GREEN PAPER

on relations between the European Union and the ACP countries
on the eve of the 21st century
Challenges and options for a new partnership

Main topics for discussion

This report should be cited as: European Commission. 1996. Green Paper on relations between the European Union and the ACP countries on the eve of the 21st century - Challenges and options for a new partnership. Brussels: European Commission

Contents Page
DG VIII page

The world is in the throes of far-reaching changes. The collapse of the Iron Curtain and the end of the East-West conflict brought about a drastic upheaval in international relations and the world economy, opening the door to closer cooperation on the basis of common values and principles but also leading to a recasting of geo-strategic interests and new, less tangible forms of risk. Economically speaking, the spread of the market economy and the demise of exclusive or privileged ties have altered the terms of supply and demand on international markets. The conclusion of the Uruguay Round trade negotiations created a new multilateral context which is speeding up a globalization of the economy driven by technological change and the liberalization of economic policies that started in the 1980s. Interdependence is growing and extends beyond the economic and financial to the social and environmental spheres. At the same time, the margin for manoeuvre in national policies has narrowed and new fault lines are being opened up by the effects of social exclusion, by the fragmentation of the social fabric in both industrialized and developing or transitional countries, by widening inequalities and by the marginalization of the poorest countries. These fault lines are destabilizing and lie behind the upsurge in extremism in its nationalist or fundamentalist guises.

This new international environment has prompted the European Union to redefine its political and security interests and give fresh impetus to the political dimension of the European integration process. The Treaty on European Union has given an institutional basis to the framing of a common foreign and security policy (CFSP), a policy which is as yet insufficiently developed to further properly the common interests of the Member States; its machinery is currently being discussed as part of the Intergovernmental Conference (IGC). But the Treaty has also provided an institutional basis for European development cooperation policy.

The European Union is gearing up for major changes

The European Union itself will be in the process of radical change at the time it embarks on a new relationship with the ACP countries.

It has a full programme of work in the years ahead as it readies itself to face the challenges of the 21st century: finetuning of the internal market and the prospect of a single currency, revision of the Treaty and other institutional reforms being discussed by the IGC, conclusion of a new medium-term financial agreement and the prospect of enlargement to embrace the associated countries of Central and Eastern Europe, the Baltic States and Cyprus and Malta.

The European Union's external relations have also been marked by new initiatives concerning developing countries and economies in transition. It has concluded association agreements with most European countries of the former East bloc, which are now applying for membership.

At the same time, it is supporting the process of economic and political change in the republics of the former Soviet Union and has concluded trade agreements with several of them.

Relations with non-member Mediterranean countries are now covered by a new, longterm multilateral framework for partnership between 27 countries, which go hand in hand with closer bilateral relations and cover three sets of provisions: political and security, economic and financial (chiefly the gradual setting up of a free-trade area) and social, cultural and human.

The European Union has also decided to strengthen its links with Latin America as part of a three-pronged strategy involving closer political dialogue between the two regions, encouragement of free trade combine with institutional support for the regional integration process, and technical and financial cooperation focusing on a number of priority fields.

Its new strategy in its relations with Asian countries is aimed at strengthening Europe's economic presence in this region, enhancing mutual understanding and developing a new political approach.

These new policies are the Union's response to the political and economic changes under way on the international scene and reflect the fact that the Union's external relations are not only global in scope but tailored to specific circumstances.

Relations between the European Union and the 70 African, Caribbean and Pacific countries are entering a new phase.

The Lomé Convention has provided the framework for trade and aid between the EU and the ACP countries, now numbering 70, since 1975. But Community development policy goes back to 1957 and has gone through a number of decisive phases since then. After the initial years, during which the aim was to establish ties with the Community's overseas countries and territories, cooperation continued under the Yaoundé Conventions and remained focused on French-speaking black Africa until the middle of the 1970s. After its Community's first enlargement, which took place in a markedly changing world economy, the European Community started to extend the geographical scope of its cooperation policy by opening the first Lomé Convention to other ACP countries and forging association and cooperation ties with other regions of the developing world.

The Lomé Convention has been overhauled every five years to adjust it to economic and political developments, add new cooperation instruments and set fresh priorities. The last revision took place in 1995.

