European Union Trade Politics and Development

'Everything but Arms' Unravelled

Gerrit Faber, Jan Orbie, Gerrit Faber, Jan Orbie

• Publisher: Taylor & Francis
• Year: 2007
• Print ISBN: 9781138806290
• eBook ISBN: 9781134092574
• Edition: 1
• Topic: Business
• Subtopic: Business generale
• Index: Business

The 'Everything But Arms' (EBA) regulation of the European Union (EU) has been hailed as a groundbreaking initiative for developing countries. Since 2001 EBA grants almost completely liberalized access to the European market for products from the least-developed countries (LDCs). It quickly became the most symbolic European trade initiative towards the Third World since the first Lomé Convention in the 1970s.

Given its central position in EU discourse and its continuing relevance for the European and international trade agenda, this book attempts to present a thorough analysis of EBA. 'European Union Trade Politics and Development' contains contributions from a diverse range of scholars who collectively present a comprehensive picture of EBA. This volume also contains a broader analysis of EU trade politics towards the South, focusing on agricultural policy reform, Europe's evolving relationship with ACP countries (ex-colonies from Africa, the Caribbean and the Pacific), it links EBA with Europe's negotiating position within the World Trade Organization. Contributions to this volume also consider the continuing negotiation leverage of EBA within the Doha Development Agenda, make comparisons with United States trade policy vis-à-vis the LDCs, and focus on the economic effectiveness of EBA in terms of its stated objectives as well as on the institutional skirmishing within the EU.

1 The least developed countries, international trade and the European Union

What about ‘Everything but Arms’?

Gerrit Faber and Jan Orbie

EBA and harnessing globalization

The basic features of the ‘Everything but Arms’ (EBA) initiative by the European Union¹ are simple: provide the least developed countries (LDCs) with a fully liberalized access to the market of the EU in order to boost their exports and development. Box 1.1 gives an outline of EBA. Although EBA is a straightforward arrangement at first glance, it also is probably the most symbolic and politicized trade initiative of the EU since the conclusion of the first Lomé Convention in 1975. For the EU, EBA is much more than a technical regulation (EU 2001):

It’s a worldwide first. At the end of the day, we will have 100 per cent access, with no exclusions, except of course for arms. We have delivered on our fine words. This sends a signal to the rest of the world that we are serious about getting the most disadvantaged to share in the fruits of trade liberalization.

Pascal Lamy, then EU Trade Commissioner and currently Director General of the World Trade Organization (WTO), highlighted the importance of EBA as a crucial step in the development of the poorest countries.

BOX 1.1 ‘EVERYTHING BUT ARMS’ IN A NUTSHELL

• Granting duty-free and quota-free (DFQF) market access for all products originating from the 50 least developed countries (LDCs)

• But transition period for sensitive agricultural products: bananas (2006), rice and sugar (2009)

• Commission proposal in 2000, Council decision in February 2001

• A unilateral regulation under European Community law (trade policy, article 133 Treaty of the European Community)

• Special application of the Generalized System of Preferences (GSP) in favour of LDCs, legitimized under WTO law (Enabling Clause, article 2d)

A remarkably broad audience recognized the value of EBA. It was welcomed by the European political spectrum at large. Some criticized the transition periods for the sensitive products bananas, rice and sugar, others feared the consequences for European farmers. These different evaluations also emerged within the EU institutions such as the Council of Ministers, the European Commission and the European Parliament. But the fundamental desirability of the objective of duty-free and quota-free (DFQF) market access for the LDCs was out of question. EBA was widely considered as a step in the right direction – be it a huge or a small step.

Oxfam wrote a letter to the Financial Times in support of Lamy’s EBA proposal (FT 14 December 2001), and in its preface of an early impact assessment the Director of Oxfam describes the Commission proposal as a ‘small but welcome step towards fairer trade in the world’ and an ‘important step towards achieving internationally agreed targets to reduce poverty’ (Stevens and Kennan 2001). United Nations (UN) Secretary General Kofi Annan wrote a letter to the President of the EU Council of Ministers to urge a quick approval of EBA (Lamy 2002a: 79–80). Former chief economist of the World Bank and winner of the 2001 Nobel Prize in Economics Joseph Stiglitz considered EBA as ‘a big step in the right direction’ (Stiglitz 2002: 246). In its review of the EU development policies, the Development Assistance Committee of the Organization for Economic Cooperation and Development called EBA ‘a major success with policy coherence’ (OECD/DAC 2002: I-22).

