COMMISSION STAFF WORKING DOCUMENT Trade as a driver of development
Date: 2012-01-27
Institutions: European Commission
Subjects: developing countries, economic cooperation, economic growth, generalised preferences, international trade, investment aid, least-developed country, sustainable development, trade cooperation

EUROPEAN COMMISSION 

Brussels, 27.1.2012 
SEC(2012) 87 final 

COMMISSION STAFF WORKING DOCUMENT 

Trade as a driver of development 

Accompanying the document 

COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN 
PARLIAMENT, THE COUNCIL AND THE EUROPEAN ECONOMIC AND SOCIAL 
COMMITTEE 

Trade, growth and development 

Tailoring trade and investment policy for those countries most in need 

{COM(2012) 22 final} 

 
 
 
 
  
 
 
TABLE OF CONTENTS 

1. 

INTRODUCTION....................................................................................................... 4 

2.  REVIEW OF LITERATURE...................................................................................... 4 

2.1.  A changing world economy............................................................................... 4 

2.2.  Developing countries’ integration into the world economy.............................. 6 

2.3.  Multiplication of preferential trade agreements ................................................ 7 

2.4.  Trade and inclusive growth ............................................................................... 8 

2.5.  Complementary policies and reforms to promote development...................... 10 

2.6.  Services ........................................................................................................... 11 

2.7. 

Investment ....................................................................................................... 12 

2.8.  Competition ..................................................................................................... 13 

3.  THE  POSITION  OF  DEVELOPING  COUNTRIES  IN  THE  WORLD 

ECONOMY............................................................................................................... 13 

3.1.  Per capita income has increased ...................................................................... 14 

3.2.  Developing countries, including the LDCs, are trading more......................... 17 

3.3.  South-South trade has outstripped North-South trade since 2007 .................. 19 

3.4.  Growing importance of trade in services ........................................................ 21 

3.5.  Worldwide  investment  has  increased  with  almost  half  going  to  the 

developing world ............................................................................................. 22 

3.6.  A mixed picture ............................................................................................... 24 

4.  THE EU'S GENERALISED SYSTEM OF PREFERENCES (GSP) ....................... 25 

4.1.  The EU's current GSP – since 2006 ................................................................ 25 

4.2.  The next GSP – as of 2013 .............................................................................. 26 

5.  THE EU'S NEW PREFERENTIAL RULES OF ORIGIN ....................................... 27 

6.  THE EU'S EXPORT HELPDESK ............................................................................ 29 

7.  AID FOR TRADE..................................................................................................... 29 

7.1.  EU Aid for Trade Strategy .............................................................................. 30 

7.2.  Significant progress has been made in terms of aid flows .............................. 31 

7.3.  Only a limited share of Aid for Trade is channelled to LDCs ........................ 35 

7.4.  Quality has improved but there is room for further progress .......................... 36 

7.5.  The Enhanced Integrated Framework ............................................................. 38 

8.  THE ECONOMIC PARTNERSHIP AGREEMENTS (EPAS)................................ 40 

 
 
 
8.1.  Origins of the EPAs......................................................................................... 40 

8.2.  Situation at the end of 2007............................................................................. 40 

8.3.  State of play in 2011........................................................................................ 42 

9.  BILATERAL AND REGIONAL TRADE COOPERATION OUTSIDE THE 

ACP REGION ........................................................................................................... 43 

9.1.  The Mediterranean .......................................................................................... 43 

9.2.  Eastern Neighbourhood Countries .................................................................. 45 

9.3.  China 

........................................................................................................... 46 

9.4.  South Asia ....................................................................................................... 48 

9.5.  ASEAN ........................................................................................................... 48 

9.6.  Central America............................................................................................... 49 

9.7.  MERCOSUR ................................................................................................... 50 

9.8.  Andean Community......................................................................................... 50 

10.  KEY  INSTRUMENTS  FOR  BETTER  POLICY  MAKING:  IMPACT 
ASSESSMENTS,  SUSTAINABILITY  IMPACT  ASSESSMENTS  AND 
EX-POST EVALUATIONS ..................................................................................... 51 

10.1.  Impact assessments.......................................................................................... 51 

10.2.  Ex post evaluations .......................................................................................... 52 

11.  INVESTMENT AND DEVELOPMENT ................................................................. 53 

11.1.  International rules on investments in EU trade agreements ............................ 53 

11.2.  New comprehensive EU international investment policy ............................... 53 

11.3.  EU policy on Corporate Social Responsibility................................................ 54 

12.  EU SUPPORT FOR INVESTMENT........................................................................ 55 

12.1.  EU Regional Blending Mechanisms ............................................................... 55 

12.2.  Other EU blending mechanisms...................................................................... 56 

12.3.  The role of the EIB in investments in developing countries ........................... 56 

13.  EU  SUPPORT  TO 

IMPROVING  DEVELOPING  COUNTRIES' 

RESILIENCE AND RESPONSE TO CRISES......................................................... 57 

13.1.  Forest Law Enforcement, Governance and Trade (FLEGT)........................... 58 

13.2.  European Commission proposal on mandatory disclosure requirements 

for the extractive and logging industry............................................................ 59 

13.3.  The Kimberley Process.................................................................................... 59 

13.4.  The Vulnerability Flex Mechanism (V-FLEX)............................................... 60 

14.  SUSTAINABILITY-BOUND SCHEMES ............................................................... 61 

14.1.  Fair and ethical trade ....................................................................................... 61 

14.2.  Organic production.......................................................................................... 63 
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14.3.  Other schemes ................................................................................................. 64 

15.  MULTILATERAL ASPECTS .................................................................................. 64 

15.1.  WTO accession................................................................................................ 64 

15.2.  Taking development into account in mainstream WTO work ........................ 65 

15.3.  Intellectual Property Rights and development ................................................ 66 

15.4.  Effective participation of developing countries .............................................. 68 

15.5.  The Doha Development Agenda ..................................................................... 68 

16.  CONCLUSION ......................................................................................................... 69 

3 

 
 
1. 

INTRODUCTION 

The present document is a Staff Working Paper by the European Commission and is for 
information purposes only. It does not represent an official position of the Commission 
on  the  subjects  it  addresses,  nor  does  it  anticipate  such  a  position.  It  supports  the 
European  Commission's  Communication  entitled  "Trade,  growth  and  development  – 
Tailoring trade policy for those countries most in need". 

Its  first  aim  is  to  provide  supplementary  information and analysis on the issue  of trade 
and  investment  for  development.  This  is  based  on  the  one  hand  on  a  review  of  the 
existing literature in this area and, on the other, on an analysis of developing countries' 
position in the world economy and global trading systems. 

Its second goal is to provide detailed background on the EU's instruments and initiatives 
to  support  developing  countries'  integration  into  the  world  economy  and  the  global 
trading system; notably the EU's Generalised System of Preferences (GSP) – particularly 
the Everything but Arms (EBA) scheme, the GSP+ and the Commission's proposal for a 
revamped GSP; the EU's new rules of origin; the EU's Export Helpdesk; Aid for Trade; 
the  Economic  Partnership  Agreements  (EPAs)  with  African,  Caribbean  and  Pacific 
(ACP) countries; an overview of bilateral trade cooperation with other parts of the world; 
an  overview  of  the  EU's  approach  to  investment  and  EU  investment-support 
mechanisms; and an overview of multilateral aspects. 

2.  REVIEW OF LITERATURE 

The  following  analysis  of  trade  and  investment  for  development  is  entirely  based  on 
excerpts  from  a  study  entitled  "Aspects  of  trade"  commissioned  by  the  European 
Commission,  Directorate-General  for  Development  and  Cooperation,  to  review  the 
existing  literature  in  this  area.  The  present  section  therefore  reflects  the  views, 
conclusions and suggestions expressed in the study, which do not necessarily correspond 
to  those  of  the  Commission.  The  section  focuses  on  the  following  key  issues:  it  first 
presents  the  main  trends  of  the  changing  world  economic  situation  and  focuses 
particularly  on  developing  countries’  integration  into  the  world  economy  and  the 
proliferation  of  preferential  trade  agreements;  it  goes  on  to  exploring  the  link  between 
trade  and  development;  finally,  it  looks  into  complementary  policies  with  special 
emphasis on services, investment and competition.  

2.1.  A changing world economy 

The study describes the most significant changes the world has undergone during the last 
decade: 

•  A great expansion in global trade flows has taken place over the last decades. Global 
exports of goods and services grew at a real average rate of 6.3% in the period 1980 
to  2008,  while  GDP  growth  averaged  2.9%  during  the  same  period1.  Although 
developed economies continue to dominate world markets, developing countries are 

1 UN World Economic and Social Survey, 2010. 

4 

 
 
                                                 
now new drivers of global trade: between 2000 and 2009 their exports rose by 80%, 
compared to 40% for the world as a whole2.  

•  One  of  the  most  important  developments  in world trade in the last few years  is  the 
fragmentation  of  production  of  both  goods  and  services  and  the  associated 
development  of  foreign  outsourcing  and  off-shoring3.  Agricultural  and  industrial 
production  is  increasingly  taking  place  through  largely  unregulated  global  value 
chains  dominated  by  multinationals.  Two  thirds  of  world  imports  concern 
intermediate inputs. Another factor behind the observed expansion of world trade has 
been  the  increase  in  international  outsourcing  and  off-shoring  of  services.  Trade  in 
services rose from $0.5 billion in the 1980s to an average of $2.5 billion in the 2000s. 
The  participation  of  developing  countries  in  global  services  trade  rose  from  19  to 
24% during the same period. In summary, trade patterns have moved from a country 
specialisation based on goods (primary commodities for the South and manufactures 
for the North) to intra-firm/network specialisation in terms of tasks, giving the South 
considerable advantage in the production of manufactures4.  

•  The rise of the emerging economies – such as Brazil, Russia, India, China, and South 
Africa (BRICS) – as both economic and political actors, as for instance illustrated by 
their  role  in  the  G20,  is  having  significant  and  far-reaching  impact  on  the  world 
economy.  Together,  they  account  for  over  40%  of  the  world  population  and 
approximately 17% of the value of world GDP5. The BRICS' trade performance has 
been  well  above  the  world  average  in  the  last  decade,  in  terms  of  both  exports  and 
imports.  Their  specialisation  can  in  some  cases  generate  complementary  effects;  in 
other  cases  competitive  effects  may  well  create  conflicts  of  interest  among  trade 
partners. BRICS can be a driving force for those economies that have complementary 
production and trade structures, because producers can benefit from the demand for 
their output from BRICS and they can be included in regional value chains.  

•  The  most  dramatic  event  in  this  decade  is  the  deep  recession  that  hit  the  world 
economy  during  the  2008-2009  period.  The  financial  and  economic  crisis  hit  trade 
hard. The fall was sudden and sharp: global trade fell by 23%. 

•  The  erosion  of  preferences  due  to  multilateral  tariff  reductions  is  a  long-standing 
concern for many developing countries and has become one of the key issues in the 
Doha  Development  Agenda  (DDA)  negotiations.  Developing  countries  benefiting 
from trade preferences are concerned that reductions of most-favoured nation (MFN) 
tariffs by preference-granting countries may decrease their advantages with respect to 
non-preferred  competitors  and  result  in  significant  export  losses.  Yet  studies  show 
that  losses  due  to  preference  erosion  for  developing  countries  are,  on  the  whole, 
relatively  small:  firstly,  because  preference  margins  are  rather  small  and  secondly, 
because  preferences  are  often  underused  by  developing  countries.  However,  the 
literature  also  emphasizes  that  there  are  groups  of  countries  and/or  products  for 
which this may not be the case, e.g. certain agricultural products and LDCs. 

2  World  Bank,  2011,  'Leveraging  trade  for  development  and  inclusive  growth',  the  WB  Group  Trade 
Strategy 2011-2021. 
3 WTO, 2008, 'Trade in a globalising world'. World Trade Report. 
4 UN, World Economic and Social Survey 2010. 
5 World Bank, 2010, World Development Indicators Database. 

