The European Union and FTAs With Developing Countries

Eberhard Stahn

Delegate
Delegation of the Commission of European
Communities in Trinidad and Tobago

Paper presented at the Colloquium Entitled "Diplomacy After 2000: Small States and Negotiating Space in the New International Trading environment" Organized by the Institute of International Relations, UWI for the 8^th and 9^th of October,1996.

Contents
Introduction
Current state of plan
Arrangements with ACP countries
Access of ACP products to the Community market
Annex

Introduction

The EU has consistently favoured open regionalism. The Union, as a matter of principle, welcomes all FTAS which respect WTO rules.

Decisions to negotiate an FTA need to be made on the basis of a case by case analysis of the mutual benefits for the EU and its partners. This has to be done in full awareness of the new WTO conditions (coverage, full reciprocity, transition arrangements, the possibility of referral of such arrangements to WTO dispute settlement, etc.) and of the overall costs and benefits. These considerations also apply to FTAS currently being negotiated.

Such an analysis should take into account not only direct costs and benefits but also wider strategic considerations of an economic and political nature. It remains important, for the conduct of the subsequent negotiation as well as for other internal Union policies, for a serious analysis to be made of the economic costs and benefits involved and of the implications for our relations with other partners. They can then be weighed in the balance with the other relevant considerations.

Where we envisage regional or bilateral liberalisation, we should satisfy ourselves before proposing a negotiation that an ambitious FTA, covering the full range of obstacles to trade and meeting fully our international obligations, is a politically realistic objective. Otherwise, the EU risks finding itself bogged down in long drawn and, perhaps ultimately fruitless, negotiations with third countries, with negative political consequences.

Current state of plan

A Free Trade Area is created when a group of two or more customs territories eliminate the duties and other broader restrictions on trade between them in products originating in those customs territories, in respect of " substantially all the trade". This definition, drawn from GATT, is the subject of widespread interpretative statements. The key element in an FTA is tariff elimination. As the deflation makes dear, FTAS may include tariff elimination and other forms of economic deregulation. Equally, agreements to increase trade opportunities may include economic co-operation measures but not include tariff elimination, and so not be FTAs.

The European Union currently has concluded various types of preferential agreements which incorporate a tariff elimination component. These include agreements with the Baltics, the (residual) EEA, the CEECS, Israel, Switzerland, Cyprus, Malta, the Faroe Islands, San Marino and Andorra, the latter two being Custom Unions. Non reciprocal agreements exist with Maghreb and Mashreq countries and the signatories of the Lomé Convention (see Table in annex).

At the same time, the Union is negotiating new agreements with Morocco and Tunisia, while talks with the Gulf Co-operation Council, Mercosur, Mexico and South Africa on a FTA are still open. With regards to Turkey, negotiations on the implementation of the Customs Union are currently underway. (The partnership agreement with Russia and the Ukraine provide for the possibility of a FTA when the agreement is reviewed in 1998. Similar provisions are likely to be included in some, at least, of the agreements currently being negotiated with the NIS).

The spread of FTAs also raises the important question of rules of origin. Rules of origin are an essential element of any FTA and without adequate workable rules it is unlikely that an FTA can succeed. One of the major problems the Union will face is developing rules which take into account its various trading relationships and which are acceptable to its partners. It has already become apparent that the numerous sets of origin rules resulting from the proliferation of trade agreements have made the full exploitation of such agreements by economic operators questionable. Careful consideration needs to be given to the existing approach towards rules of origin in order to ensure that the rules remain workable and that burdens such as compliance costs are kept to an acceptable level.

Arrangements with ACP countries

The non-reciprocal preferences under the Lomé Convention do not constitute an FTA in WTO terms but come very close to it. The concessions made in the revised Lomé IV Convention are a further step in that direction. For the first time since Lomé I the negotiations were not confined to a debate on preferential access, which had been regarded as decisive for the marketing of ACP products. This time they embraced, and even focused on an analysis of all the factors making for commercial success and the means to achieve such success. Thus the emphasis in ACP-EC trade cooperation switched from preferences to identifying ways of really developing trade.

This new approach led to a number of new articles and amendments to existing ones. It is further highlighted by a joint declaration of the ACP States, the Community and its Member States on the occasion of the signing of the unending act.

A consensus was speedily reached on the need to raise the profile of trade development in ACP-EC cooperation. To do this:

- a new Article 6a emphasizes the importance of trade for any self-reliant development and makes the development of trade one of the main objectives of ACP-EC cooperation;

- article 6bis, a new paragraph 3 in Article 135 and a joint declaration on trade development affirm the two parties' commitment to allocating appropriate resources to trade development programmes under 8th EDF national and regional indicative programmes

On the same lines and with the aim of ensuring that trade is taken into account in other spheres of ACP-EC cooperation:

- a new sub-paragraph I) in Article 287 (2) and the joint declaration on trade development require that any BDF-financed programme or project be evaluated with an eye to its impact on trade development and its potential to help improve competitiveness;

- amendments to Articles 50 (available agricultural products) and 51 (food aid) bring in a requirement that prior assessment is made of the impact on regional trade.

The new approach to trade, especially as regards the roles of preferences and the actual development of trade, is reflected in a new Article 15a, which lays down the objectives and guidelines of trade development.

According to this article, the main aim of trade development is to improve the ACP States'

competitiveness rather than, as in the past, extract maximum value from preferential arrangements (first paragraph Article 135). The Preferential régime is just one amongst many ways of developing trade (see also the amendments made to Article 167 (2)). In addition, trade development is not limited to increased ACP-EC trade but covers all potential ACP markets, including internal and regional outlets.

Moreover, Article 15a places emphasis on a sectoral and integrated approach utilizing all the provisions of the Lomé Convention for trade development in a coherent and coordinated manner from the conception to the final phase of product distribution (Article 135 ( I )). This change of tack is also reflected in addition and amendments to Article 136 and an additional sub-paragraph (p) in Article 220.

Access of ACP products to the Community market

Despite the encouraging progress made in the first round of negotiations, there was no avoiding a debate on preferences and the rules of origin, subjects which dominated the second round. However, in a break with the past, both parties saw the argument in a political rather than an economic light. The ACP States focused on the consequences of the Uruguay Round and the re-establishment of special relations between themselves and the Community. The Community, stressing the relative impact of tariff concessions on trade development, had initially wanted to keep this subject off the table and consolidate the acquis but it finally had to bow to the evidence that a response to ACP

demands was needed to conclude the negotiations. Nevertheless, it was also clear from the starting positions of the two sides that a compromise would have to be found by means of a horizontal rather than product-by-product approach.

The compromise finally reached at the ministerial meeting on 30 June provided for:

* the extension of the preferential arrangements to all products originating in the ACP States (with only three exceptions),

* more flexibility in the quantitative conditions attached to certain tariff concessions (with only two exceptions);

* the extension of tariff concessions beyond the present timetables (only three exceptions).

The ACP States will thus enjoy preferential arrangements for all their products throughout the year with only a few exceptions.

As usual, the rules of origin were one of the trickiest items on the negotiating agenda. Not only, because of the technical nature of the subject but also because the right balance had to be struck between the objective of promoting the ACP State's industrial development and the constraints imposed by their currently low level of industrialization.

Annex

Free Trade Agreements of the EU with Third Countries ( not including the EEA Countries)

European Agreements

Free trade agreements were signed with the three Baltic states (ESTONIA, LATVIA and LITHUANIA) on 18 July 1994 and entered into force on 1 January 1995.

Agreements including a clause considering a future FTA