The EU has also gradually built up other, non-Lomé instruments for aiding the developing countries in the form of specific budget headings (for desertification control, AIDS, etc.) or components of other Community policies that can also contribute to development policy (scientific policy under the framework research and development programme (FRDP) is one such). The ACP countries are also eligible for these forms of aid.

New general guidelines have been drawn up for EU policies in a number of sectors or fields of cooperation as a result of the work under way since 1992 "on the outlook for cooperation in the run up to the year 2000" to implement the new Treaty provisions on European development policy.

On the threshold of the 21st century the future shape of the EU's relations with the ACP countries needs to be examined in depth. With the current Convention due to expire in February 2000, which is not far distant, and the two parties' contractual obligation to start negotiations at the latest 18 months beforehand, plus the need to establish against the background of the tighter disciplines of the WTO a trade cooperation framework fully in line with the new multilateral rules, we have an ideal opportunity to go ahead with this reappraisal and embark on a wideranging debate on the future of relations between the EU and the ACP states.

The debate on the future of ACP-EU relations must first take account of the new global environment

Not only does the new global landscape alter the EU's objective interests and those of its developing partners, it also involves increased responsibilities for a player of the EU's size. These responsibilities are first and foremost political in nature: the EU must actively support the moves towards more openness that started when the cold war came to an end in the second half of the 1980s and in particular help anchor the democratization process, which is still precarious in many ACP countries. These responsibilities are also of an economic nature: the EU must complement the effects of globalization by making the necessary adjustments within the Union to improve job prospects and reverse trends towards exclusion by playing an active role in international economic cooperation, helping frame and enforce multilateral rules and easing the gradual integration of developing countries into the world economy. Another aspect of globalization are the changes resulting from progress towards an information society; this is a new economic factor that is opening up extraordinary prospects in areas such as trade, education and health but also threatening to marginalize still further countries that are not locked into international information networks.

For the European Community - faced with the difficult task of adjusting its economic and social systems and having to frame its political action to fit a multi- rather than bipolar world and prepare for eastward enlargement - there is now a new dimension to development cooperation, particularly with the ACP countries, viz how can we take on a global role without responsible strategies for the different regions of the developing world, notably those worst hit by poverty and marginalization?

The EU's efforts to reduce poverty and inequalities in development around the world are also closely linked to the quest for peace and stability, the need for better management of global interdependence and risks, and promotion of a kind of world development that is more compatible with European political and social values.

The EU's development policy offers Europe a gateway to regions with enormous development potential which are now starting to bestir themselves.

As the 21st century dawns, relations between the EU and the ACP countries should be put on new footing to take account not only of changed political and economic conditions for development but also of changed attitudes in Europe. The colonial and postcolonial period are behind us and a more politically open international environment enables us to lay down the responsibilities of each partner less ambiguously.

Second, with the primary aim of making cooperation more effective, we must draw on the lessons of over four decades of cooperation with the ACP countries

In view of the patchy achievements of ACP-EU cooperation and a degree of scepticism about the scope for developing the ACP countries against the background of tight budgets in donor countries and an inward-looking tendency borne of social difficulties in Europe, partners on both sides are now seeking to place more emphasis on the effectiveness of cooperation and to review their priorities with an eye to better reflecting the concerns of European and ACP societies.

Community aid is of major importance for many ACP countries and has unquestionably helped to improve living standards. It has often been a testing ground for new ideas and universally acknowledged expertise has been built up in certain areas. But like any form of aid it has had failings, which a critical analysis of the results of ACPEU cooperation has identified at three levels.

• 1. The general framework within which development operations are carried out: it has to be admitted that the principle of partnership has lost its substance and been only partly put into practice. Aid dependency, coping with shortterm needs and managing crisis situations have increasingly coloured political relations between the two sides. Dialogue on economic and social policies has proved difficult to put into practice with countries with little institutional capacity and ineffectual public administration with the result that partnership is limited to day-today resource management.
• 2. EUcommissioned evaluation reports on cooperation policies have generally concluded that financial and technical cooperation matches Community objectives and the needs of the recipient countries and that effectiveness is relatively high, notably as regards infrastructure and social projects. However, the state of the institutions and economic policy in the recipient country have often been major constraints, making Community aid less effective in raising living standards and the level of development.

