EUROPEAN COMMISSION Brussels, 13.11.2017 COM(2017) 667 final COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS EMPTY Achieving Prosperity through Trade and Investment

Updating the 2007 Joint EU Strategy on Aid for Trade Updating the 2007 Joint EU Strategy on Aid for Trade



Achieving Prosperity through Trade and Investment

Updating the 2007 Joint EU Strategy on Aid for Trade 1Introduction Aid for trade is assistance provided to support partner countries' efforts to develop economic capacities and expand their trade as leverage for growth and poverty reduction. Since the World Trade Organisation (WTO) launched the concept in 2005, it has become a well-established workstream in development cooperation to support developing countries in reaping the benefits of trade. It covers a wide range of areas including trade policy-making, trade-related regulations and standards, economic infrastructure (e.g. energy, transport, telecom) and productive capacity building in export-oriented sectors such as agriculture, fisheries and manufacturing. In response to the WTO, the EU formulated its Strategy on Aid for Trade 'Enhancing EU support for trade-related needs in developing countries' in 2007 as a joint response from the EU and its Member States to help developing countries and particularly Least Developed Countries (LDCs) integrate into the rules-based global trading system and use trade more effectively to boost growth and reduce poverty. Ten years later, economic realities have evolved significantly with a rise of increasingly complex global value chains. The political context has equally changed fundamentally both globally – in particular with the 2030 Agenda for Sustainable Development – and at EU level with the Global Strategy for the EU's Foreign and Security Policy, the new European Consensus on Development, and the Trade for All Strategy. The purpose of this Communication is to update the existing Aid for Trade strategy in light of these developments. It proposes a results-driven and integrated approach to aid and investment for trade, making the most of the wide range of EU policy tools available in order to increase their overall impact on growth and poverty reduction. The focus is on creating more and better jobs and on countries in the greatest need, in particular LDCs. 2EU Aid for Trade during the last 10 years Looking back at the last ten years, the EU and its Member States have established themselves as the world's largest provider of aid for trade, supplying a third of its total global amount. Overall, the EU's aid for trade commitments increased by over 85% between 2007 and 2015, reaching EUR 96.79 billion. In 2015 alone, commitments amounted to a record EUR 13.16 billion. An important element of the aid for trade concept is the Trade Related Assistance (TRA) whose target of EUR 2 billion was achieved in 2008, two years ahead of schedule. By 2015, the annual figure had reached a substantial EUR 2.8 billion, bringing the total amount provided over the 2007-2015 period to EUR 21.5 billion. 37% of this total was allocated to African, Caribbean and Pacific (ACP) countries. Support to LDCs remained stable in absolute terms, reaching nearly EUR 18 billion over the 2007-2015 period (19% of total EU aid for trade), while decreasing in relative terms as the EU's total aid for trade expanded. On the qualitative side, the EU's Trade Related Assistance achieved significant results in most priority areas. In LDCs and fragile contexts, the assistance often managed to stabilise or even expand trade volumes. EU aid for trade has also achieved positive results through broader regional or thematic multiannual initiatives such as EU support to ACP capacities to integrate in the multilateral trading system and to prepare for Economic Partnership Agreements. At the same time, aid for trade had only limited success in promoting and diversifying trade for the poorest countries and in fragile situations. Despite substantial support and tariff free access to the EU market for almost all their products, LDCs and countries in situations of fragility have remained on the margins of the world economy. LDCs' manufacturing share of 12% in 2015 was still well below the developing countries average of 20%. LDCs' trade deficit in goods and services has massively increased between 2006 and 2015, from USD 7.3 to 104.2 billion and the LDC share of world exports in 2015 was still less than 1%, while they represent 12.8% of global population. 3A changing world economy and policy context Globalisation of economic activities is not a new phenomenon, but drivers and trends of globalisation are changing fast. One key current trend is the rise of global and regional value chains, with international production networks based increasingly on inter-firm and intra-firm trade. There is a growing importance of services in international trade and digitalisation is shaping the global economy in new ways, many of which are yet to be uncovered. A major challenge however is that many developing countries' participation in global value chains and digitalisation has continued to remain marginal. Industrialisation, productivity and diversification of many developing countries' economies remain limited as they continue to be dependent on low-wage labour, commodity exports and low-end primary production. This calls for considerable reforms and investments that official financial flows alone will not be able to meet. The policy context has also changed. The Addis Ababa Action Agenda adopted in 2015 addresses the necessary means for delivering the 2030 Agenda for Sustainable Development agreed shortly after. They emphasise the importance of international trade and private sector investment as means of implementation alongside Official Development Assistance (ODA). The 2030 Agenda, establishes the new and universal development paradigm for the years to come, based on the integration and interdependence of all 17 Sustainable Development Goals (SDGs) and 169 targets around the three dimensions of sustainable development: economic, social and environmental. The Paris Agreement on Climate Change requires structural changes to production and trading systems so that a new low-carbon and climate-resilient economy is created that can adapt to and mitigate climate change. The circular economy transition generates new innovation and economic opportunities that developing countries should further seize. This changing context is reflected in two fundamental EU policy initiatives. The first, the Global Strategy of the EU's Foreign and Security Policy, calls for a responsive and joined-up EU, by making the most of the wide range of policy instruments at its disposal, among which development and trade tools are prominent. Second, the new European Consensus on Development incorporates the 2030 Agenda paradigm shift into EU development cooperation policy. It focuses on poverty reduction in line with the principles of effective development cooperation. It calls for seeking synergies across policies; greater coordination and coherence among EU actors and instruments; and the promotion of trade and responsible investment in developing countries in support of sustainable development, following up on orientations set by the Trade, Growth and Development Communication and updated by the 2015 Trade for All communication. Two important aspects stem from this renewed policy context. First, Official Development Assistance resources should be targeted where the need is greatest, especially Least Developed Countries and in situations of fragility. Second, the focus is shifting towards using Official Development Assistance more strategically as a catalyst to mobilise other public and private financial flows, such as those under the EU's new External Investment Plan (EIP). Looking ahead, more public and private investment will become an integral part of EU support to trade and productive capacity needs.