EBA quickly became the showpiece of the development-friendly nature of EU trade policy. In speeches and documents, the EU presented it as groundbreaking and did not fail to point out that other WTO members should follow its lead. Since 2001 the initiative has occupied a central place in the discourse about ‘harnessing globalization’ – Pascal Lamy’s favourite motto, and European policy makers’ dominant conception of the much contested globalization phenomenon. The trade policy objective of harnessing globalization basically implies a commitment to sustainable development (social and ecological considerations; development of the Third World) and global rules (rule-based multilateralism). It is seen as the external projection of the post-war integration project on the European continent. The international pursuit of such normative objectives or ‘milieu goals’ (cf. Smith 2003: 13, 200–1) reflects a more general trend in EU policy makers’ discourse, as well as in the academic literature, to emphasize the normative dimension of Europe’s action on the world scene (cf. Manners 2002; Diez 2005).

Constituting its most powerful external policy domain, EU trade policy has also incorporated this ‘normative power Europe’ strand. The overarching aim of harnessing globalization indicates that in EU trade policy it ‘is no longer only economic interests that are in question, but also values’ (Lamy in Agence Europe 1999). These include a commitment to development of the South. The following citation shows how Europe’s normative world role, the harnessing of globalization through trade and ultimately the EBA initiative are closely interlinked in EU discourse (Lamy 2002b):

The ambition of the Convention [to produce a draft constitution for the EU] should be to give Europe a clearer place in the world – a project that reflects the values we hold dear. While this will eventually have to encompass all fields of foreign and security policy, we should start with a common roadmap on the governance of globalisation, notably in North–South relations. This is a long-standing concern of the EU, as various existing instruments show: EU/ACP agreements, the Generalised System of Preferences for developing countries, regional trade agreements, the ‘Everything but Arms’ initiative which grants duty-free and quota-free access to the EU market to the 49 poorest countries. But we now need to devote all tools of external policy (trade, development, diplomacy) to harnessing globalisation, towards sustainable development and a global partnership with Developing Countries.

The result of this European Convention also witnesses the increased normative bias of trade policy objectives. The text of the EU Constitutional Treaty strengthens the consistency requirement of trade policy by explicitly stating that commercial policy ‘shall be conducted in the context of the principles and objectives of the Union’s external action’ (Article III-315). Furthermore, in Article I-3(4) about the Union’s objectives in the world, the goal of ‘free and fair trade’ is mentioned. Although it is unclear what the new ‘fair trade’ provision exactly means, it cannot be seen as a veiled reference to protectionism (Eeckhout 2004: 53); it rather illustrates Europe’s augmented attention for the trade and development nexus.

This sketches the broader political context of the EBA initiative. But for the rest, many questions emerge. How successful has the EU been in promoting LDC export performance through EBA? What about the political debate among EU actors in the decision-making process towards this regulation? How and to what extent does this much discussed initiative signal a break from the past in Europe’s approach towards developing countries? What are the consequences of EBA for agricultural markets inside the EU and for Europe’s traditional partners in Africa, the Caribbean and the Pacific (ACP)? How does this initiative relate to the WTO and to Europe’s position in the Doha Development Round of trade negotiations? How unique is the EBA formula compared with other developed countries’ trade initiatives – in particular the US? And in general, more than five years after its inception, the main question of this volume reads: is EBA all about nothing, or has it somehow a political and economic relevance?

This chapter introduces the issues that will be elaborated in the next chapters. In the next sections we will first discuss the group of beneficiary countries: the history of the LDC group as well as their current position in international trade. Then the trade and development nexus will be considered, giving a brief review of the literature on the effectiveness of non-reciprocal preferences. Finally, the composition of the volume will be presented.

The least developed countries

For a long time, developing countries have tried to operate as a unified group, often under the flag of ‘the Group of 77’ (e.g. during the negotiations for a New International Economic Order in the 1970s). More recently, there is the emergence of developing country groups in the context of the WTO negotiations, such as the G-20, the G-33 and the G-90. Nevertheless, very poor – or least or lesser-developed – countries were recognized as a special category rather early in the history of development cooperation. This section will present the history of this special category of countries and their position in world trade.

History of the LDC group and the demand for DFQF market access

The idea that the concept of developing countries is too broad and hides large differences between sub-groups dates back to the second half of the 1960s. In 1968 the United Nations Conference on Trade and Development (UNCTAD) adopted the first resolution on the subject of the LDCs. The first list of LDCs was established by the UN General Assembly in 1971 (UN, n.d.). After the identification of the group, special measures and plans were designed and agreed in order to stimulate their development. Their lagging growth led to an intensification of these efforts by the end of the 1970s.

