ACP developing countries need to reorient from aid dependency to trade promotion
Stabroek News
March 8, 2002

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Dear Editor,

Guyana and the Caribbean countries are caught in a squeeze between the ACP Protocol of 1974, as reaffirmed in the Cotonou Agreement of 23 June, 2000, and the proposed Everything But Arms (EBA) initiative of the European Union (EU). To many policymakers in the region, this squeeze has become an embarrassment, and is being rationalised on the basis of a perceived insincerity of the EU. However, dispassionate analysis suggests a case of having been seduced by the perverse incentives implicit in the ACP Protocol.

In the case of Guyana and other sugar producing countries in the Caribbean, the seduction lies in the blind reliance upon the guaranteed quota of the ACP Protocol. Indeed, since 1975 the sugar industry in the region operated under the illusion that the sugar protocol was "enshrined" and that Lome would continue to be an integral aspect of EU's constitutional framework. What many government and industry officials have failed to realise and continue to operate in denial of, is that the four Lome Conventions and their predecessors, Younde (Conventions I and II (1963 and 1969 respectively), served the process of European integration as a first order requirement of the Treaty of Rome of March 25, 1957.

European Integration

European integration could not have come into being without concessions from among the original participants to the Rome Treaty. The industrial/manufacturing faction, West Germany mainly, was unchallenged and saw the enlarged European market of the original six members as its own in any customs union. On the other side of the equation, the agricultural faction led by France wanted to protect its agricultural industry against the influx of cheap agriculture from outside the region by the construction of tariff barriers and a subsidy programme. This resulted in a Common Agricultural Policy (CAP) that was essentially a subsidy for European agriculture funded mainly by German taxpayers by reason of their higher income per capita and the rapid growth of the German economy during the 1960s through the 1980s. It bears mentioning here that what is considered France includes its possessions in Africa, Caribbean and the Pacific, hence the need for preferential treatment (guaranteed quotas) on agricultural exports from these destinations, albeit at a price well in excess of production costs.

The former British colonies that were part of the British Commonwealth at the time of Britain's accession to the European Community became eligible beneficiaries of the new ACP Protocol arrangement in 1975. This included Guyana and former British colonies of which Barbados and Belize were the more significant in the region.

Perverse Incentive Effect

In 1975, and against the advice of the late Lord Campbell, Chairman of Bookers Bros. McConnell, Caribbean sugar producers migrated from the Commonwealth Sugar Agreement to the ACP Sugar Protocol, preferring the higher price and an assured, albeit restricted, market under the ACP protocol. The almost doubling of revenues was found irresistible and coincided with a programme of self-sufficiency at the developing country level.

From 1975, therefore, sugar production in these countries was driven by the quota requirements of the European Community. Guyana produced its 163,000 tons and received the reference price set by the European Community, as did the other countries. This reference price is determined annually by the Community and is based on estimates of the requirements to keep European sugar farmers in business for the year.

From the EU's perspective, the benefits that accrued under the ACP protocol are irresistible points in any debate on the issues. However, the windfall revenues over cost of production from the sale of sugar under the sugar protocol created a false sense of security among sugar producers in the region. By being far in excess of both the world market price and the price under the Commonwealth Sugar Agreement, the preferential price served to undermine a potential organised world market for sugar and to inhibit productivity initiatives in the poorer developing countries in the process.

Thus, by its very generosity the ACP Sugar protocol operated to stifle industry efficiency and innovation in most ACP countries. Caribbean producers in general failed to recognise this perverse incentive effect, the exception being Belize which sought to limit the impact by utilising a part of the excess profit to modernise its sugar industry. For Barbados, its migration to the hospitality industry was propitious. In Guyana, the revenue windfall was utilised to finance a programme of import substitution at the expense of good factory management and agricultural husbandry. At the same time, no attempt was made by the EU to disabuse ACP countries, especially the Caribbean, of the "enshrined" status they so willingly ascribed to the sugar protocol.


The enshrined status attributed to the ACP sugar protocol evidenced an inordinate reliance on the old rules of the game and, until recently, an apparent unwillingness to recognise a changing reality. The warning signals attendant on the further liberalisation of international trade and the removal of previously-thought-of sacred barriers to domestic markets (the EU's in this case) in the World Trade Organisation (WTO) rules, were largely ignored or not understood by policymakers and industry leaders alike. Indeed, the EU's commitment to a liberalised world trading system was very much in evidence not only in its support for the WTO rules, but also in the resolution of its disputes with the U.S. on trade matters, including bananas. Moreover, a refocusing of trade agreements that speaks to a dismantling of the CAP, and the strong objection from German taxpayers to the continued support of European agriculture in the early 1990s were evidence of a changing reality for those who would hear.

Furthermore, the several pronouncements by EU officials on the need for developing countries to increase productivity and industry competitiveness that were meant to stimulate proactive corrective measures were largely lost on these countries. That policymakers in the region have been caught flatfooted by the EU's recent EBA initiative speaks not to deception on the part of the EU, but to a blind reliance on an ill-informed perception of benevolence and an approach to challenges that is essentially reactive.

For its part, the EBA manifests the understanding that, in regard to poverty eradication in the poorer countries, in the final analysis the solution lies not in aid but in trade. It thus complements efforts of debt relief under the various HIPC initiatives and therefore is an inevitability.

The above said, an accommodation to ACP countries is nonetheless necessary to allow for a less disruptive transition to the reality of EBA. Indeed, like the US steel industry that, according to Paul O'Neil, US Treasury Secretary, requires "... a window of opportunity for restructuring" (it has been restructuring for the last 35 years under protective tariffs), ACP economies need a similar window of opportunity to become competitive. At the same time, ACP developing countries need to reorient their policy approaches from aid dependency to trade promotion so as to become fully integrated into the global economy.

Yours faithfully,

Claude V. Chang