5 

 
                                                 
•  Slow  progress  in  the  DDA  negotiations  has  spurred  developed  countries,  in 
particular,  to  pursue  bilateral  and  regional  trade  agreements.  The  proliferation  of 
preferential trade agreements (PTAs) –at both regional and bilateral level – in the last 
ten years has taken place at an unprecedented rate. It also involves a growing number 
of  developing  countries.  These  developments  have  considerable  repercussions  on 
multilateral governance, and could represent a menace to the functioning of the WTO 
system. Some trade experts take a pessimistic view of the latest explosion of PTAs, 
arguing that there is a link between the surge of bilateral and regional deals and the 
slow  pace  of  the  DDA.  Other  experts  are  more  optimistic,  suggesting  that  the 
proliferation of PTAs will eventually force the pace of the DDA negotiations. 

2.2.  Developing countries’ integration into the world economy 

According to the study, developing countries have experienced extensive and rapid trade 
liberalisation  in  the  last  few  decades,  though  there  is  room  for  further  liberalisation.  In 
this  context,  they  have  significantly  reduced  their  tariffs,  opened  their  services  sectors, 
and embraced foreign investment, either unilaterally or in bilateral trade agreements. The 
World  Bank  estimates  that  developing  nations  unilaterally  lowered  their  average  tariffs 
by 14% between 1983 and 2003 independently of GATT/WTO rounds and regional trade 
agreements (RTAs). The current level of tariffs in many developed countries is already 
relatively low, at least on industrial goods. On the contrary, high levels of protection still 
exist on agricultural goods and significantly affect many developing countries. Likewise, 
trade  in  services  is  subject  to  many  barriers.  Past  research  also  suggests  that  upper 
middle  income  countries  generally  enjoy  better  market  access  in  both  developing  and 
developed countries because their exports are skewed toward manufacturing. Conversely, 
low  income  countries  face  more  restrictive  market  access  because  their  exports  have  a 
higher content of agricultural products. Great attention is now paid to non-tariff measures 
(NTMs) because, as the level of tariffs has decreased, the relative importance of NTMs 
has increased. In addition, significant progress has been made in terms of quantifying the 
effects of NTMs, leading to a better understanding of the costs these barriers impose on 
doing business. Furthermore, there is some evidence of NTMs being used as a substitute 
for the now lower tariffs. 

The  impact  of  tariff  reductions  on  employment  depends  on  the  competitiveness  of 
domestic  producers  and  the  flexibility  of  domestic  markets,  the  study  says.  Where 
domestic  production  is  not  competitive,  imports  will  reduce  domestic  production  and 
employment. Flexibility in the labour and capital markets needs to be promoted in order 
to respond to new opportunities, and to provide adequate safety nets to protect the poor 
during the process of change. Since tariffs are often an important source of government 
revenue  in  developing  countries,  any  significant  reduction  may  affect  a  government’s 
ability to finance pro-poor expenditure such as health and education. If revenues cannot 
be sustained, alternative revenue sources must be found to replace tariff revenues. 

Whether this process of liberalisation has been associated with net gains, especially for 
developing countries, is a matter of controversy in the economic literature. While many 
countries  have  benefited  greatly  from  global  integration,  it  cannot  be  denied  that  the 
benefits  are  distributed  unequally,  both  across  countries  and  within  them.  Much  of  the 
trade dynamism of developing countries as a group is driven by Asian economies, which 
have collectively more than doubled their share of global exports since 1990. In several 
cases  – i.e.  China,  India,  and some  other Asian countries – globalisation’s promise has 
been fulfilled. High-productivity employment opportunities have expanded and structural 
change  has  contributed  to  overall  growth.  Other  regions  –  Latin  America  and  Sub-

6 

 
Saharan  Africa  –  have  seen  much  smaller  increases  in  market  share.  The  very  diverse 
outcomes observed suggest that the consequences of globalisation depend on the manner 
in which countries integrate into the global economy. 

Empirical analyses have shown that trade liberalisation can produce different outcomes. 
As a consequence of this, in the last decade more attention has been paid to the need for 
governments to ensure that citizens are able to benefit from the opportunities created by 
market openness: workers must be able to acquire the necessary skills; firms need to be 
able to access credit to finance profitable investment opportunities; and farmers need to 
be connected to markets. Accordingly, the focus of reforms in the developing world has 
moved  from  “getting  prices  right”  to  “getting  institutions  right”.  But  what  kind  of 
institutions  should  reformers  strive  to  build?  Broadly  speaking,  desirable  institutions 
should provide security of property rights, enforce contracts, stimulate entrepreneurship, 
foster integration in the world economy, maintain macroeconomic stability, manage risk-
taking by financial intermediaries, supply social insurance and safety nets, and enhance 
voice  and  accountability.  Because  developing  nations  are  different  from  developed 
countries  in  that  they  face  both  greater  challenges  and  more  constraints,  “appropriate” 
institutions could differ from those in developed countries.  

2.3.  Multiplication of preferential trade agreements 

The  study  points  out  that  the  number  of  PTAs  in  force  in  2010  was  close  to  300  and 
WTO  estimates  that  more  than  400  free  trade  agreements  (FTAs)  will  be  in  force 
globally by 20116: all WTO members (except Mongolia) belong to at least one PTA. One 
half of PTAs currently in force are not strictly “regional” in that they include countries 
from  other  geographical  areas.  It  is  widely  acknowledged  that  the  benefits  of  trade 
liberalisation  are  greatest  if  liberalisation  is  undertaken  multilaterally.  Nevertheless, 
conclusion of the current round of multilateral trade negotiations has proven elusive and 
many  countries  have  sought  more  quickly  realizable  outcomes  through  bilateral  and 
regional  FTAs.  FTAs  have  also  been  seen  by  many  as  promoting  broader  economic 
integration and serving foreign policy and strategic interests.  

Since average tariffs have fallen markedly in recent years, the study considers that tariff 
preferences are becoming a more minor motivation for entering into PTAs. In fact, PTAs 
are  increasingly  being  used  to  promote  cooperation  in  the  areas  of  investment,  trade 
facilitation,  competition  policy  and  government  procurement,  as  well  as  wider  social 
issues  related  to  the  regulation  of  the  environment  and  the  protection  of  labour  and 
human  rights.  Furthermore,  PTAs  are  becoming  increasingly  complex,  in  many  cases 
establishing  regulatory  trade  regimes  which  go  beyond  multilaterally  agreed  trade 
regulations.  Reciprocal  preferential  agreements  between  developed  and  developing 
countries  are  on  the  increase,  pointing  to  a  decreasing  reliance  by  some  developing 
countries on non-reciprocal systems of preferences. Also significant is the emergence of 
preferential agreements amongst key  developing countries which may be evidence of a 
strengthening of South-South trading patterns. 

About one half of world trade now takes place among PTA members. According to the 
WTO,  PTA  trade  in  world  trade  has  increased  from  18%  in  1990  to  35%  in  2008. 
Manufactures  represented  65%  of  merchandise  trade  among  PTA  members  in  2008. 
However,  a  deeper  analysis  shows  that  only  16%  of  world  trade  is  eligible  for 

6 WTO, World Trade Report 2011. 

7 

 
                                                 
preferential tariffs, the global trade-weighted preference margin amounts to no more than 
1%,  and  84%  of  world  merchandise  trade  still  takes  place  on  an  MFN  basis.  Hence, 
while the number of PTAs has been increasing, the importance of preferential trade has 
not  kept  pace.  This  development  reflects  a  substantial  reduction  in  MFN  tariffs  during 
the  past  two  decades,  either  through  multilateral  trade  negotiations  or  unilateral 
reductions7. 

Regarding  the  economic  impact  of  PTAs,  the  study  underlines  that  preferential  trade 
opening allows some domestic production to be replaced by imports from more efficient 
firms located in preference-receiving countries, leading to welfare gains (trade creation). 
At the same time, PTAs may reduce imports from more efficient non-member countries, 
implying a welfare loss (trade diversion). PTAs have a positive impact on welfare if trade 
creation  exceeds  trade  diversion.  In  brief,  two  countries  are  more  likely  to  sign  an 
agreement if they are geographically closer, similar in size and differ in terms of factor 
endowment. 

According to the study, developing countries have contributed to the recent rise in PTA 
activity:  South-South  agreements  now  represent  two-thirds  of  all  PTAs  in  force  and 
North-South  about  one-quarter.  The  emergence  of  South-South  integration  may  also 
reflect its usefulness as a policy tool for industrialisation by facilitating the inclusion of 
LDCs  in  regional  production  networks  and  the  export  process.  South-South  integration 
also  provides  a  means  of  strengthening  developing  countries’  bargaining  power  in 
multilateral  trade  negotiations  and  addressing  region-specific  issues,  such  as  transit, 
migration and water8. 

The  study  points  out  that  the  characteristic  feature  of  PTAs  between  developed  and 
developing  countries  is  that  they  are  underpinned  by  criteria  such  as  reciprocity  and 
comprehensive  trade  liberalisation  as  opposed  to  the  non-reciprocal  systems  of 
preferences enjoyed by developing countries under schemes like the Generalized System 
of Preferences (GSP) and other unilateral initiatives such as Everything but Arms (EBA) 
under the legal cover of waivers granted by WTO members. This confronts developing 
countries with the challenge of transition from non-reciprocal trade preferences to trade 
liberalisation on a mutual basis under reciprocal PTAs with developed country partners. 

The study concludes that the proliferation of PTAs has created a spaghetti bowl of criss-
crossing  arrangements,  with  little  attention  to  coherence  between  agreements  or  to  the 
implications  of  so  many  regimes  for  trade  costs,  efficiency,  and  the  conditions  of 
competition in global markets. The question of whether PTAs – and specifically RTAs - 
represent a WTO-plus by accelerating and extending the liberalisation process on a non-
discriminatory basis, or whether they are likely to weaken the WTO by bypassing it, is 
still open. Although liberalisation through RTAs is generally a second-best option, it may 
be the only option if there is resistance to liberalisation at the multilateral level.  

2.4.  Trade and inclusive growth 

The  study  recalls  that  poverty  eradication  is  the  central  focus  for  development:  the 
Millennium  Development  Goals  (MDGs)  commit  the  international  community  not  only  to 
halving poverty by 2015, but also to promoting a more open, rule-based trading system, with 
the  latter  goal  viewed  as  reinforcing  the  former  one.  The  role  of  international  trade  in 

7 WTO, World Trade Report 2011 
8 WTO, World Trade Report 2011. 

8 

 
                                                 
relation to poverty reduction has been highlighted in many studies. However, empirical 
evidence is not conclusive.  

According  to  theory,  international  trade  helps  raise  and  sustain  growth  by  giving  firms 
and  households  access  to  world  markets  for  goods,  services  and  knowledge,  lowering 
prices,  increasing  the  quality  and  variety  of  consumption  goods,  and  fostering  the 
specialisation  of  economic  activity  into  areas  where  countries  have  a  comparative 
advantage.  Trade  opportunities  are  important  too  for  generating  the  investment  and 
positive  externalities  that  are  associated  with  learning  through  the  diffusion  and 
absorption  of  technology.  As  a  result,  many  developing  countries  have  embarked  on 
programmes of external economic liberalisation in recent decades. 

The  effect  of  greater  trade  openness  on  income  growth  is  the  topic  of  a  large  body  of 
applied  research.  A  first  wave  of  studies  in  the  1990s  was  not  able  to  demonstrate  the 
direction  of  causality  between  the  phenomena  under  investigation,  with  the  result  that 
inclusive  growth  and  development  can  be  the  consequences  of  trade  liberalisation  and 
integration into the world economy, rather than a prerequisite for it. Another possibility 
is that both phenomena are caused by a third factor - such as the quality of institutions. A 
second wave of empirical studies was more cautious in quantifying the actual impacts of 
multilateral trade policies on growth. Yet the lack of consensus on empirical evidence on 
the link between openness and poverty dynamics has recently led to new case studies. 