  The impact of trade preferences has been disappointing by and large. Preferential arrangements, especially the protocols on specific products, have certainly contributed significantly to the commercial success of some countries which managed to respond with appropriate diversification policies. But the bulk of ACP countries have lacked the economic policies and the domestic conditions needed for developing trade. Furthermore, three new factors now have to be taken into consideration in designing a new trade regime: (i) the Marrakesh agreements and tougher dispute settlement procedures could put the future of differentiated, nonreciprocal preferences schemes in doubt; (ii) the speeding-up of liberalization at multilateral and interregional levels; (iii) the growing importance in international trade talks of new issues, such as the environment, competition policies, investment codes, technical and health standards and compliance with basic social rights. These developments affect the relative value of tariff preferences.

• 3. Where financial and technical cooperation is concerned, the fact that some financial resources are granted automatically (the proportion has now been cut) and the EU's tendency, in common with other donors, to take the initiative away from its weaker partners, have not encouraged ACP governments to display the genuine political commitment expected of them. There has been a drift towards a tendency for development instruments to dictate policy rather than the other way round. A lack of flexibility has meant that our cooperation does not adjust easily to a rapidly changing political and economic scene and is slow to produce new political initiatives reflecting the concerns of society in Europe and the ACP countries and the desire to make aid more effective in the long term.

The debate should also take into account the new political, economic and social outlook in the ACP countries

In a rapidly changing global and regional environment, the ACP countries have to face up to many challenges: halting their economic marginalization and integrating into international trade, implementing the domestic, political, economic and social changes needed to build a democratic society and a market economy, and creating the conditions for sustainable development and poverty alleviation in a context of still high population growth.

The widening gap between developing countries in general, and within the ACP group in particular, is undoubtedly a crucial factor. Political and economic transition has gone further in some countries than in others and the EU's efforts will be gauged in terms of its ability to ease the constraints on the development of the ACP countries while supporting the factors of change emerging in a growing number of countries. Above all, in more political terms, they will be judged by whether policy for the ACP countries, especially subSaharan Africa regains a strong sense of purpose. The negative image that many have of a continent that has lost its way does not reflect the real Africa. Africa is not all of a pattern. The unprecedented political developments and the recent improvement in growth performance in some countries, stemming chiefly from better management of economic policy and the implementation of structural reforms, are promising signs.

In the light of a decline in the general acceptance of the very principle of development aid in a global environment beset with risks and new opportunities, the European Union and its ACP partners must strive to make their cooperation more successful. This will entail identifying the ACPEU cooperation achievements that are worth preserving, making further progress in refining and implementing recent guidelines and initiatives, and determining which of the various possible options for future reform are most consistent with mutual objectives and undertakings.

A stronger political relationship between the EU and the ACP countries is needed to breath new life into the partnership

The difficulties of putting "partnership" into practice should not call into question the value of this form mutual political commitment. The circumstances and huge challenges facing many ACP countries are good reason to preserve the strengths and qualities of the present relationship, in particular the predictability and contractual nature of the aid. But this political commitment must be made more explicit and more effective.

Are the European Union and its ACP partners ready to do this?

On the EU side, the political dialogue with the ACP countries must be part and parcel of its common foreign policy. A more relaxed framework for dialogue where issues of good governance, democracy and human rights, and the consolidation and maintenance of the rule of law can be broached, along with the development of a genuine European conflict prevention and resolution policy, would seem to be preconditions for a more effective European policy. On the ACP side, commitment to push through institutional reforms and conduct economic, social and environmental policies reflecting the major undertakings made at the Rio, Vienna, Cairo, Copenhagen, Beijing, Istanbul and Rome international conferences, must be the foundation of the new partnership. The EU's aid activities, in common with those of other donors, can have major political repercussions for these countries; their relevance depends on a range of conditions, notably political conditions. The parties' respective responsibilities in the context of these activities must be expressed in political terms.

If a mutual political commitment is made on this basis, the principal subjects of the proposed dialogue (such as domestic security issues, migration, the fight against drug trafficking, etc.) and most appropriate geographical configuration (global dialogue or dialogue tailored to groups of countries) must be established.

