Untying aid to developing countries

The European Union proposes a framework for discussion and specific recommendations regarding the untying of Community and Member State bilateral aid to increase its effectiveness. The European Commission recommends completely untying food aid and its delivery. This set of proposals not only respects the spirit of the DAC Recommendation, it actually goes beyond it.

ACT

Communication from the Commission to the Council and the European Parliament of 18 November 2000: Untying: Enhancing the effectiveness of aid [COM (2002) 639 final - Not published in the Official Journal].

SUMMARY

In its communication the Commission proposes untying all Community aid and bilateral aid from the fifteen Member States, subject to the agreement of the beneficiary country and reciprocity on the part of other donors.

Tied aid is aid given on the condition that the beneficiary will use it to purchase goods and services from suppliers based in the donor country. "Untying aid" therefore means opening up those purchases to suppliers based elsewhere than just in the donor country.

COMMISSION RECOMMENDATIONS

Information

The Commission proposes to:

• work systematically at European level to improve communication to all donors about the effect of unrestricted untying of all aid and the effectiveness of this approach, and about the allocation of resources and development structures and agents;
• launch specific initiatives with each Member State, to work in partnership to improve the communication of information about the relation between untying aid and decentralisation, as well as about the harmonisation of procedures and the role of the beneficiary country.

Revision of financial instruments for development

In order to further untie Community aid, the Commission proposes, for policies and procedures defined at Community level and for the partnership agreements, making changes to the legal bases of a whole series of financial instruments involved in Community aid. The Commission's stated preference is for revising each financial instrument gradually, introducing common concepts.

Untying all food aid

The Commission recommends that the untying of aid already agreed to by donors within the framework of the Development Assistance Committee (DAC) of the Organization for Economic Cooperation and Development (OECD) should be continued and extended with a view to untying all aid, based in particular on complete reciprocity between donors. The Commission also advocates untying all food aid (which is excluded from the scope of the DAC recommendation) and its delivery, and proposes including these points in the renegotiation of the Food Aid Convention approved by the members of the Food Aid Committee (Argentina, Australia, Canada, the European Community and its Member States, Japan, Norway, Switzerland and the United States).

Issues relating to the untying of Member State bilateral aid

The Commission calls on all concerned parties in the European Union to comply with the rules of the internal market and the public procurement Directives. The part of the EC Treaty relating to the movement of goods and services, and the EU rules on public procurement prohibit any criteria that discriminate in favour of national businesses to the detriment of traders in other EU countries. Tied bilateral aid could be in breach of Community competition legislation and the rules of the internal market and the principle of non-discrimination laid down in Article 12 of the EC Treaty.

The Commission proposes that the Member States undertake to untie aid in the case of contracts awarded by the authorities of the beneficiary country not acting for or on behalf of a Member State contracting authority, and systematically insert a contractual clause in the instruments granting the aid which obliges the authorities of the beneficiary country to apply award procedures based on the fundamental principles of the public procurement Directives such as equal treatment, transparency, mutual recognition and proportionality.

GENERAL FRAMEWORK

Background

At the high-level meeting of the OECD-DAC, the Commission undertook to apply the spirit and objectives of the DAC's recommendation on untying aid (the untying is limited to the least-developed countries (LDCs), but DAC members are called upon to apply it as extensively as possible). The conclusions of the Barcelona European Council in March 2002 also confirmed that the EU was determined to further step up the discussions on untying aid.

Untying Community aid: the situation

Community aid has been largely untied for more than 25 years, going beyond even the DAC recommendation. The invitations to tender are open to the Member States and all the ACP countries, plus all the Mediterranean partner countries under the MEDA programme and to the beneficiary countries of Latin America and Asia (ALA). Furthermore, Community aid has increasingly been directed towards balance of payments and budget support, which is, by definition, completely untied.

In keeping with the Commission's undertakings, the revision of the Community Financial Regulation introduced the provisions needed to continue untying Community aid. Regulation (EC) No 2110/2005 (repealed by Regulation No 1905/2006) and Regulation (EC) No 2112/2005 (repealed by Regulation No 1085/2006), on access to Community external assistance, aimed to apply the principle of untying aid to the poorest developing countries to all Community development aid instruments (both thematic and geographical).

The advantages of untying aid

Untying aid is a major theme of the ongoing debate about the coherence and effectiveness of the aid given and the credibility of the donors. The Commission's approach is based on the idea that untying aid is a way of increasing transparency and responsibility in the management and provision of aid.

Advocates of untying aid also stress that it improves the aid's effectiveness. It would facilitate budget support, aiming to dissociate aid from commercial interests in each donor country, since the association of the two is a major cause of inertia. It is also widely accepted that untying all aid increases the value of public development aid by providing better cost-effectiveness, thus increasing the total financial resources available for development operations. It is estimated that tying aid increases the cost of many goods and services by between 15 and 30 %.

Last updated: 22.10.2007