The faults of Lomé are clear enough. It is discriminatory (the source of its clash with WTO), it excludes some very poor states yet includes some middle-income ones, and it has demonstrably failed to bring growth and diversification to trade with the ACP. Change is afoot in the economic world order and Lomé is bound to be affected. Yet there is real danger that Lomé could be ousted by a less liberal regime that creates still greater distortions.

Clinching a new deal challenges EU and WTO alike. For Europe, the big snag with moving from Lomé to a more coherent trade system focused on poverty reduction, is that there is nothing in the EU's extensive arsenal of accords that offers ready alternatives (see Rosalind Thomas' piece).

For the WTO, the current rules do not provide appropriate alternatives to Lomé-style pacts. Attempts to massage a successor regime to Lomé and the WTO rules to make them fit together, is liable to damage both. While for NGOs like Oxfam, greater synergy between trade and poverty reduction would arise from considerate modification of the status quo, than from dropping Lomé without further ado.

Formally, there are at least five bands in the EU-ACP trade hierarchy - more, if the Europe Agreements are regarded as a separate category. They include - in addition to Lomé - the bilateral agreements that the EU now has with over 30 states, the superior layer of the Generalised System of Preferences (the 'super' GSP), standard GSP and (last and paradoxically least) 'most favoured nation' (MFN) terms of preference.

But in practice there are now just three broad bands. The detailed provisions of Lomé, the bilaterals and the super GSP are sufficiently similar for them to be considered as one band, with standard GSP and MFN representing the other two. The EU's trade policy thus defines three groups of states, each of roughly equal importance in trade terms, accounting for around one-third of European imports in 1995.

• The 121 developed, developing and transitional states that fall into the threefold top band of the hierarchy. These economies enjoy the most favourable access..

• The newly industrialised, middle-income and poor countries that benefit only from the standard GSP, numbering some 54 nations.

• At the base, with the least favourable access, are the five industrialised states that receive the 'most favoured nation' misnomer by virtue of their WTO membership, together with states that are not in the WTO but to which the EU offers autonomous MFN access

This hierarchy makes only tenuous development sense. All the poorest states are in the top group, most of the richest in the bottom, yet anomalies abound in-between. Venezuela, for example, with a per capita GDP of $6169 has better access than does India (GDP $1072)

Rosalind Thomas' article probes potential successors to Lomé to discover if they improve development coherence. All the options described in the recent EU Green Paper on the subject are found wanting. Those that are not impractical prove undesirable for one reason or another so that the result will actually be greater incoherence.

Because the reforms will not alter the EU's other trade pacts, they will result in some ACP states being downgraded (so that they face more import restrictions than other, richer states in the top band) yet offer no direct improvement in access to world markets for states such as India. The net effect will be that the EU's applied trade regime will grow appreciably more protectionist than it is now.

The cost that ACP states bear for this shift will be high. Research undertaken by IDS for Oxfam estimates the extra tariffs that would be payable by ACP states transferred to the standard GSP from the Lomé level.

If all ACP members other than the least developed states were downgraded, annual transfer of revenue from the ACP export supply chain to the European treasury (by way of import taxes) could be equivalent to over 40 percent of annual Lomé aid disbursements.

One alternative, that would represent a step towards a universal system justifiable under the WTO while retaining low EU tariffs and contractuality for the ACP, is to extend Lomé treatment to other developing countries as soon as politically feasible for Europe. Since differences between the top three bands in the hierarchy are small, this may not be too hard to fix.

A transitional step would be to create an umbrella arrangement available to all developing states. Initially, the precise details of each state's trade relationship with the EU would be subject to individual and regional negotiation, with a proviso that no ACP state be worse off than at present.

Though Lomé's generalisation to other developing countries will erode the ACP's preferences, their value will be undermined in any case by root-and-branch reform of the Common Agricultural Policy due by 2010 at the latest. A transitional regime for the first decade of the new century will protect ACP preferences until European liberalisation renders them obsolete.

At the same time, it will give WTO members some assurance that the present system is being changed into something both more coherent and more liberal in its intent.

Countdown to a new deal

Christopher Stevens,
Institute of Development Studies
at the University of Sussex,
Brighton BN1 9RE, UK UK

T: +44 (0)1273 606261
F: +44 (0)1273 621202

E: c.stevens@sussex.ac.uk
URL: www.ids.ac.uk/ids