There is no simple general conclusion about the relationship between trade liberalisation 
and poverty, the study says. While there are, in principle, many causes for optimism in 
the relationship between trade liberalisation and poverty reduction, the ultimate outcome 
depends  on  many  factors,  such  as  the  precise  trade  reform  measures  undertaken,  the 
characteristics  of  the  poor  and  local  institutions,  which  determine  the  price  effects  of 
liberalisation, notably the transmission of border price changes to local levels and homes. 

Developing  countries  are  not  a  homogeneous  group.  A  comparative  analysis  of  the 
linkages  between  trade,  development  and  poverty  reduction  in  15  African  and  Asian 
countries9  derives  the  following  key  factors:  i)  economic  growth  remains  the  most 
significant  pre-requisite  for  poverty  reduction;  ii)  economic  growth  “per  se”  is  not 
always sufficient to stimulate poverty reduction, while the character and distribution of 
growth plays a major role in determining the extent of poverty reduction; iii) agriculture 
remains  a  key  activity  for  a  majority  of  the  poor;  iv)  poor  business  climates  (e.g.  poor 
infrastructure,  excessive  red  tape,  corruption,  an  inefficient  financial  sector,  weak 
institutions,  etc.)  hamper  growth  and  poverty  reduction;  v)  the  countries  that  have 
benefited the most are those that have carried out selective and gradual liberalisation and 
have  continued  to  provide  state  support  to  a  number  of  key  economic  sectors;  vi) 
institutions play a key role in creating and sustaining economic growth and ensuring that 
benefits  are  spread  as  widely  as  possible;  and  vii)  global  competition,  especially  with 
developed countries, has led to the decline of many sectors. 

2.5.  Complementary policies and reforms to promote development 

When trade reform has been implemented in an unstable macroeconomic framework or 
without any effort being made to strengthen trade-related domestic institutions or without 
appropriate  complementary  policies,  it  has  often  either  been  reversed  or  has  failed  to 

9  The  15  countries  under  investigation  are:  Bangladesh,  China,  Cambodia,  India,  Kenya,  Nepal, 
Netherlands, Pakistan, Sri Lanka, South Africa, Tanzania, Uganda, UK, Vietnam, Zambia. 

9 

 
                                                 
stimulate growth, the study says. Determining the appropriate trade policy stance and the 
associated  complementary  policies  for  a  country  should  consequently  be  part  of 
designing growth policy and development and poverty-reduction strategies: 

• 

Institutions: On the government side, an effective and non-corrupt authority is critical 
to the success of reforms. 

•  Macroeconomic  and  exchange  rate  policies:  A  stable  macroeconomic  environment 
and a truly competitive exchange rate are crucial in order that trade liberalisation is 
sustained and can contribute to an efficient allocation of resources.  

•  Competition policies: By lowering external barriers to international competition and 
by reducing government-imposed barriers to entry by domestic firms, it is possible to 
increase  the  competitiveness  of  markets.  Competition  among  private  firms  is  also 
important.  

• 

Infrastructure:  Improving  the  quality  of  infrastructure  is  of  primary  importance  for 
developing countries. Infrastructure plays a key role in LDCs' performance, e.g. road 
density, the telecommunication infrastructure, electricity infrastructure, etc. 

•  Safety  nets:  One  of  the  most  important  complementary  policies  for  the  poor  is  an 
efficient  social  safety  net.  All  trade  policy  reforms  need  to  consider  the  potential 
hardships faced by the poor in activities that are opened up to foreign competition. It 
is  preferable  to  employ  general,  country-wide  safety  nets  to  deal  with  problems 
linked to trade reform, rather than to establish distinct trade-related safety nets. 

•  Foreign  direct  investment  (FDI)  and  intellectual  property  protection:  FDI  is  an 
important  channel  of  technology  transfer  across  national  boundaries.  Hence,  it  is 
important  that  FDI  involves  labour-intensive  production  and  the  transfer  of  skills 
through  training.  Improvements  in  communications,  transport,  and  information 
technology,  together  with  trade  liberalisation,  have  led  companies  to  locate  the 
labour-intensive  parts  of  production  in  developing  countries.  Effective  intellectual 
property  regimes  can  promote  FDI  and  technology  transfer  in  sectors  that 
substantially rely on intellectual property rights (IPRs). 

•  Establishing business: If trade liberalisation opens up business opportunities in new 
areas,  new  businesses  are  likely  to  be  required.  Regulations  for  establishing  these 
activities should thus not be restrictive. 

The  type  and  speed  of  reforms  to  accompany  trade  liberalisation  process  is  also  an 
important  issue.  According  to  the  study,  two  main  strands  of  literature  are  available, 
opposing  proponents  of  “shock  therapy”  and  those  of  “gradualism”,  particularly  in  the 
1990s. Shock therapists argued that rapid liberalisation avoids painful and costly periods, 
when the old centrally planned economy was no longer working and the new market one 
was not yet working. They advocated a policy package consisting of rapid and extensive 
privatisation of state-owned enterprise, liberalisation of prices and trade, and adoption of 
fiscal  austerity  policies.  Gradualists  called  instead  for  a  more  cautious  approach  to 
reforms, and objected to the elimination of the old regulations and institutions before the 
new  ones  are  created,  warning  that  the  institutional  vacuum  could  have  a  devastating 
impact on output.  

10 

 
The  study  adds  that  the  success  of  trade  reform  policies  is  also  dependent  on  timing. 
Determining  the  appropriate  pace  of  reform  can  have  both  political  and  financial 
implications. For example, rapid implementation removes distortions quickly, providing 
clear  price  signals  to  facilitate  further  adjustment,  but  at  higher  short  term  cost  than  a 
gradualist approach. A gradual approach gives the government more time to explain the 
reforms to its citizens, as reforms can be perceived as threatening.  

Trade  liberalisation  policies  in  developing  countries  often  occur  in  conjunction  with 
other  macroeconomic  reforms,  the  study  says.  The  sequencing  of  reforms  refers  to  the 
order  in  which  these  macroeconomic  reforms  are  introduced,  both  across  sectors  and 
within them. While most observers believe that there are substantial welfare gains to be 
reaped  by  giving  freer  play  to  market  forces,  many  have  concluded  that  there  are 
problems  inherent  to  the  transition  process  itself  that  argue  against  liberalizing  all 
markets simultaneously. 

2.6. 

Services 

The  study  emphasises  that  modern  economies  are  increasingly  dominated  by  services, 
and  that  with  growth  and  development,  services  form  an  increasing  share  of  overall 
production  and  employment.  Over  the  last  three  decades,  services  have  grown  from 
roughly 58% of GDP to almost 75% across the OECD10 . But the sector is also important 
for developing countries. In Latin America, for example, services accounted for 66% of 
value added in 2007, up from 49% in 1977. Similar trends can be seen in other regions. 
Even  in  sub-Saharan  Africa,  there  has  been  a  marked  shift  in  value  added  toward  the 
service sectors.  

Increasing  evidence  suggest  that  services  play  a  crucial  role  in  productivity  growth  in 
general and that services liberalisation is a major potential source of gains in economic 
performance. At the same time, trade in services may lead to off-shoring and may place 
pressure  on  wages  in  high-income  countries,  though  the  empirical  research  has  not  yet 
produced unequivocal conclusions on off-shoring of labour.  

Empirical  research  also  point  to  positive  linkages  in  developing  countries  between 
service  sector  openness  and  growth.  Research  into  the  impact  of  changes  in  services 
policy on economic performance over the period 1990-2004 for a sample of 20 transition 
economies  found  that  changes  in  policies  towards  financial  and  infrastructure  services, 
including  telecommunications,  energy  and  transport,  are  highly  correlated  with  inward 
FDI.  They  conclude  that  services  policy  reform  explains  the  post-1990  economic 
performance of transition economies. Given that developing countries tend to have more 
restrictions  on  foreign  competition,  there  is  a  significant  potential  growth  bonus  for 
developing countries that move from closed regimes toward open regimes. 

According  to  the  study,  liberalisation  of  the  services  sector  entails  the  reduction  or 
elimination  of  prohibitions,  quantitative  restrictions,  and  regulations  that  prohibit  FDI, 
limiting the share of ownership of foreign firms, limiting the number of expatriates that 
can be employed, or restricting imports of a particular service. The potential implications 
of  trade  liberalisation  in  services  are  closely  tied  to  the  mode  of  liberalisation  and  to 
underlying market structures. In fact, while both privatisation and more competition lead 
to  significant  improvements  in  performance,  a  comprehensive  reform  programme 

10 François, J., and Hoekman, B., 2010, 'Services trade and policy', Journal of Economic Literature, Vol.48, 
pp. 642-92. 

11 

 
                                                 
produces the largest gains. The sequence of reform also matters. Consequently, opening 
services  markets  involves  a  broad  and  complex  set  of  policies,  regulatory  instruments, 
institutions and constituencies, domestic and foreign, public and private.  

Experience demonstrates that the nature, pace and sequencing of regulatory reform and 
liberalisation  undertakings  must  be  carefully  assessed.  Some  specific  regulatory  tools 
might  be  useful  in  this  regard.  Prior  consultation  can  contribute  to  the  development  of 
better regulation, providing more information on all the available options. Insights gained 
through prior investigation of the experiences of other countries could also be useful in 
designing and sequencing domestic reforms. However, such regulatory tools also imply 
significant  administrative  costs.  The  study  also  points  out  that  trade  agreements  may 
deprive regulators of the ability to achieve social objectives. The challenge would be to 
achieve  a  balance  between  greater  competition  and  preserving  desirable  regulatory 
freedom. 

The complexity of service sector reform, and the critical need for liberalisation efforts to 
be  not  only  rooted  but  also  accompanied,  and  in  some  instances  preceded,  by  sound 
regulation  (including  enforcement  capacity)  can  present  formidable  challenges  to 
developing  countries,  the  study  concludes.  This  points  to  the  need  for  services 
liberalisation to be progressive, and to be accompanied by regulatory capacity building. 

2.7. 

Investment 

The study notes that neoclassical theory predicts a positive relationship between capital 
inflows  and  growth.  Therefore,  the  theory  generally  favours  open  or  liberalised  capital 
markets,  with  the  expectation  of  more  efficient  allocation  of  savings,  increased 
possibilities  for  diversification  of  investment  risk,  faster  growth  and  the  dampening  of 
business  cycles.  The  new  structural  economics  approach  considers  that  FDI  is  a  more 
favourable  source  of  foreign  capital  for  developing  countries  than  other  capital  flows 
because it is usually targeted toward industries consistent with a country’s comparative 
advantage. It is less prone to sudden reversals during economic crises. In addition, FDI 
generally  brings  technology,  management,  access  to  markets,  and  social  networking, 
which are often lacking in developing countries and are crucial for industrial upgrading. 
Thus,  liberalising  FDI  investment  is  considered  an  attractive  component  of  a  broader 
development strategy.  

According  to  the  study,  while  there  is  little  evidence  of  a  clear  relationship  between 
capital  inflows  and  growth,  FDI  is  believed  to  be  one  of  the  most  important  channels 
through which financial globalisation benefits the economy. Since the mid-1980s, most 
developing  countries  have  opened  their  markets  to  FDI,  trying  to  benefit  from  the 
development input that these investments can generate for host countries. The process of 
opening  up  to  FDI  and  establishing  enabling  frameworks  for  FDI  vastly  accelerated 
during the 1990s and continues today.  

FDI  flows  into  host  countries  are  determined  by  a  variety  of  factors,  the  study  says. 
Firms  choose  the  investment  site  that  minimizes  the  cost  of  production.  Determinants 
include the physical and technological infrastructure of the host country, and the cost and 
quality of resources, together with inputs and business facilitation measures, such as FDI 
promotion, including incentives to foreign investors. The riskiness of investment in terms 
of  the  economic  and  political  environment  also  affects  investment  decisions.  In  this 
respect,  greater  macroeconomic  and  political  stability  of  the  host  country  could  attract 

12 

 
more  foreign  investment.  Host  country  institutions  also  influence  investment  decisions 
because they directly affect the conditions in which businesses operate. 

