Reality of Aid Secretariat October 9, 2013
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The Agenda For Change, first unveiled in 2011 and approved in May 2012, will determine European Union (EU)’s development policy in the coming years. It is an attempt to improve EU poverty reduction efforts by making its development assistance “more strategic, targeted and results-oriented”.[i] “Impact” has become a buzzword among European development officials but issues that plague European development cooperation over the years call to question whether or not the new overseas aid policy can indeed bring about real transformation in the lives of the poor in Asia & the Pacific.
EU development cooperation in principle is guided by the Lisbon Treaty, which states that the Union’s development cooperation policy shall have as its primary objective the eradication of poverty. Policy coherence for development is also an explicit obligation within the treaty.[ii] EU also underlines that human rights, democracy and rule of law are fundamental underlying principles for each development agreement, along with environmental sustainability and gender equality. It has also affirmed through the Paris, Accra and Busan agreements its commitment to the principles of ownership, mutual accountability, removal of conditionality in aid and untying of aid, and the promotion of inclusive development partnerships which means the recognition of different and complementary roles of all actors, including the recognition of CSOs as development actors in their own right.
It is important to critically examine whether the reality of EU development cooperation matches the fine image that its treaties and proclamations suggest.
Fragmentation and proliferation of the EU aid architecture
The EU aid architecture is highly fragmented. The EU 27 member states each choose their own partner countries, priority sectors and levels of financial allocation in sovereign decisions. The European Commission (EC), in fact, is only the EU’s 28th provider, making it a donor in its own right. Many member states, and the Commission, maintain several different aid agencies or financing mechanisms – each agency has its own regulations and guidelines, attach their own conditions to aid, and conduct their own monitoring and evaluation exercises.
This fragmentation and proliferation of the EU aid architecture has severe implications for both parties involved in development cooperation. For EU donors it means they have to invest time and money in cumbersome coordination, or the result will be waste from unnecessary duplication. The EU’s partner countries in turn have to negotiate with all these donors separately, receiving and entertaining their missions and writing progress reports, to mention just a few of the tasks this entails. The bureaucracy distracts from the core work of administering the country and providing public services for the citizens, and involves high costs in poor countries, which often lack capacity or resources.[iii]
Failure to meet aid commitments
In 1970, the UN general assembly agreed that "economically advanced countries" should make efforts to provide 0.7% of gross national income as official development assistance (ODA). The initial idea was that donors should achieve this target by the mid-1970s, but most EU member states have not reached the figure.
Especially at a time when the economic crisis hit Europe, aid budget cuts are becoming a major trend. Europe maintained its position as the world’s biggest aid donor in 2012, providing 55.2 billion euros of overseas assistance, but the bloc has made no progress towards its target of providing 0.7% of gross national income (GNI) in aid by 2015. At 0.43% of collective GNI, aid commitments by the EU and its member states have not increased since 2010, when they fell well short of an interim 0.56% target.[iv]
Tied Aid
EU ODA remains formally tied to the condition that all inputs for development projects are purchased from businesses in the donor country providing the aid. Even when aid is formally untied, two-thirds of aid-funded contracts go to Northern firms or consultants.[v]
More than half of total ODA spent each year go to buying goods and services for development projects. The reliance on rich companies from rich donors, as in the case of the EU, deals a double blow to developing countries, ratcheting up the cost of development projects while failing to deliver sustainable social and economic benefits.
Such aid-tying wastes aid monies as the monopoly prices charged by donor country businesses increase the cost of development projects by 15% to 30%, and up to 40% for food aid.[vi] This reduces development effectiveness because money that is not spent in developing countries does not provide business opportunities for local firms, nor can it develop local capacity or create jobs or income opportunities with which the local population could lift itself out of poverty.
EU’s Aid for Trade
Undermining democratic ownership. ‘Aid for trade’ (AfT) is a catch-all term for trade related official development assistance provided to developing countries. It comprises aid for trade-related technical assistance, infrastructure, development of productive capacity, as well as adjustment assistance related to trade reforms.
Proponents of AfT work on the assumption that trade is beneficial to developing countries and that developing countries may face costs and other constraints that prevent them from fully benefitting from trade, and that aid can offset these costs and constraints. The EU is the world’s largest donor of trade-related assistance.
AfT claims to contribute to poverty eradication but there is hardly evidence to prove that it does. The problem is the AfT framework pursued by donor countries like the EU, unfortunately, confounds the means and the ends. It substitutes trade liberalization and market integration as the end goals of development policy, when liberalizing trade is not the same as promoting development. Whether trade liberalization will contribute to eliminating poverty, raising standards of living of the majority and empower those at the margins is simply assumed and unexamined.
If one looks at how AfT is being used, it is noticeable that it is being used not to support broad-based development. Even the goals of existing trade-related capacity building and technical assistance are rarely aimed at enabling developing countries to understand the complex role of international trade in their national development strategies. Nor are they aimed at strategies for orienting trade to support these national strategies. Rather, it is designed to entice developing countries in the region into integrating with the multilateral trading system governed by the World Trade Organization (WTO). The goal of donors when they provide AfT is aimed at compliance with WTO rules and commitments.
