new Partnership Agreement in Cotonou linking development aid in particular to a new "political dimension".

* From : Dictionnaire des relations internationales au 20ème siècle (The Dictionary of International Relations in the 20th century), Armand Colin, Paris, 2000, p.158-159

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Annex 2 : List of States Party to the Cotonou Agreement

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Annex 3 : Review of the Main Points of the Lomé Regime *

The original aim of the non-reciprocal trade preferences regime, the very foundation of trade relations linking ACP States to the EC since 1975, was to increase exports of ACP products to the European Community, in order to encourage development and reduce poverty in the former European colonies. This regime grants tariff advantages and/or certain forms of non-tariff advantages (essentially on quotas) to ACP products upon entry into Community territory, compared to competing products from other countries in the world. The "preferential margin" for ACP products can therefore be calculated by comparing the amount of customs duty charged by the EU on products originating from non-ACP States to the reduced (or zero) duty charged on the same products originating from ACP States. The preferences are non-reciprocal, that is to say that ACP States do not have to apply the same tariff concessions to products imported from the EC, in return. This is important in two respects. Firstly because it allows ACP States to keep their customs duties and thus protect the nascent sectors of their economy, whilst retaining a substantial part of their fiscal revenue. Secondly, because non-reciprocal regimes are theoretically incompatible with the multilateral rules and regulations of the WTO, of which 55 of the 78 ACP States are members (see part IV of Note). A safeguard clause in the Lomé regime authorises the EU to reintroduce tariff and non-tariff protection on ACP products in the event that the import of the latter causes severe disturbance to a sector of activity inside the Community. To date, this clause has been very little used. To ensure that it effectively applies to ACP States and ACP States alone, the Lomé regime includes a rigorous system on rules of origin. It defines the minimal degree of transformation that a product must undergo in an ACP State in order to attain "origin status" and thereby qualify for preferences. The non-originating material content of a product must not exceed 15% of its price on leaving the factory. When calculating the originating part, the remaining 85% can cumulate value added in other ACP States, EU countries or a few other countries under the terms of an agreement, particularly in the Maghreb and in South America. The straightforward assembly of a product in an ACP country does not confer upon it the origin likely to allow it to benefit from the advantages of the Lomé regime. With regard to its field of application, the Lomé regime covers all industrial or transformed products, as well as basic products which are the main export products of many ACP countries. On the other hand, the regime does not cover agricultural products which come under the Community's Common Agricultural Policy (CAP). Preferences are limited for these products or are subject to special protocols. Three types of agricultural product are thus recognised under the Lomé regime and are subject to three distinct trade regimes: ? Tropical products, in other words agricultural products that only ACP States produce and which in no way compete with agricultural products from the Community (coffee, cocoa, palm oil, etc.). These products can enter the Community free of all customs duty. ? Temperate products, that is to say agricultural products which are likely to be produced both by ACP countries and the EU and which are therefore in direct competition (approximately 25% of agricultural exports from ACP States). These products enjoy only partial preferences, in other words partial exemptions from the provisions of the CAP which protect farmers in the Community. They mostly take the form of reduced customs duties. ? Agricultural products for which ACP States enjoy no preference. These are very few. The Lomé regime also includes special regimes for four agricultural products originating from ACP States in the form of four additional protocols: sugar, beef and veal, bananas and rum. The protocols allow these four products free access to the Community market, but in carefully specified quantities originating from only certain "selected and traditional" ACP producers. The future of these four protocols is currently under discussion, mainly in the face of outside pressure (ref. the banana conflict within the WTO). The rum protocol was not retained under the Cotonou Agreement. The banana protocol was overhauled following a decision by the Dispute Settlement Body of the WTO, and a second banana protocol has come into force (ref. note §21); it was annexed to the Cotonou Agreement and allowed for a modification of Community legislation leading to a lifting of the EC's trade preferences on bananas originating from ACP States. The beef and veal protocol is threatened by the planned reform of the CAP. The procedures for underpinning export prices established under the sugar protocol are becoming difficult to uphold. The Cotonou Agreement has brought about a few minor changes to the Lomé regime. As mentioned above, the rum protocol has not been renewed and the banana protocol has been overhauled. Regarding rules of origin, the procedure for the cumulation of the originating part of the added value is henceforth accepted for South Africa under certain conditions. But it is with regard to the financial dispositions of the Lomé regime that the Cotonou Agreement brings about the most changes: The STABEX and the SYSMIN (see Annex 1) have not been renewed and are incorporated into the EDF financing procedure which has been fundamentally overhauled, whilst a few new financial instruments, equal to 2.2 billion Euros, have been incorporated to promote the private sector.

* From : Henri-Bernard Solignac Lecomte, Les relations commerciales ACP – UE régionales après Cotonou : Quelles positions de négociation pour les ACP en 2002 (ACP – EU regional trade relations after Cotonou : What negotiating positions for ACP States in 2002), joint AIF – COMSEC Seminar, Geneva 27-28 November 2000, p.6-7.

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Annex 4 : Timetable of ACP - EC Trade Negotiations *

 * From : Henri-Bernard Solignac Lecomte, Les relations commerciales ACP – UE régionales après Cotonou : Quelles positions de négociation pour les ACP en 2002 (ACP – EU regional trade relations after Cotonou : What negotiating positions for ACP States in 2002), joint AIF – COMSEC Seminar, Geneva 27-28 November 2000, p.20.

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