Does the European Development Agenda Help to Increase Trade with Developing Countries?

The new Communication from the European Commission and the ongoing reform of the Generalised System of Preferences (GSP) have revived the debate about trade between the EU and developing countries. According to this Communication, it is crucial for the European development agenda to outline the direction of trade and investment and to tailor its policy to meet the new needs of African, Caribbean and Pacific (ACP) countries. However, instead of presenting a comprehensive development policy and substantive GSP reform, the Commissions’ proposals focus on the format. The document goes far beyond the economic aspects, making the strategic objectives blurry. The preferential trade scheme aims at reducing the number of beneficiaries and decreasing the loss of tariffs revenue rather than improving market access to the EU.

The European Union and its Member states are the world’s biggest donors of development aid, accounting for 54% of global official development assistance. Although a significant part of the European aid (around 23%) is dedicated to increase the trade between the EU and developing countries, the effectiveness of these trade facilitation programs might be questioned. More precisely, despite the highly advertised GSP scheme, the access to the European market still remains restricted.

The non-reciprocal trade preferences of the GSP are a centrepiece of the European development agenda. This scheme and trade support measures are supposed to cover most of the import from developing countries, this does not seem to be the case though, when one looks at the figures. In 2007, the preferential access schemes covered 12.6% of the total value of goods that were exported to the EU under GSP scheme and 21.5% of the exports from countries benefitting from the GSP+. The Everything but Arms (EBA) scheme provided for duty-free and quota free access in only 16.5% of the exports in 2007. The proportion of imports covered by the EBA increased to 25.3% when the quota restrictions on sugar and rice were lifted in 2009.

Since 2007, the EU’s General Systems of Preferences thus fail to provide any significant improved market access for ACP countries. Developing and least developed countries still face barriers when exporting to the EU. Despite partial tariff reduction, non-tariff barriers and quotas remain in force to protect sensitive European sectors. The European Commission does not seem to be willing to admit this however. The current reform proposal seems rather superficial as it basically reduces the number of countries benefitting from the GSP and does not provide any substantial increase in tariff reduction and market access in general[1]. The goal to increase low-income and least developed countries’ participation in European import is presumed to be achieved by excluding better performing developing countries. Yet, the poor countries might not have the capacity to increase their exports and take advantage of greater European market openings.

The Economic Partnership Agreements (EPA) with developing countries is also a part of the development agenda since 2007. However, only one agreement has been singed so far. The EPA aims to promote economic development and to boost the trade with the EU. The agreements are focused on technical assistance as well as improvement of provisions on rules of origin, safeguards, custom and trade facilitation. However, they are highly criticised as substituting existing unilateral preferential access with almost fully reciprocal trade agreements that by many are seen as damaging for developing regions. According to the EPAs, African countries are now supposed to eliminate 80% of their tariffs and reduce barriers within a transition period of 15 or 25 years. In contrast to the EPA countries that are already covered by the EBA scheme, the ones that are not covered are offered to sign a free-trade agreement almost of the same type that the EU signs with its developed partners.

The other European development program that focuses on trade facilitation is Aid for Trade. Its main goal is to provide financial assistance for policy programs, infrastructure and production capacity. However, only 22% of the resources from this programme go to the Least Developed Countries (LDC) – the countries that need this type of support the most. As a solution, the European Commission has proposed a plan that targets LDCs more directly and supports small operators and producers as well as regional integration. Yet critics are concerned that the money is likely to go to international companies from developed countries rather than the people in need.

Trade can have a significant positive impact on economic development in poor countries. Hence, it is vital to find a way to actually improve the possibilities for developing countries to export and to make more effective use of their resources. Clear and transparent criteria and requirements should be established so that every developing country can fully benefit from the preferential access schemes. The remaining EU quotas, which hinder some of the most important exports from the least developed countries, mostly agricultural products, should be fully removed.

There is also a strong need for more comprehensive reforms. In the process, the beneficiaries should be included as partners, not as passive observers. The EU programmes should encourage self-regulation and active involvement from the developing countries in their own development process. It is equally important to deepen the cooperation with beneficiaries in order to fight corruption as well as to address the lack of mechanisms for good governance.

The aid should be carefully directed to the countries that need it the most. Enhancing the efficiency of the development assistance in order to improve institutional and infrastructural performances in the recipient countries is also essential. The Commission has to make sure that developing countries can make maximum use of their preferences and access the European market without bigger obstacles.