The European Commission has set out a renewed vision on how to help developing countries fight poverty and create more and better jobs through trade and investment.

The updated “Aid for Trade” Strategy 2017 builds on 10 years of EU Aid for Trade assistance and aims to strengthen and modernise EU support to partner countries. The new Communication adopted today sets out ways the Commission can improve and better target its aid for trade. It puts a strong focus on Least Developed Countries, and countries in situations of fragility.

Commissioner for International Cooperation and Development Neven Mimica said: “Together the European Union and its Member States are already the biggest supporters of aid for trade worldwide. We are setting out a new strategy to better respond to the complex challenges of today and increase the impact of our actions – to reduce poverty, boost sustainable economic growth and most importantly to ensure that it leaves no one behind.”

Globally the EU and its Member States are the biggest provider of Aid for Trade. In 2015 alone, EU commitments amounted to a record €13.16 billion per year.

What’s new in the Aid for Trade Strategy 2017?

The Communication proposes to:

• Better combine and coordinate tools for development finance of aid for trade, both at European and national level.

• Improve synergies with other instruments, such as EU trade agreements, trade schemes or the EU’s innovative External Investment Plan, which will support investments for sustainable development. One of the aims is to support local small and medium-sized enterprises (SMEs) in benefitting more.

• Strengthen social and environmental sustainability, together with inclusive economic growth. This will be done for example through increased stakeholder-engagement such as structured dialogue with the private sector, civil society and local authorities.

• Better target least developed and fragile countries, as well as tailoring approaches to individual countries’ specificities.

Background

The new Aid for Trade Communication builds on the 2007 Joint EU Strategy on Aid for Trade. It sets out ways in which the EU can improve the effectiveness of the 2007 Strategy, which was a joint European response to the efforts led by the World Trade Organisation (WTO).

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.

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 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.