EU ASSISTANCE TO ACP SMALL ECONOMIES: AN EXAMPLE FOR THE FTAA? 

  
One of the greatest challenges for international trade organizations, financial institutions and developed country governments has been how to move the smaller, poorer countries into the expanding global free trade regime.

Earlier this year, the European Union (EU) concluded a new 20-year partnership agreement with the 71 countries of Africa, the Caribbean and the Pacific (ACP), 39 of which are ranked as least developed countries (LLDCs). The agreement stipulates that the ACP and the EU "will negotiate and conclude, by 2008 at the latest, new WTO-compliant arrangements by phasing out barriers to trade among themselves and by bolstering cooperation in all trade-related fields."

In an effort to assist the smaller and poorer economies of the ACP, the EU has exempted LLDCs from this provision. The Europeans have committed to grant these countries, which already have duty-free access for all manufactured goods, free access for essentially all products by 2005 at the latest. The EU and ACP countries agreed to an examination of calendar requirements, rules of origin, sanitary and phytosanitary measures and supply-side constraints in the ACP countries, with the objective of exploiting their existing and potential comparative advantages.

Believing that the smaller and weaker economies need still more help, the EU has pledged a EURO 13.5 billion Ninth European Development Fund (EDF), of which 10 billion will be earmarked for the long-term financial envelope, 1.3 billion for the regional envelope and 2.2 billion for the investment facility. European Investment Bank loans worth EURO 1.7 billion will also be made available, for a total of EURO 15.2 billion. Clearly, the EU is encouraging the ACP countries to become more competitive and is willing to use economic cooperation to assist in this process.

The final agreement between the EU and the ACP countries commits the parties to do the following:

· create an investment facility to support the development of the private sector
· rationalize instruments and introduce a new system of rolling programming, allowing the EU and the beneficiary country to regularly adjust their cooperation program
· decentralize administrative, and in some cases financial, responsibilities to the local level with the aim of making cooperation more effective
· improve the policy framework for trade and investment development and enhance cooperation in all areas important to trade, including new issues such as labor standards and the linkages between environment and trade.

The issue of small economies has also been on the agenda of the ongoing Free Trade Area of the Americas (FTAA) negotiations. The Trade Negotiating Committee (TNC), comprised of the vice ministers of trade of the 34 member countries, has instructed the nine negotiating groups to prepare a draft document on each of their subject areas by December 2000. A Committee on Small Economies will serve as a forum to discuss and coordinate new ideas to help the smaller economies of the hemisphere achieve eventual full and unrestricted participation in the FTAA.

From the beginning of the negotiations, there has been a general consensus among the larger and more developed countries that special and differential treatment should be accorded the smaller and poorer economies. The problem so far has been determining the specific measures that constitute special treatment. The smaller economies have been slow to identify realistic needs for adjusting to an open, competitive regional-and world-economy. The developed countries, mainly Canada and the US, appear to agree on longer phasing-in times for lowering trade barriers and similar kinds of consideration. In addition, general agreement exists among all parties to offer the smaller economies technical assistance in such areas as negotiation techniques and strategies, better understanding of trade policy issues and estimation of potential benefits. This assistance will be provided by the Tripartite Committee (the Inter-American Development Bank, the UN's Economic Commission for Latin America and the Caribbean, and the Organization of American States).

For example, the Fifth Ministerial Meeting in Toronto in November 1999 agreed with the TNC's acceptance of the report by the Consultative Group on Smaller Economies recommending further work in the next stage of negotiations. The Tripartite Committee was asked to disseminate an inventory of training opportunities in trade policy, explore opportunities for technical assistance to improve statistics and measures that affect trade in services, establish contact points for information on national laws affecting this trade, and maintain a calendar of deadlines established by the negotiating groups.

To date, however, the FTAA negotiators have not determined how to move the smaller economies as smoothly as possible into the regional trading system once agreement is reached and the system begins to function in 2005. One approach, more development assistance aimed at helping these economies adjust to the new competitive realities, has still not been adequately considered. The development assistance provided by the US and Canada does not appear to focus on the major effort in the trade liberalization area in Latin America: the FTAA. Perhaps it is too early for such a commitment. But the smaller economies in the region are more fragile and would benefit from the knowledge that added financial support is available to ease them through the period of adjustment while they open their economies to competition.

OAS IDB www.ftaa-alca.org European Union Office, Washington DC