An EU Aid for Trade strategy[vii] was adopted in October 2007 by the EC and EU governments. The strategy paper explicitly states as its aim helping developing countries better integrate into the rules-based world trading system and more effectively use trade to reduce poverty. The strategy commits EU to channel more resources to Aid for Trade and to do more to improve delivery of results. As for the provision of trade-related technical assistance, it is explicitly articulated that one of its main objectives is to “mainstream” trade liberalization and multilateral trading rules into the national development plans such as the Poverty Reduction Strategy Papers (PRSPs) of recipient countries.
A closer look at EU support for regional integration in Asia & the Pacific would reveal that much of EU support goes to trade and investment links. One of the EU’s main areas for support is to further stimulate intra-regional trade and integration by helping regional legislation for removing non-tariff barriers to trade (especially through harmonization of standards and customs) in trade and economic integration projects in the region like the South Asia Free Trade Agreement (SAFTA) and ASEAN Economic Community.[viii] The policies that the EU promotes directly reflect the very same policies advanced by developed countries in the WTO.
Why is this problematic?
WTO negotiations are at a stalemate, because of developing country resistance to new agreements on trade liberalization advanced by developed countries in the Doha Development Round. Multilateral trading rules in the WTO unfairly favor the interests of rich industrialized countries, while development issues that are important to developing countries are continuously being sidelined. Developing country revenue losses from drastic tariff cuts as a result of trade liberalization translates to less resources for spending on health, education and other public services. But the impacts go well beyond revenue considerations. Trade liberalization has also been often equated with massive loss of livelihoods, deindustrialization, loss of policy space and widening social inequities for people in the developing world.
The way AfT is being used by donor countries like the EU is clearly a violation of the ownership principle. The principle of ownership means developing countries should exercise leadership over their development policies and strategies. And it is unclear how AfT policies respond to developing country’s development needs. Alarmingly, AfT is often used to attach politically motivated strings to aid that aim at forcing developing countries to open up their economies and comply with WTO rules and regulations.
Undermining Policy Coherence for Development. Policy coherence means ensuring coherence in overall policy for development. The problem lies in how donor countries like the EU operationalize the term “policy coherence”. In the case of EU’s trade and economic policy, achieving coherence in policy often leads to the reinforcement of neoliberal influences in determining national development policy – dismantling trade and investment barriers, liberalization of goods and services, etc. – leading to contradictory policy frameworks and policy fragmentation that undermine policy coherence.
Policy coherence for development means that policies that guide economic and development cooperation are premised on fundamental development objectives such as human rights, gender equity and sustainability enshrined in covenants that all governments signed. This principle is one of the core principles that should guide EU development policy as enshrined in the Lisbon Treaty. It should be implemented to ensure that EU trade and investment policies in the region do not undermine human rights laws, labor conventions, environmental agreements and standards and other international conventions of which it is a signatory, towards ensuring that its policies contribute to genuine sustainable development.
Change in practice needed
The EU is slowly making changes in its overseas aid policy through the ‘Agenda for Change’ to make more impact towards poverty eradication by providing development assistance that is “more strategic, targeted and results-oriented”. However, the new policy turns a blind eye to the fundamental issues besetting EU development cooperation over the past several years. The fragmentation of its aid to the region proves to be an additional burden for developing countries in terms of increased transaction costs. EU ODA remains mostly tied, and when aid is tied, the costs of development projects increases to the detriment of developing countries while the profits mostly accrue to big multinationals and businesses in the donor countries. More so, EU’s Aid for Trade undermines democratic ownership, policy coherence for development, and the principle of inclusive partnerships. Civil society and peoples’ voices are often left out in the crafting of trade and economic cooperation agreements.
There is a noticeable disconnect between what is EU development policy in principle and what it is in practice, which negatively impacts EU poverty reduction efforts in the region. ‘Who sets the agenda’ and ‘who benefits from this new agenda’ in relation to EU’s new overseas aid policy begs closer examination. The Agenda for Change, more than anything else, should ensure that gaps in the implementation of aid and development effectiveness principles are addressed if it is to make meaningful changes in the lives of the poor in Asia & the Pacific.
***This feature article is released after the recently concluded Asia & Pacific Policy Forum on Development (PFD)[ix] held in Bali, Indonesia from 3-5 October 2013.
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Notes:
[i] As explained by EU Development Commissioner Andris Piebalgs, visit http://www.euractiv.com/development-policy/agenda-change-eu-helping-hand-ge-linksdossier-518311[ii] Lisbon Treaty, Article 208[iii] Making Sense of EU Development Cooperation, Aid Watch 2012 Special Report[v] Aid We Can – Invest More in Global Development, Aid Watch Report 2012[vi] Aid Watch 2012 Special Report[viii] European Commission Regional Programming for Asia, Strategy Document 2007-2013[ix] The Policy Forum on Development (PFD): Asia Pacific Stakeholders’ Dialogue on European Development Cooperation was organized as follow-up to the Structured Dialogue (SD) for an Effective Partnership in Development process. Results from the SD process put forward recommendations that sounded off the need for the EU to support a regular, structured and inclusive multi-stakeholder dialogues at all governance levels in formulating its development policies. As development actors in their own right, CSOs, trade unions, local authorities, cooperatives, as well as the private sector, have a lot at stake and a lot to contribute in terms of influencing development policies. The PFD is an opportunity and a mechanism to conduct dialogues towards influencing the policies of the European Commission’s Development Cooperation in the region.