4A coherent and impactful way forward Against the changing economic and political context, it is time to revise the EU's aid for trade. The ambition must be to support partner countries in their efforts to make progress on the SDGs and achieve sustainable prosperity through increase trade and investment. This requires the following fundamental changes compared to today's practices: I.Reduce current fragmentation and increase leverage of aid for trade through better informed and coordinated delivery. II.Scale up EU aid for trade impact by ensuring full coherence with and making the most of instruments across EU external policies, in particular the new External Investment Plan, trade agreements and trade schemes. III.Stronger focus on the social and environmental dimensions of sustainability, together with inclusive economic growth. IV.Better differentiation of countries with increased focus to Least Developed Countries and situations of fragility. V.Improved monitoring and reporting. 4.1Reducing fragmentation, increasing leverage Current spending of EU's aid for trade happens in too decentralised and fragmented manner. In 2015 for example, the EUR 13.6 billion of EU's aid for trade represented a third of EU total ODA and were channelled through some 3,000 financing decisions matching nearly 90 OECD-DAC purpose codes. This made it challenging to ensure optimal coherence and effectiveness. For this reason, it is important to better combine the vast array of development finance tools (bilateral, regional, thematic, etc.) and aid modalities (technical assistance, grants, budget support, twinning, blending, etc.) both at EU and Member State level. This should be complemented by the lending activities of international and European development finance institutions in developing countries in order to provide more integrated and sizeable responses to partner countries' trade and productive capacity needs. If the EU is to be successful in contributing significantly to the achievement of the SDGs, it must focus more on catalysing private investment. The External Investment Plan (EIP) which covers Africa and the European Neighbourhood will follow an integrated approach. It will deploy innovative risk-sharing mechanisms with a new European Fund for Sustainable Development, including a guarantee for capital mobilisation, combined with technical assistance and the improvement of investment climate reforms. In line and within the partner countries' and regions' own development strategies, synergies will be sought proactively with EU trade agreements and schemes. These have become an important driver of the EU's relationship with developing countries. They offer market access opportunities that local Small and Medium-Sized Enterprises (SMEs) are eager to seize. They provide incentives for reform that development cooperation can further build on. EU Aid for trade will thus help promote a positive implementation dynamic of the agreements from the outset, and contribute to turning them into a success. EU aid for trade will be used to enhance the development potential of other EU policies as well. Actions: ·Reinforce operational linkages across all EU development cooperation instruments and tools, including country and regional programmes and European Development Finance Institutions operations, at both EU and Member States' levels. ·Closely link EU budget support to investment climate reforms when mobilising private capital in developing countries through innovative risk-sharing mechanisms. ·Use the institutional monitoring mechanisms established by EU free trade agreements as an additional means to identify relevant aid for trade activities. ·Include in EU free trade agreement implementation plans, targeted measures to help developing partner countries make better use of the opportunities offered by EU trade agreements. ·Assess regularly the rate of preferences utilisation by partners of trade agreements and beneficiary countries of the Generalised Scheme of Preferences, and analyse the limiting factors, from both domestic supply-side and EU trade regime perspectives. Direct EU aid for trade towards better addressing such constraints and, where relevant, assess the need to take them into account in the evolution of trade measures. 4.2Increasing relevance Directing EU aid for trade more effectively requires a systematic use of available trade and investment diagnostics. An evidence-based approach will allow for a sound understanding of value chains and downstream markets to have a more informed policy dialogue with partner countries' governments, leading to enhanced design and impact of projects.