The  OECD  identified  ten  broad  policy  areas  where  host  country  policies  affect 
investment  decisions:  investment  policy,  investment  promotion  and  facilitation,  trade 
policy,  competition  policy,  tax  policy,  corporate  governance,  policies  for  promoting 
responsible  business  conduct,  human  resource  development  policy,  policies  related  to 
infrastructure and financial sector development, and public governance11. 

The study concludes that one primary condition for attracting FDI is the adoption of an 
investment liberalisation policy. A key challenge for governments consists in identifying 
and  eliminating  unwanted  barriers  to  entry.  However,  FDI  liberalisation  is  a  necessary 
but not a sufficient host country determinant of investment, and other determinants have 
to come into play if investment is to flow into a country. If a host country does not have 
some  basic  economic  determinants  in  place  it  is  unlikely  that  promotional  efforts  or 
incentives will be successful in attracting significant FDI.  

2.8.  Competition 

The  study  points  out  that  competition  policy  is  the  combined  effect  of  all  government 
policies  that  influence  the  level  of  competition  as  a  positive  tool  regulating  the  market 
economy,  including  measures  against  restrictive  business  practices  and  unfair  business 
practices. An important objective of competition policy is to enhance consumer welfare 
by  promoting  competition.  Economic  efficiency  is  generally  enhanced  by  encouraging 
competition.  

According to the study, one of the key links between competition policy and growth has 
been the role that competition policy plays in increasing economic efficiency: the main 
static  effects  of  competition  are  to  reduce  the  ability  of  firms  to  raise  price  above 
marginal  cost  and  to  ensure  that  firms  produce  at  the  lowest  costs;  the  dynamic 
consequences of competition can include incentives to innovate, to imitate, and to invest 
in  the  development  of  new  technologies  and  know-how.  However,  a  key  aspect  of 
achieving  a  successful  reform  process  is  the  promotion  of  consistency  and  coherence 
between competition, industrial, trade, and investment policy regimes. Thus, policies to 
promote and protect competition are now prominent on the national policy agendas of a 
number of emerging economies, e.g. China, Vietnam and India. 

3.  THE POSITION OF DEVELOPING COUNTRIES IN THE WORLD ECONOMY 

While  Least  Developed  Countries  (LDCs)  as  a  category  are  distinctly  defined  by  the 
United  Nations  (UN)12,  there  is  no  established  convention  for  the  designation  of 
"developed" and "developing" countries. In common practice, Japan in Asia, Canada and 
the USA in Northern America, Australia and New Zealand in Oceania, and Europe are 
considered  "developed"  regions  or  areas.  The  World  Bank  classifies  low  income 

11 OECD, 2006, 'A policy framework for investment: Investment promotion and facilitation'. 
12 Currently, Gross national income per capita, Human Asset Index and an Economic Vulnerability Index 
are used to classify countries as least developed. In addition, low income countries with population larger 
than 75 million inhabitants do not qualify for inclusion in the group of least developed countries (LDCs). 
For more information, see http://www.unohrlls.org/en/ldc/related/59/.  

13 

 
 
                                                 
countries ($1,005 per capita or less) and lower-middle-income countries ($1,006 - $3,975 
per capita) as developing countries (calculated using the World Bank Atlas method), but 
acknowledges  that  this  does  not  imply  that  all  economies  in  these  groups  are 
experiencing similar levels of development13. 

The  present  analysis  is  based  on  the  EU's  definition  of  developing  countries  in  the 
current Generalised System of Preferences (GSP) regulation and defines the group of 176 
countries eligible for the GSP as "developing"14. In this group, a further differentiation is 
established  between  G20  developing  countries15  and  the  LDCs.16  The  need  for 
differentiation was highlighted in the Commission's on-line public consultation on trade 
and  development  carried  out  between  June  and  September  201117.  Respondents  agreed 
that emerging economies are no longer developing countries, though also noting that they 
may still face particular constraints that need to be taken into account.  

The  rest  of  the  section  briefly  describes  the  evolution  of  developing  countries  over  the 
past  decade  in  terms  of  changes  in  per  capita  income  and  poverty;  their  trade 
performance,  including  trade  in  services  and  changes  in  flows  and  stocks  of  foreign 
direct investment. 

3.1. 

Per capita income has increased 

Figure  1  shows  the  change  in  developing  countries'  gross  domestic  product  (GDP)  per 
capita  over  the  past  decade.  Most  of the  increase in per capita income  is  driven  by  the 
G20  developing  countries.  The  cumulative  increase  in  their  GDP  per  capita  over  the 
period stands at 115%. The relative increase in GDP per capita was largest for China at 
223%  and  Russia  at  310%.  This  positive  trend  seems  to  continue.  In  its  twice-yearly 
update,18  the  World  Bank  forecasts  that  developing economies would grow  by  6.3% in 
2011, down from 7.3% in 2010, and maintain 2011 growth levels for the next two years. 

LDCs  have  benefited  somewhat  less.  The  increase  in  per  capita  income  of  the  LDCs 
reached 88% over the period. The gap between developing countries and LDCs has thus 
further  increased.  However,  some  LDCs  have  seen  a  more  positive  development  than 
others especially due to a boom in exports of oil and minerals. Between the beginning of 
the  decade  and  mid-2008,  the  total  volume  of  exports  from  the  LDCs  almost  doubled, 
with  African  LDCs  leading  this  expansion.  Hence,  while  GDP  per  capita  for  African 
LDCs grew from $357 to $640 between 2000 and 2008, the increase was limited to $280 
to $436 for non-oil exporters but soared from $806 to $1,854 for oil exporters (Angola, 

and 

countries 

countries) 

developing 

13 In contrast to the World Bank, the UN distinguishes between countries with high human development 
(developed 
(cf. 
http://hdr.undp.org/en/media/HDR_2010_EN_Chapter2_reprint.pdf).  This  is,  however,  not  an  established 
convention and is therefore not pursued here. 
14 The definition of Developing Countries for the purpose of GSP is different from and much broader than 
the OECD/DAC list of recipients of Official Development Assistance (ODA). The OECD list, even though 
it  does not contain a definition of developing countries as such, is significant because only assistance to 
those countries, including the categories of LDCs, LICs, Lower MICs and Upper MICs qualifies as ODA 
and thus counts towards the target of 0.7%/GNI that the EU has committed to achieve by 2015. 
15  The  G20  is  an  economic  forum  consisting  of  20  of  the  world's  largest  economies,  including  the 
European Union. Its developing country members are: Argentina, Brazil, China, India, Indonesia, Mexico, 
Russia, Saudi Arabia, South Africa, and Turkey. 
16 Currently 48 countries are recognized as being least developed, see http://www.unohrlls.org/en/ldc/25/ 
17 For more information see http://trade.ec.europa.eu/consultations/?consul_id=156 
18 Global Economic Prospects, 2011. 

14 

 
                                                 
Chad, Equatorial Guinea, Sudan)19. This compares to an increase of $327 to $624 for all 
LDCs over the period and $1,288 to $3,165 for all developing countries. 

Figure 1:  

Developing countries' evolution of GDP per capita (€ thousand, current prices) 

3.5

3

2.5

2

1.5

1

0.5

0

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Dev G20

LDCs

Developing World

Source: IMF  

Poverty has decreased, but unevenly across countries and regions 

The increase in GDP per capita has been accompanied by a reduction in absolute poverty 
between 1990 and 2005.20 The number of people living on less than $1.25 a day dropped 
from  about  1.8  billion  in  1990  to  1.4  billion  in  2005.  The  corresponding  poverty  rate 
dropped  from  46  %  to  27  %.  Despite  the  economic  and  financial  crisis  in  2008/2009, 
exacerbated  by  the  food  and  energy  crisis,  sustained  growth  in  developing  countries, 
particularly in Asia, is keeping the world on track to reach the poverty-reduction MDG 
target of halving the proportion of people living in extreme poverty.21  

for 

See 

19 UN Secretary General Report on "Ten-Year Appraisal and Review of the Implementation of the Brussels 
Programme  of  Action 
the  decade  2001-2010". 
the  Least-Developed  Countries 
http://www.un.org/wcm/webdav/site/ldc/shared/documents/Ten-Year%20appraisal.pdf 
20 Data is patchy and there exists no comprehensive data on poverty ratios across countries later than 2005.  
21 
6-8 
(http://mdgs.un.org/unsd/mdg/Resources/Static/Products/Progress2011/11-
31339%20%28E%29%20MDG%20Report%202011_Book%20LR.pdf.).  Based  on  projections  from  the 
World Bank, it is now expected that by 2015 the global poverty rate will fall below 15 %, well under the 
23 % target. Projections for sub-Saharan Africa forecast that the extreme poverty rate in the region will fall 
below  36%.  Still,  there  are  hardly  any  figures  on  poverty  reduction  in  a  country  such  as  India  (five 
observations since 1960s out of which only two since 1989).  

Report 

MDG 

2011, 

UN 

for 

p. 

15 

 
 
                                                 
Using  the  $1.25  a  day  poverty  line  reveals  a  reduction  in  absolute  poverty  for  a  set  of 
selected  countries  and  country  groups  (Figure  2),  including  remarkable  reductions  in 
absolute poverty in Asia, notably in China and Indonesia where poverty was cut by more 
than half between 1990 and 2005. In relative terms, poverty has also fallen markedly in 
Argentina and Brazil, while in sub-Saharan Africa absolute poverty did not decrease to 
the same extent.22 

Figure 2:  

Headcount poverty ratio, $1.25 poverty line (%) 

70

60

50

40

30

20

10

0

Argentina

Brazil

China

India

Indonesia Mexico

SSA

low &
middle
income

1990

2002

2005

Source: World Bank, POVCAL and the OECD Development Centre. Note: Data is not available for 2000 
or for later than 2005 for a cross country comparison. Data for India is note available for 2002. 

However,  the  $1.25  poverty  line  is  a  very  crude  measure  of  poverty  and  does  not 
necessarily reflect human development. Poverty is a multidimensional phenomenon and 
is characterised not only by income, but also by access to health services, education etc. 
A poverty indicator that seeks to take into account several dimensions of poverty is the 
Human  Development  Index  (HDI).  This  indicator  (Figure  3)  points  to  a  significant 
increase  in  development  for  all  selected  countries  over  the  past  20  years.  The  only 
exception  is  Sub-Saharan-Africa  which  saw  its  HDI  decline  between  1990  and  2000 
before  increasing  to  a  higher  level  in  2010.  In  this  respect,  it  is  significant  that  the 
African LDCs that experienced the highest GDP per capita growth over the last decade 
remain at the lower end of the HDI with a respective ranking out of 169 countries of 119 
for Equatorial Guinea, 146 for Angola, 156 for Sudan and 163 for Chad23. 

Trade  policy  reform  has  both  direct  and  indirect  effects  on  the  poor.  In  terms  of  direct 
effects,  trade  policy  reform  may  affect  the  demand  for  poor  people's  labour  and  other 
assets  they  own  and  thus  have  an  impact  on  their  income.  It  also  changes  the  price  of 

22 Data for the LDCs is missing. 
23 See htt.44p://hdr.undp.org/en/ 

16 

 
 
                                                 
what they consume. The indirect effects are more long-term and operate through changes 
in  incentives  to  invest  and  innovate  which  will  improve  the  prospects  for  higher 
economic growth in the future.  

Figure 3:  

Change in human development index (1 is developed) 

0.9

0.8

0.7

0.6

0.5

0.4

0.3

0.2

0.1

0

Argentina

Brazil

China

1990

India

2000

Indonesia Mexico

SSA

2010

Source: UNDP, POVCAL and the OECD Development Centre. 