North-South relations are part of the external face of the European Union and the special relations between the EU and the ACP countries fall within this wider relationship. The link between the politics and aid and with multilateral commercial policy is an application of the general principle of consistency in external action. Strengthening the Union's capability for external action is one of the key subjects broached in the Intergovernmental Conference (IGC). In its opinion on the IGC, the Commission argued in favour of bringing together "the various strands comprising foreign relations in a single effective whole, with structures and procedures designed to enhance consistency and continuity". Each strand should, however, retain its distinctive features. Community development cooperation policy, in particular, must retain sufficient autonomy to pursue its own objectives, which require a longterm view and continuity of action. This linkage does, however, entail greater selectivity in Community aid with a view to improving its effectiveness and this would lead to changes in the actual implementation of cooperation.

The framework of cooperation should also be adjusted to help the ACP countries open up to international trade

A number of new principles would facilitate this process.

First, the principle of differentiation: not all ACP countries can at present engage in political and economic partnership with the European Union on the same basis. Policies and methods of cooperation have to be suitably tailored for reasons of efficiency.

Second, European and ACP partners must strive to reconcile two requirements: (i) ultimate responsibility for reforms and development policies must be shouldered by the recipient countries; (ii) the EU, however, must be able to account to the citizens of Europe for the use made of the aid it gives. In this case, the only alternative to traditional forms of aid is to step up the policy dialogue, improve local capacity for policy-making and planning, and refocus Community monitoring of aid on results and progress rather than the means deployed. The implementation of sectoral policies that will put resources to better use and more coordination between donors is part and parcel of this process.

The EU and the ACP countries must set themselves the target of developing new forms of cooperation: the EU is unique in being able to put forward an array of instruments and promote scientific, economic and technological cooperation. New forms of partnership could be promoted in innovative fields such as new technologies; pilot projects would be a way of stimulating information flows between individual communities (research on the Internet) and providing practical opportunities for cooperation (in telecommunications services, for instance).

Finally, in a similar vein, more active participation in development by nongovernmental players (private sector and other representatives of civil society) could be envisaged, either in the form of a dialogue on cooperation priorities or in the shape of direct access to some of the funding.

The geographical scope of the future partnership agreement could change

The ACP group is in reality neither a political group nor an economic entity. It grew up for essentially historic reasons and exists only in the framework of relations with the European Union.

Will it remain a relevant partner for the Union in the future? In other words, should the present framework for relations between the seventy ACP states and the EU be maintained?

The answer certainly lies partly with the ACP countries themselves, which must adopt their position on the matter on the basis of their common interests and their desire to develop a negotiating capacity as a political or economic group on the international stage outside their relationship with the EU.

For the EU the choice is above all a political one, taking account of the way in which cooperation with the ACP countries meshes with the totality of the EU's relations with developing countries.

Other factors should also be taken into account.

The geographical coverage of the cooperation agreement might be changed to take on board factors such as the diversity within the ACP group, the need for differentiation of cooperation objectives and priorities and, possibly, trade regimes, plus the prospect of reduced aid requirements for certain countries and graduation. Changing the nonreciprocal preference arrangements which are different from those of other developing countries could become unavoidable and involve different trade arrangements tailored to the type of economy concerned.

The importance that the EU attaches to the cooperation and regional integration process for economic as well as political reasons will also influence the shape of a new accord.

There are four possible options:

• 1. the status quo, with a few adjustments. The principle of an overall agreement with all the ACP countries could be maintained, but with different arrangements and priorities;
• 2. an overall agreement supplemented by bilateral agreements. Differentiation would be taken a step further and the overall agreement would contain only undertakings of a very general nature;
• 3. splitting up the Lomé Convention into regional agreements. An agreement with subSaharan Africa that embraced South Africa would clearly be meaningful for Europe. Where the progress of regional cooperation allowed, subregional agreements could also be envisaged. There are a number of options in the Caribbean, notably the idea of an enlarged cooperation arrangement for the whole of the Caribbean area leading ultimately to integration of cooperation with these countries into the framework of relations with Latin America. In the Pacific region, enlargement of the framework of cooperation to other island states would increase the effectiveness of European policy, especially as regards trade with the APEC countries.
• 4. a specific agreement for the least developed of the ACP countries, possibly open to other LLDCS. This option, which does not exclude elements of the other three options, would recognize the LLDCs' special circumstances and offer the possibility of policies better suited to their problems and needs, in the case of trade especially. But in terms of political and financial cooperation it seems an inappropriate solution. Another consideration is that a regional approach has always been adopted in relations with the ACP countries. The global perspective of European development cooperation is not what it was in 1957 or 1975: the EU now has cooperation links with a large number of countries and is present in all regions of the world.

