From Africa Recovery, Vol.15 #1-2, page 40

Momentum builds for LDCs

UN conference brings some aid and trade gains for least developed

By Tim Wall in Brussels

Although a hoped-for breakthrough agreement on open markets never materialized at the Third UN Conference on Least Developed Countries (LDCs), African leaders attending the mid-May meeting in Brussels noted a forward momentum on trade and aid. Of the 49 nations categorized by the UN as "least developed," 34 are in sub-Saharan Africa.

Speaking at a wrap-up 20 May press briefing, Rwandan Minister of Economy and Finance Donald Kaberuka said the conference had achieved solid gains for the LDCs. Ms. Eveline Herfkens, minister for development cooperation of the Netherlands, cited a pledge issued earlier in the year by the European Union to eliminate or phase out tariffs and quotas on all imports from LDCs save for armaments -- the "everything but arms" initiative -- which she said was directly attributable to the UN conference, hosted by the EU and held in the European Parliament building. So was a decision taken by the Organization for Economic Cooperation and Development, meeting in nearby Paris the same week as the Brussels conference, to "untie" $2 bn of bilateral aid to the LDCs, Ms. Herfkens said. ("Tied" aid requires that project procurement goes to firms in the donor country, and is widely criticized as inefficient and inimical to capacity building in recipient nations.)

Additional initiatives were announced in Brussels. European Commission (EC) President Romano Prodi said on 15 May that the EU would forego payments on all outstanding LDC obligations arising from special loans under the terms of the former Lomé Convention (now the Cotonou Convention). Two days later, EC Trade Commissioner Pascal Lamy pledged that the EU would suspend use of anti-dumping measures against the LDCs, and give additional support to trade-related capacity building. A US contribution of $200 mn for a multilateral trust fund for AIDS -- a project stimulated by UN Secretary-General Kofi Annan -- was announced by US Agency for International Aid Director Andrew Natsios. He also said that his agency was making budget requests for stepped-up aid for debt relief for indebted poor countries and for projects supporting basic education.

Hopes unfulfilled

Leaders from Africa and other LDC countries had been hoping for something more, however. Specifically, organizers from the conference secretariat were anticipating the possibility that other major-market economies would follow the EU lead on granting duty-free and quota-free access to LDC products. These hopes were supported by Mr. Annan, who said on the opening day of the conference that the EU trade initiative "is just a beginning."

But Mr. Lamy, who had been working behind the scenes to bring other "Quad" members (the US, Canada and Japan, in addition to the EU) on board, told a press briefing later in the week that the effort had fallen through. Even though all of these countries offer preferential terms for many import items from the LDCs, some LDC products compete in areas deemed sensitive and thus encounter stiff protectionist barriers. The stumbling blocks included rice in Japan and textiles in the US, Mr. Lamy said.

Mr. Lamy nonetheless expressed confidence that there is some momentum toward improved LDC access to Northern markets, which would strengthen LDCs' trade and investment potential in ways that do not threaten domestic producers in the rich countries. According to the UN Conference on Trade and Development (UNCTAD), LDC exports account for only 0.4 per cent of world trade. In the end, the conference participants could agree only on "working towards the objective" of duty-free and quota-free market access.

(See graph)

Mustering 'moral force'

LDC countries may also expect support from international civil society on such issues. Addressing the NGO Forum held parallel to the LDC conference, the UN Secretary-General hailed the civil society campaign that in recent years has thrown a spotlight on the burdens of the highly indebted poor countries, urging similar efforts around their trade concerns. "We need a campaign for more open markets, which will muster the same moral force as the campaign to cancel debt," he said. Mr. Annan noted that some NGOs have advocated a "Jubilee 2010" initiative, which would dismantle trade barriers to poor countries and retrain low-income workers of developed countries who might lose their jobs to increased competition from the developing economies.

As for the LDCs themselves, Mr. Kaberuka, Rwanda's finance minister, said "we have to look at what we can do for ourselves" to establish a stable environment for attracting foreign direct investment. He was confident that commitments by LDCs to improve governance, enhance human resources and mobilize their own financial resources would be carried out. In large part, he said, this is because the LDCs will carry out peer reviews of each other's performance, with a strong measure of self-interest built into the reviews. Since many LDC nations share borders, he noted, negative developments in a neighbouring country can dissuade trade and investment in poor countries in general.

A new trade round?

In the background of the Brussels conference lurked discussions about the possibility of a new round of trade talks, to be negotiated through the World Trade Organization. WTO Director-General Mike Moore stated at one of the thematic sessions that "no new round can start or be completed without the developing country and LDC interests being addressed and resolved." He added that the WTO is working to help LDCs participate more fully and equitably in global trade agreements.

However, many least developed countries, along with non-LDCs like Nigeria, expressed reluctance to become involved in new talks until they are satisfied that commitments made to them during earlier rounds are fulfilled. Tanzanian Trade Minister Iddi Simba complained of trade agreement "indigestion" suffered by poor countries overwhelmed with paperwork and qualifying conditions. Furthermore, LDCs need assistance with productive capacity and commodity diversification, so that they can take advantage of new market opportunities as they open up, he said at a session on trade.