But the poverty impacts of a trade policy change will vary significantly across countries. 
The poor in different countries consume and produce different goods and are not subject 
to the same set of regulatory regimes, infrastructure, market structure, etc. Therefore, the 
impact of trade reform will be channelled through different transmission mechanisms in 
each country and influence individuals and households differently. Hence, the answer to 
whether  the  poor  will  benefit  or  not  from  global  reforms  is  specific  to  countries  and 
individuals.  

3.2.  Developing countries, including the LDCs, are trading more  

Figure 4 shows that developing countries' trade steadily increased from the beginning of 
the period until it dipped in 2009 due to the financial crisis. Developing countries were 
particularly affected by the crisis because of falling commodity prices, reduced exports 
and  tourism  earnings  and  declining  capital  flows  and  remittances.  The  crisis  caused  a 
drop in the value and volume of trade for almost all developing countries.  

Trade of the ten developing G20 countries makes up a significant share of the developing 
world's exports (about a third). Among the G20 countries, the largest increases in exports 
are  accounted  for  by  China  and  India  (increasing  exports  by  307%  and  214% 
respectively). In contrast, Mexico's exports increased by a mere 37%. 

The relative increase in LDCs' exports between 2002 and 2010 (not clearly discernable in 
Figure  4)  is  larger  (198%)  than  the  increase  in  exports  of  the  developing  world  as  a 
whole, which reaches 150%. However, in contrast to the rest of the developing world, the 
LDCs remain net-importers. 

17 

 
 
Figure 4:  

Developing countries' trade performance (€ billion, current prices) 

5000

4500

4000

3500

3000

2500

2000

1500

1000

500

0

2002

2003

2004

2005

2006

2007

2008

2009

2010

Dev G20 Imports

Dev G20 Exports

Developing World Imports

Developing World Exports

LDC Imports

LDC Exports

Source: IMF  

A fair share of the increase in developing countries' exports is made up of mineral fuels 
which  have  experienced  a  boom  in  prices.  This  has  benefited  in  particular  Kuwait, 
Russia,  the  United  Arab  Emirates,  and  Saudi  Arabia24.  The  surge  in  commodity  prices 
over  the  period  is  therefore  one  reason  for  the  successful  trade  performance  of 
developing  countries.  On  the  other  hand,  the  growth  in  Chinese  exports  comes  from 
manufactures, more specifically machinery and transport equipment. 

Other  main  exports  of  developing  countries  are  electrical  machinery  (HS85)  and 
machinery  and  mechanical  appliances  (HS84)  making  up  18%  and  11%  of  developing 
countries total exports, respectively. But the largest increases in exports concern products 
traded  in  relatively  small  quantities  such  as  copper  (HS74),  which  increased  by  352% 
over the period. 

Reflecting  the  above,  developing  countries  have  increased  their  share  of  world  exports 
over  the  period  examined.  The  figure  for  developing  countries  as  a  whole  points  to  an 
increase  in  the  share  of  world  exports  from  41.0%  to  51.5%,  while  the  share  of  world 
exports  of  the  developing  G20  countries  increased  from  20%  to  30%.  The  LDCs 
increased their share of world exports from 0.8% to 1.3% (Table 1). 

Table 1:  

Share in world exports (%): 

Developing countries 

G20 developing countries 

2002 
41.0 
20.5 

2010 
51.5 
29.7 

24 Increasing exports in mineral fuels by 277%, 252%, 198%, and 183% respectively. 

18 

 
 
                                                 
LDCs 

EU27 
USA 
Japan 
Rest of the World 
Source: IMF 

0.8 
17.4 
15.6 
9.1 
16.9 

1.3 
15.3 
10.6 
6.6 
16.0 

The developing countries' increasing share of world exports is also reflected in a larger 
share  of  exports  of  manufactured  goods  exported,  in  particular  from  China.  Exports  of 
manufactured  goods  might  have  increased  even  more  and  export  diversification  might 
have progressed even further had the prices of mineral fuels not surged so substantially. 

However,  in  case  of  the  LDCs,  dependence  on  a  few  export  products,  particularly 
primary  commodities,  increased  during  the  past  decade.  In  fact,  the  increase  in  LDC 
exports is concentrated in a subset of countries and one may note that LDCs' dependence 
on  a  few  export  products,  particularly  primary  commodities,  has  increased  during  the 
past  decade.  Chad  increased  its  exports  by  2980%25,  while  Zambia,  Angola,  and 
Equatorial Guinea increased their exports by 429%, 378% and 238% respectively. This 
increase  is  mainly  due  to  the  increase  in  the  global  demand  for  oil  (Chad,  Angola  and 
Equatorial  Guinea)  and  raw  materials  (copper  in  the  case  of  Zambia)  and  high 
commodity prices.  

On  average,  three  main  export  products  make  up  more  than  75%  of  all  their  exports, 
while in eight LDCs this proportion is higher than 95%. The overall increase in export 
concentration  has  been  essentially  due  to  trends  in  African  LDCs,  particularly  the  oil 
exporters  among  them.  At  the  same  time,  the share of manufacturing in GDP  has  been 
stagnant  thereby  making  it  difficult  to  talk  about  a  structural  transformation  in  LDCs. 
Still, some progress has been recorded by Asian LDCs, driven by their specialisation in 
low technology manufactures, primarily textiles, for instance Bangladesh and Cambodia.  

3.3. 

South-South trade has outstripped North-South trade since 2007 

Trade  between  developing  countries  (South-South  trade)  is  growing  in  importance.  In 
2007,  South-South  trade  was  for  the  first  time  more  important  than  trade  between 
advanced  and  developing  economies  (Figure  5).  G20  developing  countries  account  for 
most  of  this  increase,  as  trade  between  the  developing  world  and  G20  developing 
countries (including trade among the G20 developing countries themselves) increased by 
265%.  

EU27  trade  with  developing  economies  increased  more  (97%)  than  total  North-South 
trade  (69%),  while  the  increase  in  United  States'  trade  with  developing  countries  was 
lower at 36%. Trade between Africa, excluding intra-African trade, and the developing 
world as a whole, increased by 234% (not displayed in the graph). However, with 3.5% 
of  the  total,  Africa  still  makes  up  only  a  small  share  of  trade  among  developing 
economies. 

The EU accounts for about 16% of the LDCs' trade and is their second most important 
trading partner after China with a share of close to 22% of LDC trade. In 2009, the EU 
was  the  world's  leading  importer  of  LDCs'  agricultural  products  with  32%  of  the  total 
(compared  to  15.6%  for  India  and  11.6%  for  China)  and  of  LDCs'  textile  and  clothing 

25 Starting from a relatively low export value of €65 million in 2002.  

19 

 
                                                 
products with 51% of the total (compared to 32% for the USA). However, with 13% of 
fuel exports from LDCs, the EU comes after China (34%) and the USA (23%). 

Figure 5:  

Overview  of  developing  countries'  trade  (import  and  export)  by  main  partners  
(€ billion, current prices) 

5000

4500

4000

3500

3000

2500

2000

1500

1000

500

0

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

South-South Trade

North-South Trade

United States

G20 Dev

EU27

Japan

Source: IMF.  
Note: South-South trade denotes trade between developing countries.  

Trade barriers between developing countries are still much higher than barriers between 
developed  and  developing  countries.  Kowalski  and  Sheperd  (2006)26  found  that  tariff 
barriers  facing  South-South  trade  are  almost  three  times  higher  than  North-South  or 
North-North  trade  barriers.  Hence,  there  is  potentially  more  scope  to  further  increase 
South-South trade through tariff liberalisation compared to North-South Trade. Regional 
integration  can  be  decisive  in  this  respect,  but  one  should  note  that  the  form  regional 
integration takes may differ from one region to another.  

The  relative  importance  of  non-tariff  barriers  (NTBs)  is  increasing  as  regular  tariff 
barriers are gradually being lowered. Some developing countries have made significant 
progress  in  reducing  these  barriers,  which  hinders  not  only  trade  but  business  activity 
more  generally.  According  to  the  World  Bank's  and  the  International  Finance 
Corporation's "Doing Business Indicators", reforms making it easier to do business were 
implemented  in  36  of  46  in  Sub-Saharan  African  economies  in  2010/2011.  In  terms  of 
the  overall  ranking  of  183  countries,  Mauritius  is  in  23rd  place  ahead  of  several  EU 
member  states.  Rwanda,  an  LDC  which  is  in  45th  place,  has  made  significant  progress 
over the past five years in terms of complying with export formalities (time halved) and 
streamlining  the  time  required  to  register  a  company  (time  reduced  by  83%).  Also 
neighbouring Burundi and Uganda show progress in this respect.  

26  Kowalski,  P.  and  B.  Shepherd  (2006),  “South-South  Trade  In  Goods”,  OECD  Trade  Policy  Working 
Papers, No. 40, OECD Publishing. http://dx.doi.org/10.1787/314103237622 

20 

 
 
                                                 
3.4.  Growing importance of trade in services 

Trade  in  services  has  become  more  important  over  the  last  decade,  partly  because 
technological  progress  in  information  and  communication  technology  has  allowed  a 
rising  share  of  intermediate  services  in  total  trade.  Consequently,  worldwide  trade  in 
services now makes up nearly 12% of GDP (Figure 6). The worldwide share of services 
trade  in  GDP  grew  by  48%  between  1980  and  2009.  This  especially  concerned  India 
whose  share  of  services  in  GDP  increased  from  some  3%  to  more  than  12%  over  the 
period. Low- and middle income countries as well as LDCs also increased their share of 
services trade in GDP, albeit less dramatically than India. The same holds true for the EU 
and other high-income OECD countries. In contrast, the relative importance of trade in 
services  of  the  Latin  American  and  Caribbean  countries  (not  shown  in  the  graph) 
declined. 

Figure 6:  

Trade in services (% share of GDP) 

20

18

16

14

12

10

8

6

4

2

0

World

High
income:
OECD

European
Union

Middle
income

Low
income

Least
developed
countries

China

India

1980

1990

2000

2009

Source: IMF 

Disaggregated  data  on  trade  in  services  is  still  patchy,  but  it  is  more  recent  and 
comprehensive than the poverty data. The data indicates that LDCs27 on average import 
more commercial services than they export (not shown in Figure 6). They mostly import 
transportation  services  and  export  travel  services  (53.3%),  transportation  services 
(23.5%) and other commercial services, which include transactions such as construction, 
computer and information, and other business services (23.2%)28. However, these figures 
mask  great  heterogeneity  amongst  LDCs.  While  the  share  of  commercial  services  is 

27  Based  on  WTO  data  for  Bangladesh,  Benin,  Cambodia,  Ethiopia,  Senegal,  and  Tanzania 
(http://stat.wto.org/ServiceProfile/WSDBServicePFHome.aspx?Language=E ). 
28  2007  WTO  Report  on  "Market  access  for  products  and  services  of  export  interest  to  LDCs 
(http://www.mdg-trade.org/WTCOMTDLDCW41_english.pdf). 

21 

 
 
                                                 
insignificant in oil-exporting African LDCs, it is important in other LDCs (e.g. 49% in 
Ethiopia,  where  the  bulk  of  services  is  related  to  transportation),  or  even  prominent  in 
many small island developing countries that have an important tourism sector (e.g. 90% 
for Samoa). 

