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Trade and aid

The EU has long recognised that trade can boost the economic growth and productive capacities of poor nations. Beginning in 1971,, the Union has reduced or removed tariffs and eliminated quotas on most of its imports from developing countries. For the 49 least-developed countries (LDCs), the Union is removing tariffs on all their exports - with the sole exception of arms – under a programme launched in 2001.

The special trading relationship between the Union and its 78 partners in the Africa-Caribbean-Pacific (ACP) group has been considered a model for how rich countries can open their markets to poor ones. However, despite the special relationship, the ACP countries’ share of EU markets has continued to fall, and they have become increasingly marginalised in world trade.

This is why the EU’s development strategy also focuses on financial and technical assistance to improve the basic physical and social infrastructures and productive potential of poor nations and to strengthen their administrative and institutional capacities. This support can also help them benefit from international trade opportunities and secure more inward investment to broaden their economic base. These are essential preconditions for integrating into the global economy and achieving sustainable growth.

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Striking a new balance

The Union is combining its trade and aid mix in a new way in the next generation of partnership agreements it is negotiating with the ACP countries. These are due to be in place by 2008. The idea is to help them integrate with their regional neighbours as a step towards global integration, and to help them build institutional capacities and apply principles of good governance. At the same time, the EU will continue to work to open its markets and remove barriers to exports from the ACP group.  

At global level, the Union strongly supports the decision taken at the world trade negotiations, known as the Doha Development Agenda, to strengthen the administrative and managerial capacity of poor countries and thus help them take advantage of trading opportunities created by the negotiations.

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Deeper Pockets

The European Union and its member states pay out more than €30 billion a year in public aid to developing countries. This is the equivalent of 0.34% of GNP of the 25 member states, and is higher than the per capita aid levels of the United States or Japan.

Of this amount, about €6 billion is channelled through the EU. Although EU members, like other industrialised countries, have accepted a target of spending 0.7% of their GNP on aid each year, only Denmark, Luxembourg, the Netherlands and Sweden have reached this target.

In May 2005, ministers from the 25 member states agreed to a new collective target of 0.56% for 2010, which would result in an additional €20 billion of aid by that time. They also set 2015 as the date for reaching 0.7%.

Most of the EU’s aid is in the form of non-repayable grants. A limited amount of soft loans and investment capital is made available by the European Investment Bank (EIB) the EU’s long-term funding body. The EIB made loans to partners outside Europe, mainly developing countries, worth €3.5 billion in 2004.

Over the years, the EU has funded thousands of development projects across the third world. Often relatively small amounts of cash go a long way. Recent success stories include a project to equip and train silk weavers in Cambodia, funding to help small businesses in Peru to export more, support for Namibian farmers to set up a lobby to defend their interests, a grant to a business venture in Senegal to improve the quality of local manufactured products, technical assistance to Egypt to eradicate a pest which threatened its vital potato exports to the EU, and many more.

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Controlling their own destiny

The ultimate objective of Union policy is to give disadvantaged people in the third world control over their own development. This means attacking the sources of their vulnerability, including poor access to food and clean water, or to education, health, employment, land, social services, infrastructure and a sound environment. It also means disease eradication and access to cheap medicines to combat scourges like HIV/Aids, as well as action to reduce the debt burden that diverts scarce resources away from vital public investments back to rich lenders in the industrialised countries.

As part of this process, the European Commission has proposed to set aside one billion euro to improve access to safe drinking water and basic sanitation for populations in the ACP countries. This is part of an international campaign to halve by 2015 the number of people without access to these facilities.

The EU also promotes self-help and poverty eradication strategies which enable developing countries to consolidate the democratic process, expand social programmes, strengthen their institutional framework, expand the capacities of the private and public sectors, and reinforce respect for human rights, including equality between men and women. All EU trade or cooperation agreements with outside countries now include a human rights clause as a matter of routine. Failure to comply entails automatic penalties in terms of lost market access or frozen or cancelled aid projects. 

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A clearer focus

Aid provided by the EU as an organisation is closely coordinated with the aid donated by EU member states and other international donors. It is increasingly being targeted at those areas where the Union offers the most efficient delivery channel and can do so at least cost:

• the link between trade and development;
• regional integration and cooperation;
• support for sound macroeconomic policies;
• transport;
• food security and sustainable rural development;
• institutional capacity-building (particularly good governance and the rule of law).

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