Mechanisms for genuine stakeholder engagement will be established. Structured dialogue with the private sector is needed to pinpoint reforms in the business and trading environment that facilitate investment and job creation. Civil society and social partners have a key role to play in upholding priorities such as creating jobs for the young people, economic empowerment of women, decent work and environmental standards. Research and innovation actors are instrumental in promoting investment and job creation. Within their jurisdiction, local authorities also have a strong impact on the enabling environment for business and decent work, and in the efficiency and governance of local agencies responsible for administering regulation. In addition to the guidance obtained through evidence-based and stakeholder engagement approaches, there are broader trends and issues to consider in certain fields. Value chains are a driver to help developing countries integrate better into regional and global trade. EU aid for trade will be focused more strategically in helping partner countries develop and move-up value chains. Quality infrastructure is an important area for EU aid for trade to address supply-side constraints and non-tariff barriers. It encompasses the regulatory and operational aspects of standardisation, accreditation, conformity assessment and market surveillance. Capacity building of regulators and competent authorities, food safety systems and laboratory equipment, as well as technical assistance to producers and SMEs in complying with technical regulations, private standards, food safety and sanitary and phytosanitary measures are effective enablers of trade and investment when approached in a market-driven manner. Digitalisation is an enabling factor for accessing external markets and for integration into global value chains. Digital innovation has already demonstrated its potential to offer solutions to local problems, reduce trade costs and offer new business opportunities. Technological trends help innovative SMEs enter the market. EU aid for trade will encourage investment in digital technologies and services, computerisation, e-Government and e‑commerce logistics, as well as on technical assistance for governments to establish policies and favourable frameworks to cross-border e-commerce. Trade facilitation has gained further prominence with the entry into force of the Trade Facilitation Agreement, the most significant multilateral trade deal concluded since the WTO was established in 1995. The EU and its Member States have committed to mobilising at least EUR 400 million in trade facilitation assistance over a five-year period from its entry into force, including for projects improving developing countries' customs systems. EU aid for trade will prioritise those Trade Facilitation Agreement provisions notified as category 'C'. In general, EU aid for trade will remain flexible so it can incorporate the development cooperation implications of WTO topics relating to both existing negotiations and commitments, including the Least Developed Countries services waiver, as well as to new topics as they appear. Actions: ·Identify and support value chains with potential for value addition through more systematic use of trade and investment diagnostics and market intelligence tools by EU Delegations and Member States' agencies in the field, to guide EU policy dialogue and EU aid for trade delivery. ·Conduct a genuine dialogue and engagement with the private sector in order to identify and prioritise investment climate constraints. ·Use information from EU control systems evaluating third countries exports compliance with EU standards, as a valuable source in addressing supply-side constraints, identifying areas of improvement and corrective actions where EU aid for trade can be mobilised. ·Strengthen the engagement with civil society and local authorities to better inform aid for trade delivery including through the Domestic Advisory Groups (DAG) established by new generation of EU free trade agreements, EU country roadmaps for engagement with civil society and equivalent engagement formats with local authorities, and Economic Partnership Agreements. 4.1Progress on Human Rights and Sustainable Development Gender equality is not only a fundamental human right, it is also crucial for economic development. Economies granting better opportunities for women have a higher potential for growth and competitiveness. EU aid for trade will help fulfilling the EU's renewed and expanded commitment on gender equality and, in particular, women's economic empowerment. Inclusiveness will be at the heart of EU aid for trade as a result of the EU's rights-based approach in development cooperation, which also promotes participation, non-discrimination, equality and equity, transparency and accountability. This will entail improved analysis of the impact of trade and investment initiatives on human rights. EU aid for trade will take due account of the four pillars of the Decent Work Agenda (standards and rights at work, employment creation and enterprise development, social protection and social dialogue). It will build on the broadened possibilities offered by 'new generation' EU FTAs to support labour rights and the Decent Work Agenda, through the binding social and environmental provisions contained in the Trade and Sustainable Development chapters. Environmental sustainability will also be at the heart of aid for trade. Climate finance and the green and circular economy offer developing countries leapfrogging opportunities in trade, growth and employment and will enhance societal and ecological resilience. EU aid for trade will be used to help developing countries' transition to low carbon and climate change resilient economies. Sustainability as part of companies' core strategies, promotion of fair and ethical trade and responsible business practices – including in relation to sustainable value chains – in line with the UN Guiding Principles on Business and Human Rights, will make a strong contribution towards the 2030 Agenda. Actions: ·Systematic gender analysis of every aid for trade project in order to promote women economic empowerment.