Liberalisation  of  trade  in  services  can  be  an  important  part  of  a  developing  country's 
growth strategy and could especially benefit those low-income and LDCs which have so 
far not succeeded in reaping the full benefits of trade. The potential development impact 
of  service  liberalisation  is  significant  and  estimated  welfare  benefits  for  service 
liberalisation are higher than for goods and agriculture liberalisation.29  

To  a  certain  extent,  however,  the  effects  of  trade  liberalisation  in  services  can  be 
achieved through internal liberalisation of services. This conclusion may be drawn from 
a  study  carried  out  by  the  World  Bank  (WB)  of  four  major  road  transport  corridors  in 
Africa  that  cut  across  borders  and  ship  goods  to  the  ports.  In  all  the  four  transport 
corridors,  the  pure  vehicle  operating  costs  along  these  major  corridors  were  no  higher 
than in France. Profit margins were by contrast exceptionally high, particularly in Central 
and  West  Africa,  where  they  reach  60  to  160%.30  The  underlying  cause  is  limited 
competition  combined  with  a  highly  regulated  market.  Competition  in  the  trucking 
industry could thus lower costs dramatically. Rwanda deregulated the trucking industry 
and transport prices fell 75%.31 

3.5.  Worldwide  investment  has  increased  with  almost  half  going  to  the 

developing world 

Worldwide  foreign  direct  investment  (FDI)  inflows  decreased  over  the  last  decade  in 
Euro terms (while it increased in dollar terms) and suffered a further blow in 2009 due to 
the  financial  crisis  (Figure  7).  On  the  other  hand,  FDI  flows  into  developing  countries 
increased  by  54%  between  2000  and  2008.  Moreover,  FDI  inflows  into  developing 
countries  suffered  less  from  the  financial  crisis,  indicating  more  stable  investment 
prospects. Worldwide FDI flows decreased by 44% between 2008 and 2009 while FDI 
inflows into developing countries decreased by a mere 36%.  

FDI  inflows  into  developing  countries  are  now  nearly  as  large  as  inflows  into  the  EU, 
USA, and Japan together. In 2009, FDI inflows into developing countries equalled €343 
billion,  while  FDI  inflows  into  the  EU,  USA  and  Japan  equalled  €361  billion.  While 
developed countries on average invest more abroad than they receive, the contrary holds 
true for developing countries. 

Figure 7:  

FDI inflows by destination (€ billion, current prices) 

29 M. Cali, K. Ellis, D. te Velde (2008), "The contribution of services to development and the role of trade 
liberalisation and regulation.", ODI Working Paper 298. 
30  Vivien  Foster  and  Cecilia  Briceño-Garmendia  (eds)  (2010),  Africa’s  Infrastructure:  A  Time  for 
Transformation, The International Bank for Reconstruction and Development / The World Bank. 
31 
for  Africa 
http://www.theafricareport.com/archives2/interviews/3296754-interview-shanta-devarajan-world-bank-
chief-economist-for-africa.html  

Interview  with  Shanta  Devarajan,  World  Bank 

economist 

chief 

at 

22 

 
                                                 
1800

1600

1400

1200

1000

800

600

400

200

0

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

World

Dev G20

LDCs

Developing World

Source: UNCTAD 

FDI inflows into G20 developing countries increased by 118% between 2000 and 2009, 
largely due to growth in Saudi-Arabia, Russia, and Turkey. However, the increase of FDI 
into  the  South-American  countries  (Argentina,  Brazil  and  Mexico)  was  below  average. 
FDI  inflows  in  LDCs  witnessed  an  exponential  growth  from  €5  billion  in  2000  to  €21 
billion in 2009 (390% growth). Most of the inflows were directed to natural resource-rich 
African LDCs, though a number of island LDCs also received growing inflows of FDI.  

FDI  from  emerging  economies  in  LDCs,  especially  from  China  and  India,  is  now 
growing faster than from traditional partners. There has, for instance, been a significant 
increase in infrastructure investments from Asian countries in Sub-Saharan Africa. Intra-
African  FDI,  70%  of  which  originates  from  South  Africa,  is  smaller  in  scale  and  is 
directed more to services and manufactures, rather than to natural resources32. 

The  trend  in  FDI  flows  is  reflected  in  FDI  stocks  with  the  total  amount  of  foreign 
investment increasing. This development is to a large extent attributable to an increase in 
the FDI stock of developing countries as the world stock of FDI increased by 31% and 
reached some €12,500 billion in 2009 (not shown in  Figure 8), while the stock of FDI in 
developing countries increased by 53% to about €3,500 billion.  

In the group of developing countries, the developing G20 countries experienced a growth 
in FDI stocks of 75% attaining a level of foreign investment of €3,000 billion. The least 

32 UN Secretary General Report on "Ten-Year Appraisal and Review of the Implementation of the Brussels 
Programme 
the  decade  2001-2010". 
the  Least-Developed  Countries 
http://www.un.org/wcm/webdav/site/ldc/shared/documents/Ten-Year%20appraisal.pdf 

fo  Action 

for 

for 

23 

 
 
                                                 
developed  countries  also  increased  their  FDI  stocks  above  average  growing  from  €42 
billion to €94 billion (82% growth). 

Figure 8:  

FDI stocks by destination (€ billion, current prices) 

4000

3500

3000

2500

2000

1500

1000

500

0

1

2

3

4

5

6

7

8

9

10

  Developing World

LDCs

DevG20

Source: UNCTAD 

3.6.  A mixed picture 

To conclude the above analysis, it is clear that the benefits of growth and trade remain 
unequally  spread  across  developing  countries.  Developing  G20  countries  remain  the 
main beneficiaries of globalisation. Some of them managed to capitalise on high export-
led growth so as to achieve significant poverty reduction.  

However,  despite  apparently  impressive  figures  overall,  the  situation  of  LDCs  has  not 
improved  significantly  in  the  last  decade.  Where  GDP  per  capita  and  trade  has  grown 
significantly, this has been in most cases led by a surge in oil and commodities exports in 
a very limited number of countries, and the benefits have overall not resulted in lifting 
people out of poverty. This is largely due to structural factors, such as an insufficiently 
diversified  economies  and  export  bases,  poor  infrastructure  and  the  lack  of  productive 
capacity, but also political factors linked to lack of good governance, poor administrative 
capacity  and  lack  of  security  and  stability.  This  is  particularly  the  case  in  Sub-Saharan 
Africa, which is home to most LDCs, while some more positive trends can however be 
witnessed in Asia and the Pacific. 

Nevertheless,  some  non-oil/commodity  exporting  Sub-Saharan  African  countries  have 
done  well  over  the  past  decade.  Partly  as  a  result  of  a  coordinated  government 
programme to stimulate and improve exports of agricultural products, such as coffee, and 
to attract tourism, Rwanda has experienced an average annual increase in exports of 19% 

24 

 
 
over  the  last  decade33.  This  performance  is  also  reflected  in  high  rates  of  economic 
growth and a steady improvement in its human development index. Another example is 
Cape Verde which reached middle-income country status in 2007, the success of which 
can  primarily  be  explained  by  good  macroeconomic  management  and  governance 
including progressive trade openness and integration into the world economy.  

4.  THE EU'S GENERALISED SYSTEM OF PREFERENCES (GSP) 

In  1968,  the  United  Nations  Conference  on  Trade  and  Development  (UNCTAD) 
recommended  the  creation  of  a  'Generalised  System  of  Tariff  Preferences'  under  which 
developed  countries  would  grant  trade  preferences  to  all  developing  countries.  The  EU 
was the first to implement a Generalised System of Preferences (GSP) scheme in 1971 in 
order to extend preferential access to its markets to developing countries.  

4.1.  The EU's current GSP – since 2006 

The EU's GSP is the most widely used of all developed-country GSP systems. In 2009, 
EU  imports  under  the  GSP  totalled  €  59.6  billi on.  The  GSP  scheme  is  implemented  in 
10-year  cycles  so  that  it  can  adjust  to  the  changing  environment  of  the  multilateral 
trading  system.  For  this  purpose  the  Commission  adopts  guidelines  on  the  role  of  the 
GSP for a 10-year period. 

The  1994  guidelines34  for  the  10-year  period  1994-2005  and  their  implementing 
regulations  introduced  a  number  of  important  changes  in  the  GSP  such  as  tariff 
modulation according to product sensitivity, graduation and special incentive schemes. In 
2001, a special arrangement for LDCs was introduced, for an unlimited period of time: 
the  Everything  but  Arms  (EBA)  arrangement,  which  provides  duty-free,  quota-free 
access for all products from all LDCs except arms. 

In  2004,  the  Commission  adopted  guidelines  for  the  following  10-year  period  2006-
201535. One of the objectives for this period was simplification of the scheme, which has 
been  achieved  through  a  reduction  in  the  number  of  arrangements,  from  five  to  three. 
Thus as of 2006 GSP schemes consist of:  

i. 

ii. 

The general arrangement, which provides autonomous preferences to all developing 
countries and territories;  

The  Special  Incentive  Arrangement  for  Sustainable  Development  and  Good 
Governance,  known  as  the  GSP+,  which  offers  additional  tariff  preferences 
references  to  support  vulnerable  developing  countries  in  their  ratification  and 
effective implementation of relevant international conventions relating to sustainable 
development.  These  include  basic  human  rights  (agreements  designed  to  uphold 
political  and  economic  and  social  rights,  combat  torture  and  discrimination  on 
grounds  of  race  and  gender,  and  protect  women’s  and  children’s  rights)  and  labour 
rights (the ILO eight fundamental conventions related to the freedom of association 
and  the  right  to  collective  bargaining,  equal  treatment,  as  well  as  elimination  of 

33 WTO (2011), Market access for products and services of export interest to least-developed countries, Note 

by the secretariat, WT/COMTD/LDC/W/51. 
34 COM(1994) 212 final. 
35 COM(2004) 461 final. 

25 

 
 
                                                 
forced  labour  and  child  labour).  They  also  cover  environmental  protection  (e.g. 
conventions designed to combat trafficking in endangered species and to protect the 
ozone  layer)  and  the  various  conventions  relating  to  the  fight  against  illegal  drugs 
production and trafficking);  

iii. 

EBA,  which  maintains  its  global  coverage  of  everything  but  arms.  Several  positive 
mentions  of  the  GSP  were  made  in  the  Commission's  on-line  public  consultation, 
particularly on GSP+ and EBA.  

The  present  10-year  cycle,  which  began  in  2006,  will  finish  in  2015.  The  first  GSP 
scheme  of  the  present  cycle,  established  by  Council  Regulation  (EC)  No  980/200536, 
entered into force on 1 January 2006 and expired on 31 December 2008. To ensure the 
continuity  of  the  GSP  scheme,  a  new  Regulation  covering  the  period  from  1  January 
2009  to  31  December  2011  was  adopted  by  the  Council  on  22  July  2008  (Council 
Regulation (EC) No 732/2008), replacing Regulation (EC) No 980/2005. It extends for a 
further three years the three separate arrangements of the scheme. At the same time, this 
regulation implemented a number of technical changes in the scheme, either to simplify 
the  language  or  to  take  account  of  changes  in  relevant  trade  data  over  the  most  recent 
period. In addition, for countries which did not yet meet the GSP+ qualifying criteria, the 
new regulation provided an additional opportunity to apply for the additional preferences 
in mid-2010. 

4.2.  The next GSP – as of 2013 

In view of the approaching expiry of the present 10-year GSP cycle and the preparation 
of  the  successor  GSP  scheme,  the  Commission  undertook  a  major  evaluation  of  the 
effectiveness of the GSP scheme. This was conducted for the Commission by the Centre 
for  the  Analysis  of  Regional  Integration  at  Sussex  (CARIS)37.  In  parallel  public 
consultations  were  carried  out  with  Member  States  and  other  stakeholders,  including 
civil  society,  industry,  beneficiary  countries,  the  European  Parliament  and  WTO 
members38.  

In  general,  the  consultations  underlined  the  importance  of  the  scheme  for  its  users. 
Almost  all  respondents  agreed  that  the  scheme  was  a  valid  trade  instrument  for 
developing  countries.  Respondents  from  different  beneficiary  countries  confirmed  that 
the  scheme  had  played  an  important  role  in  the  expansion  and  diversification  of  their 
trade  sector.  However,  about  half  of  the  respondents,  representing  different  types  of 
stakeholders,  stressed  the  need  for  modifications  covering:  stronger  control  and 
verification  of  requirements  to  ensure  that  preferences  go  to  countries  in  need;  support 
for investment in developing countries; competitiveness of EU industries; and focus on 
abolishing  restrictions  in  international  trade  and  lowering  custom  duties  and  other 
barriers.  

