In the renegotiations of the Lomé Convention (1998-2000) not only trade issues but also the aid relationship were under review. A major challenge is induced by the EU's proposal of shifting the aid allocation from needs to merit criteria. Our regression analysis shows, however, that EU aid was not primarily allocated according to the needs and performance of the ACP countries in the past, but to other interests of the EU members. If transfers change now under the new agreement from being an entitlement to being subject to performance criteria, agreement on these criteria has to be reached. A fundamental reform of the Stabex system was also agreed on in the new Suva Convention and will change the allocation of EU aid further. It has proven impossible to support agricultural producers and encourage diversification with the same instrument. To reach the latter goal support for the private sector should be enhanced. Therefore it is also important to analyse further how the allocation and use of aid may increase productive investment.