The European Union should adopt a more coordinated and consistent approach to the ACP countries in order to be more effective

The general discussion about the consistency of European policies as they affect the developing countries has in recent years led to a number of initiatives to assess the effects of Community policies other than development cooperation on development objectives and to strengthen coordination between the Community and Member States and other donors in order to improve the effectiveness of cooperation overall.

Even if the current situation is often deemed unsatisfactory, consistency - in the strict sense of the term, i.e. taking into account the external effects of the other policies, cannot be the subject of an international undertaking by the Community. Consistency is a matter for political appraisal in the face of sometimes conflicting objectives.

The lack of coordination could, on the other hand, be remedied not only by actively continuing the EU's efforts to improve coordination of policies, operations and participation in international forums but also by making specific new undertakings when the time comes to renew the ACPEU agreement. There are two possible options here:

• the Union could set itself the objective of formulating an overall European strategy for the ACP countries which would commit both Member States in their national operations and the Community. A framework of common understanding would facilitate efforts to achieve greater complementarity, a principle laid down in the Treaty, and would gradually boost operational effectiveness across the board;
• it could also propose to its partners putting inplace machinery to provide information, monitoring and coordination services for Member States' and Community development activities and policies. The Union would thereby commit itself to providing the means for better coordination.

Stepped-up European coordination could also underpin efforts to improve coordination within the whole donor community and within the multilateral system in the framework of interinstitutional rapprochement decided at the recent G7 summit, which singled out Africa for particular attention.

New priorities have to be established for development policy in the light of the new international context, past experience, and social and economic developments in the ACP states

The Union has adopted new policy guidelines in recent years that deal with new topics or redefine the objectives pursued in the various sectors or areas of cooperation. These guidelines are likely to remain relevant in the year 2000 even if experience gained in the interval leads to adjustments or the development of certain facets.

But over and above this "acquis", the EU and its ACP partners can now consider setting themselves new priorities, taking into account the overall objectives of Community development cooperation policy enshrined in the Treaty, past successes and failures, and the ACP countries' handicaps and potential for future development. ACP-EU cooperation policy can be reformulated under three broad headings: (i) economy, society and the environment; (ii) institutions; (iii) trade and investment.

Distinguishing between these three areas in Community support should not of course lead to a compartmentalized approach. On the contrary, the different components should be mutually reinforcing; for instance, the necessary improvement in the competitiveness of the ACP economies is to be achieved by a combination of external and internal policy measures. Likewise, job creation and social progress are intertwined with privatesector development and improvements in the workings of government.

Yet the European Union cannot - indeed must not - do everything. Greater differentiation between the ACP countries should rather prompt it to adopt a cooperation policy tailored to circumstances and to act in fields that may differ from one country to the next.

Community aid for the ACP economies should promote their integration into the global economy

An aid strategy centred on enhancing the competitiveness of the ACP economies and developing the private sector and trade should comprise a package of measures aimed at ensuring the continuation of the reforms undertaken by these countries and boosting their credibility. The first such action should certainly involve support for the establishment of a stable, noninflationary and growthgenerating macroeconomic framework.

Among the various possible options, the following areas could be looked at in greater depth:

• a more systematic approach to the causes of low investment in most ACP countries. The EU could play a positive role by supporting administrative and institutional reforms that would encourage the mobilization of private investment, i.e. framing of competition policies, development of capital markets, modernization of business and property law, consumer protection, education, training and development of industrial cooperation;
• support, tailored to local circumstances, for restructuring of public enterprises and privatization in the wider context of the changing role of the state in the economy;
• greater support for an openingup to international trade and for regional integration. Such an overall strategy should support both capacity building (at regional and national levels and provide aid towards the costs of transition.
• seeking partnerships between EU and ACP countries that would mobilize privatesector resources for the development of infrastructure, especially telecommunications infrastructure, and their operation in economically viable conditions;
• aid for building up scientific and technical skills;
• macroeconomic and monetary cooperation;
• support to help reduce levels of external debt, although the Community itself accounts for very little of the ACP countries' debt because its aid is highly concessional.

Community aid in the social sphere should be stepped up

There are strong arguments for focusing cooperation with the ACP countries on poverty reduction. This objective already features prominently in current cooperation policy but in future the European Union and its ACP partners should look at ways of enhancing the impact of Community cooperation on poverty.

