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EW BACKGROUND BRIEFING
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EU heads for 70% of aid to Third World
The economic downturn has so far done little to dampen Europeans’ enthusiasm for development aid. In a recent Eurobarometer survey, 90% said they think development is important, with 50% saying that poverty is the greatest challenge faced by developing countries. Dishearteningly, though, only 25% of those questioned had heard of the Millennium Development Goals, the UN’s blueprint for tackling extreme poverty by 2015.
Almost three-quarters (72%) of the people surveyed think that European countries should honour, or even go beyond, their commitments to the developing world, but only 26% said the EU is the best suited to assist developing countries. The United Nations is widely seen as the key player.
EU governments appear to be taking note of the general public desire to give more aid. In 2003, the European Commission pledged that EU aid commitments should be at least 0.39% of Gross National Income, and in 2008 and last year the member states honoured this promise.
Aid contributions by EU member states have grown steadily in the last decade. In 2000 they donated less than €29bn to poorer countries, but by 2008 that had doubled to almost €60bn.
Sweden is the most generous EU country, having given1.3% of its GNI in aid in 2008, with the Netherlands next at 0.83%. Greece and Italy are the least generous, spending 0.21% and 0.22% of GNI on aid respectively.
The OECD’s aid simulation for this year suggests that the economic crisis will have done little to reduce EU spending. It forecasts the EU again topping the global list of aid donors with a total €70bn in development assistance, a handsome 70% of all official development assistance worldwide.
The EU puts other large aid donors to shame. The U.S. aid total of €10bn in 2001 had doubled to €20bn in 2008, but still only represented 0.19% of GNI. In that year, EU member states spent 0.4% of GNI on aid, that totalled almost €40bn more than the U.S. Japan’s development aid stood at €7bn, or 0.19% of GNI, and Canada gave €5bn, or 0.32% of GNI.
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Fortunately for today's rich but cash-strapped countries, the less
developed countries, unlike our banks, don’t need a bail-out package,
nor do most of them want one. As Mo Ibrahim wrote recently in Europe's World,
Africa doesn’t need rescuing, it needs a square deal. This sentiment
was echoed by Rwanda's President Paul Kagame in the British newspaper The Guardian when he called for solutions in which Africa would be an active participant and not just a recipient.
African
countries, and the Third World as a whole, need to be given the
opportunity to create their own wealth. Historically, the single most
important driver out of poverty for countries from Japan to South Korea
and Brazil to Mauritius has been trade with other countries. Increased
opportunities for trade could ensure that the recession does not set
back the poorest countries and, better yet, trade will ensure it lifts
itself out of poverty.
Although the developed world pays lip
service to the need to open its markets to the poorest countries, it
maintains a number of barriers that impede their efforts to trade their
way out of poverty. The developed world’s trade policies not only limit
access to developed markets, but also impose complex and costly trade
regulations and support unfair subsidies which render uncompetitive
products from developing countries. "Trade Out of Poverty" is now
actively working towards making the necessary changes to these unfair
trade policies. We advocate five clear steps that the developed and
developing world must take together to make it possible for the poorest
countries to beat the recession and earn their way out of poverty.
Rich
nations like those of the EU, the United States and other OECD members
must open their markets unconditionally to all those defined by the
World Bank as Low Income Countries. The tariffs levied by developed
countries have come down substantially during successive trade rounds,
but the highest remaining tariffs tend to be those levied on
agricultural products and labour intensive manufactured goods –
precisely the goods that the poorest countries can most readily
produce. The U.S., for example, levies more duty on imports from
Bangladesh and Cambodia than on French and British imports that are six
times greater in value; American duties on imports from Bangladesh and
Cambodia in fact exceed by far the development aid each receives from
the U.S.
The normal procedure under the rules of the World
Trade Organisation is for tariff reductions to be reciprocal. But the
important step to be taken now is for rich countries to open-up their
markets to the poorest unconditionally, without requiring them to open
up their markets to exports from the industrialised world.
The
world's poorest countries represent a fifth of the global population,
but account for less than a fiftieth of world trade. The export
industries of the poorest countries are small in scale, unsophisticated
and usually specialised in products which cannot easily be produced in
the developed world. By no stretch of the imagination are they a
‘threat’ to the industries of the developed world.
Since the
poorest countries take less than 2% of the rest of the world’s exports
it is of minimal significance to rich countries whether those markets
are opened wider or not. By contrast, the rich countries represent the
market for over 90 % of the exports of the poorest countries, so the
barriers we impose are absolutely crucial to them.
A number of
trade arrangements such as the EU’s 'Everything But Arms' already claim
to give unconditional access to least developed countries.
Unfortunately, the devil is in the detail, and those details comprise
rules of origin and other non-tariff regulations that undo much of the
good intended by this kind of agreement. In short, trade rules must be
simplified.
Complex rules of origin mean that countries
entitled in theory to tariff-free access to developed markets actually
end up paying tariffs. Rules of origin also impede developing
countries’ ability to take part in the complex supply chains that
characterise modern manufacturing. The importance of Rules of Origin
was demonstrated by the relative performance of exports under the
African Growth and Opportunities Act (AGOA) introduced by the U.S. in
2000 and the EU's Everything But Arms initiative of 2001. Exports from
sub-Saharan Africa to the U.S. and Europe were fairly similar during
the 1990s but since then exports to the U.S. have quadrupled whereas
exports to the EU have stagnated. The main reason was the AGOA's simple
rule of origin, allowing African garment makers to use textiles from
elsewhere.
Other non-tariff trade barriers that limit poor
countries’ ability to trade include differing sanitary and
phyto-sanitary regulations set by developed countries that impose
prohibitively high compliance costs on developing countries.
Harmonising regulations across developed markets would facilitate trade
and lower the cost of compliance.
In addition to these changes
in external trade policies, rich countries should remove their export
and domestic subsidies, particularly on products that the poorest
countries are best placed to grow and manufacture. This change, though
apparently daunting, is not that far from the expected evolution of
trade policy. In the Doha Development Round, the EU tentatively agreed
to abolish export subsidies by 2013, although the offer was withdrawn
when the Doha negotiations stalled. As far as domestic subsidies are
concerned, fears that their removal will harm EU agriculture are
grossly exaggerated, since only a few agricultural products from low
income countries are in direct competition with those grown in Europe,
and in any case EU farmers have alternative crops to turn to.
Ironically,
the highest tariffs in the world are between neighbouring poor
countries, which partly reflects the fact that tariffs are the easiest
source of government revenue to collect. The high tariffs that poor
countries impose on each other are one reason why less than a tenth of
African exports go to other African countries, while nearly
three-quarters of European trade is within Europe. To beat the present
recession, the poorest countries need to remove the barriers between
each other even if they retain tariffs against exports from the
developed world. Rich countries can facilitate this move by providing
the advice and expertise to re-design tax systems, while at the same
time providing aid to top up lost revenues during the period that
tariffs are being replaced by revenue from domestic taxes.
These
are policy changes that could do much to help the poorest countries
weather the recession. This does not mean, however, that there is no
place for development assistance in the form of aid. Poor countries
will only be able to take advantage of the opportunities provided by
preferential market access if they develop their own export capacity.
This requires as high priority more investment in physical
infrastructure like roads, ports and electricity and also in
administrative infrastructure to meet international trading standards
of quality, traceability and so on. Yet over the last 20 years the
proportion of aid budgets devoted to infrastructure has fallen by
two-thirds. Donor countries in the EU and elsewhere must put renewed
emphasis on aid-for-trade to help developing countries build up
capacity for trade. |