Trade economists are skeptical about the benefits of trade preferences. This attitude stems principally from the belief that the granting of discriminatory trade preferences results in a misallocation of resources. This so-called trade diversion effect represents the increase in imports from the preferred source at the expense of traditional suppliers, after the reduction or abolition of the customs duty on imports originating in the preferred country of supply (Cline, et al. , 1978).
The trade diversion effect varies with the elasticity of demand as well as with the magnitude of the tariff preference, and is inversely related to the market share of the country enjoying the tariff preference. For instance, only minor trade diversion will occur if trade preferences are given to countries already enjoying strong comparative advantage in certain products Cosgrove, 1994). The increasing economic marginalization of the ACP states, particularly African countries, in the world economy was identified in 1984 (Agarwal et al. , 1985).
The ACP was found to have a very poor performance in the E. C. market. The study also emphasized the high degree of concentration of exports from ACP states in a narrow range of commodities. Specific barriers inhibiting ACP export performance included climatic conditions in Africa (droughts and desertification), plant and animal diseases, high transportation costs, expensive and often inadequate telecommunications and the impact of oil price increases.
Since 1985, the incidence of AIDS in Africa has become a factor; it is conservatively estimated that between 10% and 15% of the adult African population south of the Sahara has AIDS (WTO, 1993). From the EC perspective, the basic problem inhibiting the implementation of the trade provisions of Lome IV lies in the fact that ACP states are not competitive in international markets and lack the capacity to penetrate them effectively. It is evident that the ACP states have not been able to command the resources in their productive and export sectors with which to succeed in international trade.
Many ACP states appear to have been slower than other Asian or Latin American countries in adapting their products and marketing efforts to the international challenges of the 1980s and 1990s — changes in fashion, more stringent technical standards, new marketing regulations and shifts away from demand for commodities toward processed and manufactured goods. The ACP Trade Development Project is designed to address precisely these central issues. It is hoped that the project will be established (probably in Brussels) late in 1994 or early 1995 (Cosgrove, 1994).
The case above strengthened the argument regarding the importance of derivative security between and among countries who practice import-export trading systems under the participating international organizations. In this light, long-term economic support and assistance should be practiced by partner countries. It is usually the case of the developed countries to observe economic assistance to sustain future economic security to developing countries.
The case seems to always be that of a developed country importing agricultural products and other raw materials for manufacturing in their industries in which developing countries depend for long-term cash and product flows in the international trading system. Such scenario is most possible when the importing developed country and the exporting developing country are linked together by their membership to a particular international trade association or organization together with other nations around the world.
The amount of cash being received and spent between and among countries in the international trading system during a specified period of time are most often tied to contract, agreements and projects among trading partner countries. The continuous cash flow is most crucial in this respect in order to facilitate long-term economic security to the participating developing countries. The economic conditions of most of these developing countries depend largely on the uninterrupted trading practices with developed countries.
Moneyness of a particular country, especially those in the developed economic classification, is appreciated more in the trade ethics in the international arena. The commitment that developed countries claimed upon trade agreements with developed countries proved to be more viable than that of the wealth or financial worth of a particular developed country for this ensures long-term economic assistance to developing countries in the international trading system.