The principle of a multipronged approach involving a wide range of operations should be retained, but a more strategic approach could be adopted for each of the partners by acting on two fronts.

First, the EU could support packages of reforms and initiatives designed to promote equitable and jobcreating growth, improve access for all to productive resources, notably through education and vocational training.

Second, it could adopt a more comprehensive sectoral approach based on indepth dialogue on policies with significant social impact and on aid directed towards the financing of current expenditure in the social sectors.

The effort put into achieving social development objectives could also be one of the criteria taken into account for the granting of Community aid, assuming that the option of greater selectiveness linked to an assessment of good governance is taken up.

Protection of the environment should also be given greater prominence in Community aid

A clearly defined strategy would help translate into practice the principles of sustainable development. In addition to continuing the current efforts in the form of impact studies and specific positive measures, a new policy in this field would focus on certain priorities: the link between poverty and deterioration of the environment, the internalization of environmental costs, capacity development and a participatory approach.

The EU could play a constructive role here by encouraging and supporting ACP governments, in the context of a policy dialogue, to develop their own capacity to assess and manage environmental problems.

There are particular issues, such as the quantity and quality of water supplies, deterioration of the soil as a result of population pressures, the destruction of forests and the problems of cities, which merit close attention.

The EU could play a more active role in institutional development

The institutional aspects of cooperation need developing because of administrative dysfunctionality and governance problems in many countires and because the rule of law needs to be restored or consolidated to bring about the conditions for development and a reduction in inequality and poverty.

But the EU must also think carefully about the impact of such action. Stronger political relations between the EU and ACP countries are integral to any action to support the building of a country's institutional and administrative capacities. As the process is essentially a political one, this type of reform affects power structures and inevitably encounters stiff resistance.

Is the EU ready to adopt a more strategic approach to its support for the necessary political and social transition?

Aside from its political dimension, support for institution building also has a more technical side. From that point of view, the European Union is relatively wellplaced to offer its services because, given the diversity of social and political organization in the Member States, it has no one model to "sell", because it has knowhow gained from building the Community and because partnership is an appropriate framework for this type of cooperation.

EU action could be focused on themes connected with its main areas of cooperation where it could offer "added value" compared with other donors. These themes include: promoting observance of human rights, support for regional organizations, improving capacity for economic- and social-policy analysis and formulation/preparation of reforms, budget management, improving the workings of the legal system, competition rules, investor protection, education and training, environmental protection, consumer policy and developing the institutions of civil society.

The Union could also look at the development of local capacity as one of the criteria determining the choice of arrangements for implementing financial and technical cooperation.

Need for new trade arrangements that are consistent with the strategic choices made by the ACP countries in their bid to integrate into the world economy

In most ACP countries the economic and institutional environment has not usually been propitious to the development of a competitive private sector, the growth of investment or diversification of production, and so they have not been able to take advantage of all the opportunities offered by the special preferences granted under the Lomé Convention. ACP exports to the EU have been no exception to those countries' generally poor trade performance and their share of the EU market has declined appreciably, dropping from 6.7% in 1976 to 2.8% in 1994. Although the situation varies markedly from one country or region to another, the European market still accounts on average for more than 40% of ACP sales.

For the future, there are various options involving one or more trade regimes. They should be assessed in terms of their implications for ACPEU relations and whether they can help the ACP countries diversity their external economic relations and avoid the risk of growing marginalization.

There are four main options:

• 1. the status quo. The present contractual system of nonreciprocal preferences, specific to ACP's, could be supplemented by cooperation activities in traderelated fields (standards and certification, the environment, competition, intellectual property rights, etc.).
• 2. application of the Community's generalized scheme of preferences (GSP) on a bilateral or multilateral basis. This would entail removing trade from the cooperation agreement, and therefore from the negotiations, as the GSP is a matter for unilateral (or perhaps, one day, multilateral) policy.
• 3. uniform reciprocity. After a transitional period, all ACP countries would extend reciprocity to the EU in line with WTO rules. As in the first option, cooperation could also be developed in new areas.
• 4. differentiated reciprocity. Reciprocal preference arrangements could be envisaged between the EU and different groups of countries or between the EU and individual countries. This option could besupplemented by cooperation in new fields on the WTO agenda.

These options are not mutually exclusive and could be combined in various ways so that the arrangements can be adjusted to the level of development of the countries concerned and their willingness to strengthen relations.