The  analysis  undertaken  by  CARIS  concluded  that  the  scheme  has  been  generally 
successful. Imports benefiting from preferences were significant and amounted to almost 
€60  billion  in  2009.  This  corresponds  to  over  9%  of  total  EU  imports  from  all 
beneficiaries. This percentage varies across categories of beneficiaries with preferential 

36See http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2008:211:0001:0039:EN:PDF 
37 CARIS report: http://trade.ec.europa.eu/doclib/docs/2010/may/tradoc_146196.pdf 
38 Public consultation report: http://trade.ec.europa.eu/consultations/?consul_id=142 

26 

 
                                                 
imports  accounting  for  8%  of  total  imports  from  GSP  countries,  20%  of  total  imports 
from  GSP+  countries,  and  32%  of  total  imports  from  EBA  beneficiaries.  The  general 
attractiveness of the scheme is also underlined by a relatively high level of utilisation of 
the  available  preferences,  but  with  room  for  further  improvement,  of  53%  for  GSP 
countries, 69% for EBA countries and 85% for GSP+ countries. 

With respect to the special incentive arrangement for sustainable development and good 
governance, CARIS concluded that the GSP+ arrangement had had a positive impact on 
the  ratification  of  GSP+  related  conventions.  However,  the  instrument  was  not  fully 
equipped  to  clearly  monitor  progress  in  the  effective  implementation  of  the  relevant 
conventions,  although  some  GSP+  beneficiary  countries  had  undertaken  substantial 
reforms. 

Based  on  the  CARIS  analysis  and  the  results  of  public  consultations,  the  Commission 
carried out a thorough impact assessment39. On 10 May 2011, the Commission adopted 
its  proposal  for  the  new  GSP  Regulation40.  The  Regulation  will  apply  as  of  1  January 
2014.  The  Regulation,  after  approval  by  the  Council  and  the  EP,  will  be  published  six 
months  in  advance  of  the  date  of  application.  The  main  objectives  of  the  proposed 
Regulation are to: (i) better focus on those countries most in need; (ii) further promote 
core principles of sustainable development and good governance; and (iii) enhance legal 
certainty, predictability and stability. 

5.  THE EU'S NEW PREFERENTIAL RULES OF ORIGIN 

In respect of the EU's 2002 commitment to “pay particular attention to LDCs and other 
low income countries”, a key achievement was the adoption, at the end of 2010, of the 
new preferential rules of origin which have been applicable within the framework of the 
GSP since 1 January 2011. This adoption concluded a process of consultation initiated in 
2003  and  designed  to  address  criticism  regarding  the  previous  rules,  considered  too 
stringent  to  allow  developing  countries  to  really  benefit  from  the  preferential  market 
access offered by the EU. A correlation was indeed proven between the stringency of the 
rules  of  origin  and  the  utilisation  rates  of  the  tariff  preferences.  In  addition,  product-
specific  rules  were  considered  too  complicated.  Lastly,  compliance  was  considered  too 
costly and burdensome, both for exporters and administrations. 

The new rules are simpler and easier to comply with. They offer extended possibilities of 
sourcing  through  flexible  product  specific  rules  and  new  opportunities  of  cumulation. 
Regional cumulation is maintained and enhanced. In addition, the system of derogations 
from the rules of origin has been made easier to apply for. Last, a procedure is introduced 
allowing the EU to rapidly grant derogations on its own initiative, in order to be able to 
respond more quickly to any special situation which may occur, such as natural disasters. 

A specific effort was made to assist LDCs, which benefit from further flexibilities. For 
the first time, the EU has introduced differentiation for the benefit of LDCs at the level of 
applicable GSP rules of origin. For example, for most industrial products, the threshold 

39 Impact assessment:  
http://ec.europa.eu/governance/impact/ia_carried_out/docs/ia_2011/sec_2011_0536_en.pdf 
40 Proposal for a new GSP Regulation: http://trade.ec.europa.eu/doclib/docs/2011/may/tradoc_147893.pdf 

27 

 
 
                                                 
of valued added requested in the LDCs is only 30% (as against 50% for non-LDC). For 
textile and clothing, single transformation has been granted without quotas.  

Trade and natural disasters 

The  increasing  costs  of  natural  disasters  have  led  to  growing  interest  in  their  impact  on  trade. 
Direct  potential  effects  include  casualties  but  also  physical  damages  to  infrastructure  and 
disruptions  of  supply  chains,  international  trade  and  economic  activity.  The  Commission  has 
contributed  to  the  reflection  on  this  issue  through  the  organisation  of  an  internal  seminar  on 
'Natural  disasters  in  poor  and  vulnerable  countries'  on  25  May  2011.  On  this  occasion, 
participants  discussed  methodologies  for  assessing  disaster  risk  and  impact,  as  well  as  the 
strengthening  of  vulnerability  indicators  by  including  trade-related  measures,  and  criteria  for 
eligibility for trade support. This was followed by a Commission in-house econometric analysis 
which suggests that, on average, exports of developing countries with a population of up to 20 
million fall by 22% after a major natural disaster, with the negative effect on export performance 
lasting about three years. 

This new set of rule is more operator-friendly. From 2017, for example, exporters will no 
longer  have  to  go  to  the  authorities  for  a  certificate  of  origin  'Form  A'  for  each 
consignment.  Instead,  they  would  register  with  authorities  (who  would  remain 
responsible  for  controls)  and  once  registered,  issue  statements  of  origin  themselves 
directly to their customers in the EU.  

This set of rules is – or will be – used as a point of reference during ongoing and future 
FTA negotiations.  

Within  the  framework  of  EPA  negotiations,  the  EU  has  proposed  a  far-reaching 
initiative, allowing greatly extended possibilities of cumulation. Under Cotonou, all ACP 
countries  were  allowed  to  cumulate  materials  with  each  other,  but  when  the  Cotonou 
agreement,  ended,  cumulation  between  EPA  partners  and  other  ACP  countries  was 
possible only when the applicable rules of origin were the same, so in practice, for some 
products, only within the same EPA. This condition prevents cumulation between ACP 
countries  which  have  signed  different  EPAs,  and  between  EPA  countries  and  ACP 
countries that have not signed an EPA. With the new proposal, EPA partners would be 
allowed  to  cumulate  materials  coming  from  any  country  in  the  world,  as  long  as  these 
materials are entitled to enter the EU duty free quota free (DFQF), either because there is 
a  0%  duty  in  the  EU's  conventional  custom  tariff  or  a  0%  GSP  preferential  duty.  In 
addition,  cumulation  would  also  be  possible,  upon  request,  for  industrial  products 
entering the EU DFQF under an FTA. It is expected that the increase of foreign sourcing 
allowed  by  these  new  cumulation  opportunities  could  result  in  an  increase  of  EU 
preferential  imports  from  EPA  countries  of  between  2.9%  and  7.2%  (with  foreign 
sourcing increasing respectively by 10% and 25%). About 45% of the increase in EPA 
exports is estimated to be in agricultural products and 55% in industrial products. 

28 

 
 
 
 
6.  THE EU'S EXPORT HELPDESK 

In  2004,  the  Commission  launched  the  Export  Helpdesk  as  a  flanking  measure  to  the 
preferential trade arrangements granted by the EU to developing countries41. It is a free 
online service providing information for economic operators in developing countries on 
the  conditions  of  access  to  the  EU  market.  This  website  provides  detailed  information 
product-by-product and country-by-country  on EU import requirements (SPS, technical 
regulations, labelling rules, etc.), internal taxes, import tariffs and import measures, rules 
of origin, customs procedures and trade statistics. 

Since  its  inception  in  2004,  the  Export  Helpdesk  has  been  available  in  4  languages 
(English,  French,  Spanish  and  Portuguese)  so  as  to  reach  as  many  users  in  developing 
countries  as  possible.  In  order  to  further  assist  exporters  in  countries  in  the 
neighbourhood region, the website was extended in 2010 to include Arabic and Russian. 

In  2010  the  Export  Helpdesk  counted  over  1,750,000  hits  worldwide  indicating  its 
usefulness  for  economic  operators  around  the  world.  The  largest  category  of  user 
countries is in Latin America, followed by Asia.  

The Export Helpdesk also offers a Contact section allowing users to submit all kinds of 
questions related to access to the EU market. The Contact section receives an average of 
60 questions per month, with more than 50% of them coming from companies.  

Feedback  received  from  users  indicates  that  after  7  years  of  operation,  the  Export 
Helpdesk has clearly established itself as a unique one-stop-shop for all those who wish 
to know more about the conditions of access to the EU market.  

Today  the  Export  Helpdesk  is  increasingly  seen  as  a  template  to  be  copied  by  other 
regions, e.g. in the context of a new trade facilitation mechanism now being developed 
for the Euro-Mediterranean area.  

7.  AID FOR TRADE 

Many  developing  countries,  particularly  the  LDCs,  face  difficulties  in  their  efforts  to 
adapt  to  a  fast  changing  world  where  trade  is  becoming  increasingly  competitive  and 
global,  and  integration  into  global  supply  and  value  chains  is  a  necessity.  Constraints 
exist at domestic level, notably in LDCs, including limited productive capacities, limited 
access  to  state  of  the  art  technologies,  a  weak  private  sector,  and  lack  of  institutional 
capacities (notably of national administrations). This in turn poses challenges in terms of 
the  design  or  implementation  of  trade  and  accompanying  policies  and  in  trade 
negotiations, as well as in meeting technical and SPS requirements.  

In line with the fundamental principles of national ownership and leadership, the bulk of 
efforts rests on developing countries themselves. However, the international community 
also recognises the role of Aid for Trade (AfT) in contributing to establishing the right 
conditions at national and regional level to help developing countries integrate into the 
global  trading  system.  On  this  basis,  the  EU  has  been  a  long-standing  proponent  and 

41 See http://exporthelp.europa.eu/thdapp/index_en.html 

29 

 
 
                                                 
leading  provider  of  AfT.  The  Commission's  on-line  public  consultation  on  trade  and 
the  need  for 
development  confirmed 
mainstreaming  trade  into  developing  countries'  national  and  regional  development 
strategies, demand-driven programmes, and ownership. 

importance  of  AfT  and  highlighted 

the 

7.1.  EU Aid for Trade Strategy 

EU Commitments 

The 2007 EU Aid for Trade Strategy pursues the following objectives:  

-   Increase Aid for Trade as part of the gradual increase in the EU's overall ODA. 

-   Implement  the  commitment  by  EU  Member  States  and  the  European  Commission  to 
collectively  spend  €2  billion  annually  on  Trad e-Related  Assistance  by  2010,  including  €1 
billion from Member States and €1 billion from the Commission. In the range of 50% of the 
collective increase would be available to ACP needs. 

-   Enhance the pro-poor focus and the quality of EU Aid for Trade. 

-   Increase  EU-wide  and  Member  States'  capacity  in  line  with  the  globally  agreed  aid 

effectiveness principles. 

-   Build upon, foster and support regional integration processes through Aid for Trade, including 

within the ACP countries. 

-   Support effective Aid for Trade monitoring and reporting. 

AfT gained considerable momentum in the last decade in terms of both AfT volumes and 
the  concept  of  AfT  itself,  now  firmly  anchored  in  the  global  trade  and  development 
landscape. The EU played a major role in stimulating the debate on AfT and its inclusion 
in  the  WTO  Hong  Kong  Ministerial  Declaration  in  2005.  The  EU  has  also  been  a 
frontrunner in prioritising AfT, notably through the adoption by the EU and its Member 
States  on  15  October  2007  of  a  joint  AfT  Strategy.  Its  aim  was  to  support  developing 
countries, particularly LDCs, to better integrate them into the rules-based world trading 
system and to use trade more effectively towards the overarching objective of eradicating 
poverty  in  the  context  of  sustainable  development.  It  provides  for  a  dual  and 
complementary focus on more resources to AfT and a greater impact of AfT. 

