Towards an EU Aid for Trade strategy

This Communication aims to lay the bases for a joint European Union (EU) Aid for Trade strategy in favour of developing countries. The EU is the world’s largest donor in the field of trade‑related assistance, which is a key dimension of the Doha agenda for development and of Economic Partnership Agreements (EPAs) between the EU and the African, Caribbean and Pacific countries (ACP).

ACT

Communication from the Commission to the Council, the European Parliament, the European Economic and Social Committee and the Committee of the Regions entitled “Towards an EU Aid for Trade strategy – the Commission's contribution” [COM(2007) 163 final - Not published in the Official Journal].

SUMMARY

Trade is an important catalyst for growth and poverty reduction in developing countries. But successful integration of developing countries into world trade requires more than better market access and strengthened international trade rules. In order to fully exploit the benefits from trade, developing countries also need to remove supply-side constraints and address structural weaknesses. This includes domestic reforms in trade-related policies, trade facilitation, enhancement of customs capacities, upgrading of infrastructure, enhancement of productive capacities and building of domestic and regional markets. Complementary efforts are required in areas such as macroeconomic stability, fiscal reforms, promotion of investment, labour policy, capital and product market regulations and institutions, and human capital development.

Aid for Trade is a very important factor in this context. It is geared to generating growth, employment and income, thereby contributing to the first and eighth Millennium Development Goals, i.e. to reduce the proportion of people living on less than a dollar a day and to establish an open trading and financial system that is rule-based and non-discriminatory.

The objectives of Aid for Trade are:

• to enable developing countries, particularly the least‑developed countries (LDCs), to use trade more effectively to promote growth, employment, development and poverty reduction and to achieve their development objectives;
• to facilitate the access of these countries to international markets by improving their supply-side capacity and trade-related infrastructure;
• to help these countries to implement and adjust to trade reform, including via labour market and social adjustments;
• to assist regional integration;
• to assist good integration into the world trading system.

An EU Aid for Trade strategy can contribute to these objectives through the following measures:

• increasing the volumes of EU Aid for Trade, in particular by taking trade‑related assistance up to EUR 2 billion a year by 2010, but also by promoting an effective response to wider Aid for Trade needs;
• enhancing the quality of EU Aid for Trade;
• implementing effective monitoring and reporting.

Increasing the volumes of Aid for Trade

The Commission recalls that five categories of Aid for Trade were identified by the World Trade Organisation (WTO) Task Force on Aid for Trade, i.e.:

• trade policy and trade regulation;
• trade development;
• trade-related infrastructure;
• productive capacities;
• trade-related adjustment.

The first two categories are grouped under “trade‑related assistance”. They include:

• trade policy and trade regulation, which are aimed at ensuring effective participation of developing countries in multilateral trade negotiations and assisting these countries in the implementation of trade-related legislation;
• development of trade and the business climate, and improvement of business support services and institutions.

In 2005 the EU undertook to increase its trade‑related assistance to EUR 2 billion per year by 2010, with half coming from the Commission and the other half from the Member States. The Commission currently provides EUR 840 million per year, whereas Member States contribute only EUR 300 million.

To increase the volume of aid, the Commission recommends that:

• the Member States reach a level of EUR 600 million per year by 2008, in order to attain the 1 billion target set for 2010;
• a significant share of the increased aid should be allocated to the African, Caribbean and Pacific (ACP) countries in support of regional integration and Economic Partnership Agreements (EPAs). In particular, the ACP countries must be given guidance on the actual amounts involved.

In addition, in all the developing countries, it is necessary to develop effective approaches to trade needs assessments at regional level and to ensure that these needs will be taken into account in the national development strategies of the partner countries. In particular, the EU should endeavour to apply effectively the instrument of the Integrated Framework * used with the LDCs and to extend the same type of approach to non-LDCs.

The EU must also continue to implement a wider Aid for Trade agenda in order to:

• support economic infrastructure, productive capacities and trade-related adjustment (fiscal reforms);
• develop coherent reporting practices for all categories of Aid for Trade.