Before choosing one or other of these options, we must make a detailed analysis of the potential impact on both the EU and the ACP countries.

The European Union could also support the adoption of an agreement on the protection of foreign private investment

Proposals on this have already been under consideration since adoption of the fourth Lomé Convention. International agreements are being negotiated and the Commission is pushing for progress in the WTO context. Negotiations are also under way in the OECD with a view to a Multilateral Agreement on Investment.

In the meantime, cooperation at subregional level or by groups of countries would significantly streamline negotiations, which at present take place only at bilateral level. Such an initiative would give a significant stimulus to private investment.

The European Union should also review the procedures for implementing its financial and technical cooperation

The move towards a more "responsible" partnership, demands for greater effectiveness and recognition of the significant differences in levels of development reached by different ACP countries all point to the need for a radical review of the arrangements for implementing Community aid to ACP countries.

A fresh look at aid instruments

The Lomé Convention today provides for a wide range of instruments designed to achieve specific objectives and subject to different, sometimes complicated, management procedures. Their simultaneous use in the same country makes EU policy less than transparent. We should ask ourselves whether the EU should not switch to offering overall financial packages, perhaps retaining the distinction between crisis situations and longterm operations and between public- and privatesector operations.

Greater selectiveness

The allocation of programmable aid resources is already much less automatic since the midterm review of Lomé IV and a new performance criterion has been introduced, meaning that the amounts of aid allocated to a country are adjusted in relation to the effort made by the government in its sectoral and macroeconomic policies. This reflects the EU's concern to achieve greater effectiveness. It also corresponds to a new notion of partnership based on reciprocal undertakings and the view that external aid should support domestic reform efforts. The EU should therefore be inclined to continue along this road. At the same time, the advantages of programming in terms of predictability of external financial flows for the ACP countries and the fact that it builds on approved frameworks of country strategy should prompt it to maintain a multiannual programming system. In determining country allocations, the EU should decide to what extent it wishes to supplement the needs criterion - based essentially on development indicators - with performance and management criteria. It should also consider whether to make its country policy more flexible by adopting for example a system of rolling programmes.

Project aid or direct budget aid

The evaluation of Community instruments has produced a number of operational conclusions: the advantages of a more sectoral approach and support for reforms - already acted on under Lomé IV - and of focusing on improvement of the institutional framework and local capacity to devise economic and social policies integrated into a longterm strategy. This raises the question as to whether the EU should gradually abandon the project approach once and for all and instead try to create the right conditions for giving support in the form of direct budget aid for the states concerned and sectoral aid.

Any such development should certainly go hand in hand with a reform of conditionality to be coordinated with the whole donor community. Consensus needs to be reached on a small set of essential criteria to avoid a continuation of the recent proliferation of often very specific conditions. If conditionality is to have a real impact on a country's policies, it must be both realistic (i.e. takes account of political and institutional as well as economic and social factors), comprehensive (the product of an assessment of all the government's macroeconomic and sectoral policies) and rigorous. The Commission hasamme for Africa (SPA), the aim being to find a new approach that best accommodates longterm development objectives and short-term imperatives, while encouraging recipients to internalize reforms.

Towards new management arrangements

Joint management as practised hithertoo with Lomé has revealed its limitations. It has hampered the effective management of disbursements andhas discouraged the internalization of reforms or development programmes by their beneficiaries. It should therefore be overhauled. What are the alternatives that will ensure both sound management of resources and the assumption of responsibility by the recipients, a sine qua non for more effective aid? One possibility is a differentiated, progressive approach that would enable us to find the most appropriate management method on a casebycase basis, using criteria such as quality of policy dialogue, progress in implementation, the relative shares of Community aid visàvis the national resources and the existence of machinery to coordinate external aid in the recipient country.

The Commission reiterates its recommendation that the European Development Fund (EDF) be incorporated in the Community budget. "Budgetization" would give true Community status to the aid managed by the Commission and make for beneficial synergies between different EU policies. Similarly, EIB lending to ACP countries could then be subjected to the same procedures as used for its operations in other non-member countries, especially in respect the replenishment of the guarantee fund for external operations.

Contents

Contents

Chapter 1  Chapter 2  Chapter 3  Chapter 4   Chapter 5   Chapter 6

Updated on December 19, 1996

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