The Tokyo Round (1973–79) of the General Agreement on Tariffs and Trade (GATT) established the ‘Enabling Clause’. This forms the legal basis for the Generalized System of Preferences (GSP). Under the GSP system, essentially an exception to the Most Favoured Nation (MFN) principle of the GATT/WTO, developed countries can unilaterally determine which products benefit from more favourable and non-reciprocal access to their markets. The Enabling Clause – officially the Decision on Differential and More Favourable Treatment, Reciprocity and Fuller Participation of Developing Countries – gave the temporary GATT waiver of 1971 permanent status. Interestingly, paragraph 2(d) enables further tariff reductions for countries belonging to the group of LDCs. EBA can be seen as a radical application of this provision: it basically constitutes a more generous form of Europe’s ‘standard’ GSP, specifically targeted at the LDCs.

This differentiation among developing countries is thus allowed under WTO rules. But another ‘special’ GSP regime of the EU, the so-called GSP drugs regime, was found illegal by the WTO. Following the inclusion of Pakistan in Europe’s GSP drug arrangement in November 2001, India went to the WTO dispute settlement mechanism. In 2004 the WTO Appelate Body ruled that the Enabling Clause allows discrimination among developing countries, albeit that the selection has to be based on objective and transparent criteria (cf. Charnovitz et al. 2004). In response the EU transformed its special GSP drugs regime, together with a similar arrangement for countries respecting core labour standards, into a ‘GSPplus’ regime. Since 2006, to be eligible for additional GSP preferences, developing countries have to ratify and effectively implement a number of international conventions relating to sustainable development and good governance (e.g. Kyoto Protocol, ILO core conventions, UN convention against corruption). The application of this GSP-plus regime is limited to vulnerable developing countries (not necessarily LDCs) and it is less generous than EBA (no DFQF market access) (Orbie et al. 2005).

This shows that EBA is not the only game in town. Europe has used its available preferential margin – between standard GSP and zero tariffs – for other (normative) foreign policy goals as well. The same is true for the Free Trade Agreements that the EU has concluded with a number of developing countries (e.g. Mexico, Chile) in recent years, establishing free (albeit reciprocal) market access for ‘substantially all’ products, in addition to a number of ‘WTO-plus’ provisions about services, investment, labour standards, etc. Yet EBA is the only European trade initiative that has granted DFQF market access for almost all products since 2001 and for all imports from 2009 onwards.

Besides the GSP as a legitimized exception to the MFN principle, the Tokyo Round also resulted in the establishment of a special ‘Sub-committee on Trade of LDCs’ within the GATT system. This committee would monitor, inter alia, the trade problems of the LDCs, and keep under review the special treatment (e.g. GSP preferences) accorded to these countries. Its activities (see e.g. GATT 1985) were given impetus by the GATT Ministerial Declaration of 1982, which explicitly refers to LDCs. It calls for special treatment of LDCs and in annex it enumerates a number of actions for LDCs that are strikingly similar to the LDC provisions in the Doha Development Agenda (DDA) 20 years later: the improvement of market access for LDCs with the objective of ‘providing fullest possible duty-free access’, eliminating or reducing non-tariff barriers for LDCs, more flexible rules of origin, technical assistance for LDCs, strengthening trade promotion activities, facilitating participation of LDCs in international negotiations, and considering the interests of LDCs in other trade policy issues (GATT 1982). Four years later the Ministerial Declaration of Punta del Este, launching the Uruguay Round of trade negotiations, stated that the ‘expeditious implementation’ of these LDC provisions would ‘be given appropriate attention’. The conclusion of the Uruguay Round also included a ‘decision on measures in favour of LDCs’, inter alia calling for special and differential treatment, but without mentioning the issue of DFQF market access. Neither did the DFQF demand emerge from the meetings of the LDC Sub-committee in 1995–96, which emphasize the impor...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• List of illustrations
• List of tables
• Notes on the contributors
• Preface
• List of abbreviations
• 1 The least developed countries, international trade and the European Union: what about ‘Everything but Arms’?
• 2 The development of EBA
• 3 EBA, EU trade policy and the ACP: a tale of two North–South divides
• 4 Bureaucratic competition in EU trade policy: EBA as a case of competing two-level games?
• 5 The political dynamics behind US and EU trade initiatives towards the least developed countries
• 6 Exports by least developed countries in sub-Saharan Africa: the role of preferential systems, geography and institutions
• 7 The effectiveness of EU and US unilateral trade preferences for LDCs: rules of origin in the clothing sector
• 8 Symbolic and effective? An LDC perspective on duty-free and quota-free market access
• 9 The role of EBA in the political economy of CAP reform
• 10 EBA and the EU sugar market reform: development gift or Trojan horse?
• 11 ACP–EU negotiations on Economic Partnership Agreements and EBA: a dual relationship
• 12 ‘Everything but Arms’ or all about nothing?
• Index