Aid for trade

Aid for trade

Aid for trade

ABOUT THIS SECTOR

Trade is essential for sustained economic growth and development. However, developing countries often face internal constraints that prevent them from accessing the economic benefits of expanded trade. The December 2005 World Trade Organisation (WTO) Ministerial Conference in Hong Kong acknowledged these constraints and paved the way for the Aid for Trade Initiative, as a complement to the Doha Development Agenda. The Initiative aims to improve the quantity and quality of Aid for Trade (AfT), allowing developing countries to more easily access the benefits of WTO agreements, expand their productive sectors and integrate more fully into the international trading system.

Aid for Trade comprises the following categories (the complete list of purpose codes can be found at the OECD DAC website).  

  • technical assistance for trade policy and regulations;
  • building trade-related infrastructure;
  • building productive capacity;
  • support with trade-related adjustment;
  • other trade-related needs.

The EU's Aid-for-Trade Strategy was adopted in October 2007 in response to the WTO-led AfT Initiative, to help developing countries better integrate into the international trading system and take greater advantage of the poverty-reducing benefits of economic openness and enhanced trade efficiency. The Strategy is currently being revised to improve complementarity between trade and development policies and increase the effectiveness of AfT on least developed countries (LDCs) in particular.

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EU aid complements and tries to make the most of other Commission trade policy measures in favour of developing countries. The EU's Generalised Scheme of Preferences (GSP) allows all developing countries to pay less or no duty on their exports to the EU. The standard GSP arrangement offers generous tariff reductions to developing countries on two thirds of all product categories; the "GSP+" enhanced preferences mean full removal of tariffs on essentially the same product categories; and the Everything but Arms (EBA) arrangement grants duty-free, quota-free access to all products, except for arms and ammunition.

The EU is engaged in bilateral trade negotiations with many countries, and trade agreements are a key instrument through which the EU creates economic opportunities for developing countries. These agreements open up new markets for goods and services, increase investment opportunities, and reduce the costs of trade by eliminating customs duties and other charges. Trade agreements also speed up the trade process by facilitating transit through customs and setting common rules on Technical Standards and Sanitary and Phyto-sanitary Measures. These agreements also make the policy environment more predictable through joint commitments in areas such as Intellectual Property Rights and so on. The latest state of play on Free Trade Agreement negotiations with third countries can be found here.

Economic Partnership Agreements (EPAs) are trade and development agreements negotiated between the EU and African, Caribbean and Pacific (ACP) partners. Dating back to the signing of the Cotonou Agreement, EPAs are tailor-made, WTO-compatible agreements that open up EU markets fully and immediately, but allow ACP countries long transition periods during which they can protect sensitive sectors of their economies. EPAs are also designed to be drivers of change that will help kick-start reform and contribute to good economic governance in partner countries. The latest state of play on EPAs with countries in the African, Caribbean and Pacific (ACP) region can be found here.

An independent study into the economic benefits generated by EU trade regimes towards developing countries was concluded in 2015. The study demonstrates that EU trade policy (in particular the GSP) has significantly increased exports from developing countries and contributed to their economic diversification. This double impact was particularly felt by LDCs.

EU preferential schemes towards developing countries

Preference schemes Target countries Time period
Lomé conventions I-IV ACP countries    1975-2000
Cotonou/EPA ACP countries    2000-2020
GSP           
General Arrangement All developing countries 1971 onwards
GSP+      2005 onwards
EBA LDCs 2001 onwards
FTA Individual countries

Country specific

The EU Aid for Trade (AfT) Strategy has five strands, concerned with:

  • AfT volumes;
  • the quality and pro-poor focus of aid;
  • the EU’s capacity to deliver high volumes of high-quality AfT;
  • the needs of the African, Caribbean and Pacific (ACP) region;
  • reporting.

Under the final strand, the EU publishes an annual Aid for Trade Monitoring Report.

Within these five strands, there are a number of key goals:

  • implementing a commitment by EU Member States and the European Commission to collectively spend EUR 2 billion in trade-related assistance annually from 2010;
  • increasing overall AfT in line with increases in EU overseas development assistance, while enhancing the pro-poor focus and the quality of AfT;
  • fostering and supporting regional integration processes, including within African, Caribbean and Pacific (ACP) countries;
  • delivering AfT in accordance with the principle of complementarity, i.e. based on beneficiary countries' own development priorities; and
  • ensuring more active involvement by EU and beneficiary countries in the Enhanced Integrated Framework.

Actions related to Aid for Trade and in support of Private Sector Development and Regional Economic Integration receive substantial EU funding, accounting for almost a third of total EU Official Development Assistance. This financial support is channelled through a number of geographical and thematic funding mechanisms.

Geographical instruments – i.e. instruments that back activities in specific parts of the world – fund projects in countries and regions that have prioritised and requested such assistance as part of their cooperation strategies (Country Strategy Papers and Regional Strategy Papers). These instruments include the European Development Fund (in African, Caribbean and Pacific countries), the Development Cooperation Instrument (in Latin America, Asia and South Africa), and the European Neighbourhood & Partnership Instrument (in the neighbouring regions). This type of mechanism also encompasses multi-regional instruments for ACP countries.

Thematic programmes – i.e. cross-cutting tools dedicated to particular issues (such as non-state actors, migration, food security) – complement the activities undertaken through the geographical approach.
Further funding is available from other EU sources and through other aid modalities, which notably include budget support.

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