LDCs and African countries may have been slightly mollified by a pledge in the Brussels programme of action for development partners to implement in full the "special and differential measures" aimed at helping LDCs meet their obligations under the Uruguay Round of trade negotiations, which led to the WTO's formation. The programme of action also urges developed countries to consider new measures to benefit the LDCs.

The LDCs are taking none of this for granted. Mr. Simba announced in Brussels that a special meeting of LDC trade representatives is being organized, with the support of UNCTAD. It will take place in Tanzania in advance of the upcoming WTO ministerial meeting in Qatar in November. He said the meeting would assess the potential benefits of a new trade round. He also warned that the WTO might lose effectiveness or collapse if the needs of developing countries in general are not taken fully into account.

*****Box 1 ****** Aid conditions will be simplified, says EU commissioner Given mounting concerns by African countries over the proliferation of different conditions attached to donor assistance, the European Union aims to "simplify and clarify" the conditionalities it links to its own aid, Mr. Poul Nielson, the European commissioner for development cooperation and humanitarian aid, told Africa Recovery in a late-January interview. Moreover, recipient countries should not feel that such conditions are imposed from the outside, said Mr. Nielson, who prefers to call them "shared principles." Increasingly, he said, the EU will use the Poverty Reduction Strategy Papers negotiated between recipient countries and the IMF and World Bank as the basis for its own aid agreements. When asked whether excessive donor conditionality may in fact undermine the long-term goal of building up the capacities of African countries to decide and manage their own affairs, Mr. Nielson agreed that capacity-building is vital for the continent's future. He said that he would like to see support for capacity-building become a "hardcore, big money" component of the EU's development cooperation with Africa, rather than something that is just "added on" to projects in the field. Some critics have argued that the EU's trade policies tend to lock developing countries into the export of traditional primary commodities and make it harder for them to diversify into the production of other goods. Mr. Nielson responded that diversification certainly is "the core for creating a broader basis for economic progress." One hopeful sign is the strengthening of sub-regional economic groupings within Africa, he said, which should facilitate the diversification of African economies. The European Investment Bank, he noted, currently has a E2.2 bn (euros) facility which can help fund diversification projects. European tariffs on manufactured imports from Africa and other poor countries also are declining, giving greater incentive to the development of their manufacturing industries. In addition to the "everything but arms" agreement on LDC imports, he expected that import tariffs on other developing country manufactured goods "will inevitably be reduced to insignificant levels."

*****Box 2 ****** Producers, importers hammer out new cocoa accord By Naututu Okhoya With the aim of achieving a "balanced development of the world cocoa economy," producing countries negotiated a new international agreement with importing country representatives in early March. The accord, the sixth of its kind, provides mechanisms for trying to reconcile the sometimes-conflicting interests of cocoa farmers, exporters, importing countries and the multinational firms that process the cocoa beans, all within a context of environmental and economic sustainability. About 70 per cent of the world's cocoa is produced in West Africa, with Côte d'Ivoire the world's biggest producing country, followed by Ghana. Cocoa producers and processing companies alike have been experiencing serious difficulties in recent years, as world market prices have reached their lowest level in nearly three decades. The last cocoa agreement, negotiated in 1993, was set to expire at the end of September 2001, prompting the talks in Geneva under the sponsorship of the UN Conference on Trade and Development. That another agreement of any kind was reached was seen as a breakthrough, since the first round of talks in November 2000 ended in deadlock over differing interpretations of what constitutes a "sustainable cocoa economy." Mr. Lambert Nguessan of Côte d'Ivoire, representing the Africa group in the Geneva talks, emphasized the importance of boosting the incomes of cocoa farmers. The new agreement leaves this primarily to the producing countries, expecting that they will be able to help farmers form cooperatives to increase their bargaining power. Mr. Nguessan also stressed the importance to producing countries of increasing value-added to their cocoa exports, through greater local processing of the cocoa beans as opposed to simply exporting them in raw form. Côte d'Ivoire itself already has been forging ahead on this path, and now exports about 5 per cent of the world's cocoa grinds, behind both the US and Netherlands, which each account for about 15 per cent. The London-based International Cocoa Conference (ICCO), responsible for administering the agreement and comprising all its members, will assist producing countries in preparing development proposals for submission to financing institutions. To stimulate further investment and research in the cocoa sector, the agreement provides for the establishment of a new consultative board, comprised of farmers' organizations, traders, processors, manufacturers and research institutes. One area of contention involved cocoa "substitutes." In previous agreements, members were encouraged to prohibit non-cocoa ingredients in the manufacture of chocolate, with the goal of maintaining quality and enhancing cocoa consumption. In June 2000, however, a European Union directive permitted the inclusion of up to 5 per cent of vegetable fats in chocolate products. According to the ICCO, this may eliminate the use of 74,000 tonnes of cocoa butter, equivalent to 184,000 tonnes of cocoa beans, entailing $780 mn in losses to producing countries. The agreement recognizes that the use of cocoa substitutes may have "negative effects" on the expansion of cocoa consumption, but does not propose any specific remedy. The new cocoa accord, which lasts for five years, comes into effect upon ratification by five exporting countries producing at least 80 per cent of the cocoa crop and five importing countries consuming at least 60 per cent of it.

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