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A Critical Assessment of the EU's Trade-Related Assistance (TRA) to third countries – lessons from the past, policy options for the future

Research report

Written by Dirk Willem te Velde, Adrian Hewitt, Massimiliano Cali, Sheila Page

Research report

There is increased attention for trade-related assistance in developing countries particularly since the launch of the WTO Doha Round in 2001. In recent months, this attention has accelerated further. At the G8 Summit in Gleneagles in July 2005, Commission President Barroso pledged that the European Commission intends to increase its aid for trade to €1bn per year up from around €800m currently. There were also new pledges by other players at the WTO ministerial at Hong Kong.

This paper discusses the rationale for trade-related assistance (TRA) (support for Trade Policy and Regulation, Trade Development, Adjustment to Trade, Supply Side Measures), and the role of the EC in this. It provides an overview of EC TRA on the basis of a detailed list of individual TRA projects and attempts to do this also on the basis of the budget. The EU allocated €700m to TRA activities over the period 1996–2000 for some 120 projects. The funds increased to €835m per year, or about US$3.7bn over the period 2001–2004. There were 186 TRA projects in 2004, and a further 200 infrastructure projects. The EC provides about two fifths of all TRA (in 2005 it seems to have been the second largest spender of TRA, behind the US, which has increased its TRA faster than the EU; but Barroso’s €1bn intention would make the EC number one, as it was in 2004 on WTO data), and around one eighth of all infrastructure spending. The EC provided just 0.5% of all funds available to the multilateral trust funds, which is one of consequences of the highly geographical focus of the budget.

The paper discusses issues relating to the effectiveness and budgeting of the EC’s TRA. It suggests that the scale makes the EC particularly suitable to support infrastructure directly, while it may have to be more careful in supporting trade negotiations preparation, e.g. work more through multilateral buffers, in order to deal with the fact that the EC itself may have opposing views to the TRA recipients. TRA support would be needed in-country to design and manage trade policy, helping developing countries to own their policy, and improve supply conditions. A major shortcoming of the current way of budgeting is that it is impossible to see how budgetary decisions feed into the level and direction of TRA (with the exception of cases such as sugar-related assistance) ex ante, though visibility ex post has been enhanced by the EC (though they publish commitments not disbursements). Further issues arise in the context of supporting purely multilateral initiatives or initiatives that are being negotiated by developed and developing countries, e.g. Aid for Trade under the WTO.

Dirk Willem te Velde, Adrian Hewitt, Massimiliano Calì and Sheila Page