Enhancing the quality of Aid for Trade

In order to improve the quality and effectiveness of Aid for Trade, the Commission recommends that the EU strategy focuses on the following aspects:

• lay down the means to ensure that the Aid for Trade actions produce results in this field, e.g. by identifying the areas of Aid for Trade which bring about the widest and most sustainable reduction in poverty;
• ensure better ownership and participation by integrating trade-related issues into poverty reduction strategies, with active participation by private‑sector and civil‑society stakeholders;
• promote the institutional and financial sustainability of programmes by stakeholder capacity‑building and ownership in all operations. It is also necessary to guarantee social and environmental sustainability by means of sustainability impact assessment of trade policies and agreements. In the specific case of environmental sustainability, the EU must help partners develop sustainable production methods. Other important aspects are the promotion of decent work and the development of effective labour market and social adjustment mechanisms;
• ensure joint analysis, programming and delivery between EU partners. The joint analysis of trade-related needs must be undertaken by using the Integrated Framework instrument in the LDCs and by developing similar processes in other countries. The EU could then better coordinate its response strategies in countries and regions. The opportunities for joint delivery depend in particular on progress in working through sector-wide approaches (SWAPs) in the field of Aid for Trade. In particular, the SWAPs are to permit the development of joint delivery methods, such as budget support and co-financing between EU partners;
• aim for aid effectiveness in regional Aid for Trade, and in particular supporting regional partners’ capacity to own and lead Aid for Trade efforts, coordinating the programme in support of regional and trade integration, streamlining the methods of delivery and enhancing cooperation with non-EU donors. In particular, the EU strategy must give priority to regional interventions in the EPA context.

Implementing effective monitoring and reporting of aid

To make progress in all these areas, monitoring and reporting are essential, both at international and EU levels. In particular, global monitoring and reporting must include the quantitative dimension of Aid for Trade and the qualitative dimension (associated with the effectiveness of the aid). At EU level, the Commission recommends that progress in implementing the EU Aid for Trade strategy should be assessed yearly by the Council.

Finally, the three groups of measures mentioned above must be accompanied by building human capacity in donor organisations. On this subject, the Commission recommends taking stock of the EU’s existing capacity and expertise and of joint European initiatives to develop and share expertise.

Background

This Communication is the Commission's contribution to further expanding EU support for Aid for Trade with a view to adoption of a joint EU strategy by the Council (see Related Acts). It belongs to a package of measures adopted by the Commission to monitor the honouring of the development policy commitments entered into by the EU (see Related Acts).

RELATED ACTS

Commission Report of 15 September 2008 “social provisions in free trade agreements”. By introducing provisions on labour and sustainable development in its free trade agreements, the European Union (EU) contributes to the economic, political and social stability of its partner countries. This Report enumerates the different models and practices on the subject.

Since 1996 the World Trade Organization (WTO) has committed to respecting the fundamental principles of labour legislation. On the basis of these principles, the International Labour Organization (ILO) adopted an agenda for the promotion of decent work in 2000. This agenda was taken on by the UN and the EU. They committed to including it in their international trade agreements. The agenda is also an essential reference for companies drawing up social responsibility charters and codes.

Some international treaties concluded at the bilateral or regional levels include provisions on labour legislation. In particular, agreements concluded by Canada, the United States, Mercosur and the European Union. The main provisions relate to fundamental standards of labour legislation (freedom of association, collective bargaining, the abolition of child labour, the elimination of all forms of forced labour and discrimination in the workplace). The social provisions in the agreements could extend to other areas, in particular working conditions, minimum wage, working hours, health and safety in the workplace and sustainable development. Clauses related to labour are provided for in the agreements linked to the Generalised System of Preferences, as well as to the possibility for positive or negative sanctions. After their reciprocal opening up of trade, the EU and its partners should deepen their relationships by developing minimum standards and by adopting provisions in other areas, such as fair trade, the negative effects on employment and defending universal values.

The inclusion of such provisions aims at reducing the negative effects of trade liberalisation. However, the Report emphasises that objections to the principles of labour legislation would put the brakes on social development and economic growth.

Communication from the Commission to the Council, the European Parliament, the European Economic and Social Committee and the Committee of the Regions of 4 April 2007 – From Monterrey to the European Consensus on Development: honouring our commitments [COM(2007) 158 final – Not published in the Official Journal]. This political Communication introduces the two Specific Communications "Keeping Europe's promises on Financing for Development" and "Towards an EU Aid for Trade strategy – the Commission's contribution".

Annual Report from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions of 4 April 2007 – Keeping Europe's promises on Financing for Development [COM(2007) 164 final – Not published in the Official Journal].

Last updated: 23.08.2009