The  EU  Strategy  addresses  supply  side  constraints  related  to  productive  capacity, 
economic  infrastructure  and  trade  related  adjustments, so that developing countries can 
benefit fully from open trade. More specifically, the EU Strategy embraces the full AfT 
agenda,  which  can  be  divided  into  six  categories:  (1)  trade  policy  and  regulations;  (2) 
trade development; (3) trade-related infrastructure; (4) building productive capacity; (5) 
trade-related  adjustment;  and  (6)  other  trade-related  needs,  notably  regional  trade 
integration. Categories 1, 2 and 6 correspond to more narrowly focused ‘Trade-Related 
Assistance’ (TRA). TRA plus the remaining categories are referred to as ‘the wider Aid 
for Trade agenda’, designed to benefit trade in a broader sense. The OECD/DAC tracks 
ODA in each of the AfT categories through its Creditor Reporting System (CRS). 

As with all EU aid, EU AfT is delivered in accordance with the principles of the 2005 
Paris  Declaration  on  Aid  Effectiveness  and  the  2008  Accra  Agenda  for  Action,  which 
notably  entails  alignment,  harmonisation,  predictability,  mutual  accountability  and 

30 

 
 
 
transparency,  policy  dialogue,  needs  assessments,  results-orientation,  inclusion  of 
priorities  into  national  and  regional  development  strategies  (such  as  Poverty  Reduction 
Strategy  Papers),  and  formulation  of  response  strategies  on  this  basis.  This  is  the  only 
way to ensure national ownership, coherent programmes and sustainability. In addition to 
and  consistent  with  the  joint  AfT  Strategy,  several  EU  Member  States  have  adopted 
specific AfT strategies in line with their national development policies. 

In the G20 context, the EU committed to at least maintaining, beyond 2011, AfT levels 
that reflect the average of the last three years (2006 to 2008), as well as to strengthening 
the  role  of  South-South  trade  cooperation  and  reinforce  the  involvement  of  the  private 
sector, while sustaining aid flows to other sectors. The EU also committed to engaging 
fully  in  the  ongoing  processes  of  relevant  institutions,  in  particular  the  WTO,  OECD, 
World Bank and other multilateral and regional development bodies, to monitoring these 
commitments and evaluating their impact on low income countries' capacity to trade.  

7.2. 

Significant progress has been made in terms of aid flows 

The EU and its Member States have made continued progress in AfT and have fully met 
their commitment to provide €2 billion annua lly as TRA. The 2010 EU AfT Monitoring 
Report  showed  some  extraordinary  collective  progress,  and  this  year's  AfT  Monitoring 
Report42 confirms that this was not an isolated result.  

•  Collective EU AfT amounts are significant and continue growing, AfT reached €10.5 
billion in 2009, up from €10.3 billion in 2008, €7.1 billion in 2007 and €6.5 billion in 
2005  (Figure  9).  The  AfT  concept  has  widened  over  the  years  to  include  more 
general support for infrastructure and productive sectors, whereas the original scope 
of AfT did not stretch far beyond TRA, i.e. assisting beneficiaries to formulate and 
implement  trade  policies.  While  the  2010  report  indicated  an  all-time  high  of 
collective EU AfT commitments in 2008, the latest data for 2009 show that this high 
level was sustained. The 2009 commitments increased slightly (+3%) and reached a 
billion  from  EU  Member  States  and 
total  of  almost  €10.5  billion,  including  €7.15 
€3.35 billion from the  EU  (European Commi ssion). Collectively, the EU accounted 
for  about  37%  of  total  AfT  from  the  world’s  bilateral  and  multilateral  donors  in 
2008-2009 and is the largest provider of AfT. This is a substantial increase compared 
to 2004-2005, when the EU's collective share was 30% of the total. 

•  AfT as a whole has remained a priority in development cooperation for the EU and 
its  Member  States.  Measured  as  a  share  of  total  Official  Development  Assistance 
(ODA), AfT represented about a fifth of total ODA from the EU in the period 2005-
2009. The share of Aft in total EU ODA increased to 22% in 2009.  

Figure 9: Collective EU Aid for Trade(EU and EU Member States) in million Euro 

42  The  "Aid  for  Trade  monitoring  report  2011"  is  part  of  the  Communication  on  "Enhancing  EU 
Accountability  on  Financing  for  Development  towards  the  EU  Official  Development  Assistance  Peer 
Review" (vol. IV) COM(2011) 218 final of 19.04.2011.  

31 

 
                                                 
12.000 

10.000 

8.000 

6.000 

10.256  10.482 

7.538 

7.120 

3.056 

3.345 

6.501 

4.599 

5.154 

5.210 

5.272 

4.770 

2.117 

2.563 

2.436 

4.000 

1.277 

1.741 

2.036 

1.903 

1.444 

7.200 

7.137 

3.322 

3.413 

3.175 

3.369 

3.327 

4.384 

4.975 

4.685 

2.000 

-

2000

2001 

2002

2003

2004

2005

2006

2007

2008

2009

Source: OECD CRS Database, Doha Development Database, Monterrey Questionnaire 2011 

EU MS

EU

Grand Total

Sustainable trade project boosts exports of Uganda's organic products: 

Favourable  climatic  conditions  and  an  enabling  business  environment  have  made  Uganda  a 
leading  African  producer  and  exporter  of  organic  products.  A  Danish-funded  project  has 
contributed  to  consolidating  this  trend.  African  Organic,  a  certified  Ugandan  organic  and  fair 
trade producer, and Danish wholesale company Solhjulet, have set up a partnership with a view 
to  increasing  sales  of  organic  fruits  and  vegetables  in  Europe  that  meet  EU  organic  standards. 
The Danida Business to Business Programme started funding the partnership in 2006, providing 
around €400,000 worth of support. The supply chai n and the African Organic business are now 
self-sustaining  and  enjoying  growth  –  with  exports  amounting  to  around  €1.3  million  a  year  – 
and a diversification of the products shipped to Solhjulet. African Organic, a farm to the north of 
Kampala,  works  with  over  150  smaller  farmers  as  suppliers.  The  placement  of  products  in 
premium markets means that farmers and their workers are paid a higher price. They have also 
received training in organic farming methods. 

•  The EU and its Member States have fully met and even surpassed their commitment 
of providing €2 billion in TRA annually by 2010 . The EU's collective total in these 
essential subcategories of overall AfT reached almost €3 billion in 2009, well above 
the  target  (Figure  10).  Last  year's  monitoring  report  showed  that  the  EU  and  its 
Member States had already met and exceeded their collective TRA target with €2.4 
billion  worth  of  support  in  2008.  TRA  supports  developing  countries  in  designing 
and implementing trade policies and agreements, stimulating trade by domestic firms 
and encouraging investment in trade-oriented industries. The increase is mainly due 
to an increase in EU Member States' TRA, from €1.36 billion in 2008 to €2 billion in 
2009.  The  strong  increase  of  Member  State  support  in  2009  is  a  result  of  a  near 
doubling  of  contributions  to  Category  2  "Trade  development"  which  represented 
close  to  90%  of  total  Member  States'  TRA  commitments  in  2009.  In  contrast,  the 
EU's TRA was almost evenly split over the TRA categories in 2008 and 2009. 

•  Disbursement levels were particularly high, with almost 80% of total collective EU 

AfT commitments being translated into disbursements in 2009 in. 

Figure 10: Collective EU Trade Related Assistance (EU and EU Member States) in million Euro  

32 

 
 
3.500 

3.000 

2.500 

2.000 

1.500 

1.000 

500 

-

2.964 

2.366 

911 

1.874 

1.579 

1.007 

867 

592 

276 

954 

566 

388 

1.215 

1.110 

1.168 

733 

482 

811 

299 

695 

473 

1.032 

902 

677 

841 

2.052 

1.359 

2001

2002

2003

2004

2005

2006

2007

2008

2009

EU Member States

EU

Grand Total

Source: OECD CRS Database, Doha Development Database and EU Monterrey Questionnaire 2011 

Public-private partnership for sustainable production and trade in Côte d'Ivoire: 

Cocoa  is  the  backbone  of  the  economy  of  Côte  d’Ivoire,  providing  an  income  to  six  million 
people. Yet the sector is affected by low wages for many cocoa farm workers and instances of 
child  labour  and  child  trafficking.  In  addition,  cocoa  farmers  face  a  number  of  challenges, 
including  low  productivity,  pests  and  diseases  and  quality  problems  due  to  inadequate 
processing.  In  response  to  this  situation,  a  public-private  partnership  was  set  up  by  the 
multinational  Kraft  Foods,  the  cocoa  trader  Armajaro  and  the  German  and  US  development 
agencies  to  introduce  sustainability  standards  in  the  cocoa  produced  by  small  farmers  and  to 
bring  certification  into  mainstream  cocoa  production.  It  did  so  by  creating  a  supply  line  of 
'Rainforest  Alliance  Certified'  cocoa  and  pioneering  sustainable  cocoa  production  for  the 
international market. Kraft Foods uses this certified cocoa in its premium chocolate brands. The 
private partners committed themselves in advance to purchasing all cocoa that met the required 
quality.  This  gave  farmers  the  security  to  invest  time  and  money  in  improved  production 
technology. Over the project's three-year lifespan, from 2006 to 2009, some 5,600 farmers from 
six  cooperatives  were  trained,  thus  leading  to  productivity  gains  for  farmers  using  sustainable 
practices of 49.5 %. More of the cocoa marketed was of a better grade and thus received a higher 
price,  which  in  turn  meant  a  higher  income  for  farmers.  The  project  has  been  judged  such  a 
success that its model has been rolled out in Ecuador, Ghana and Nigeria. 

•  ACP countries benefited from increased AfT and TRA (Figure 11). As regards AfT, 
collective EU commitments to ACP countries increased by 18% in 2009, reaching a 
new all-time high of €3.6 billion. Again, the ove rall increase can mainly be attributed 
to  increasing  commitments  in  regional  programmes  (more  than  doubling  from  €0.4 
billion in 2008 to €0.9 billion in 2009), while commitments to bilateral programmes 
remained  stable  at  €2.7  billion.  Total  EU   TRA  commitments  to  ACP  countries 
reached €1.16 billion in 2009, almost triple 2008 levels. 

33 

 
 
 
Figure 11: EU Aid for Trade to ACP Countries (EU and EU Member States) in million Euro) 

•  Growing attention is being devoted to Africa, particularly Sub-Saharan Africa. Sub-
Saharan  Africa  received  the  largest  share  of  both  collective  EU  AfT  and  collective 
EU  TRA  in  2009.  Sub-Saharan  Africa  received  some  €2.9  billion  worth  of  AfT  in 
2009, or 29% of the total, up from €2.2 billi on in 2008 (Figure 12). As indicated in 
Figure  13,  Sub-Saharan  Africa  is  also  the  main  recipient  of  collective  EU  TRA, 
which  increased  substantially  between  2008  and  2009,  from  €281  million  to  €818 
million. Sub-Saharan Africa thus took over Asia (€670 million in 2009) as the main 
recipient  of  EU  TRA.  The  share  of  Sub-Saharan  Africa  in  collective  EU  TRA 
increased from 15% to 28% between 2008 and 2009. 

Figure 12: 

Aid for Trade by OECD Region (EU and EU Member States) in EUR million 

Aid for Trade by OECD Region
(bilateral & regional programmes, EU + EU MS, in EUR million)

3.500 

3.000 

2.500 

2.000 

1.500 

1.000 

500 

-

Source: OECD CRS  

South of
Sahara

Asia

America

North of
Sahara

Europe

Africa

Oceania Unspecified

Annual Average 2000-2004

Annual Average 2005-2009

2009

34 

 
 
 
 
Figure 13: Trade-Related Assistance by OECD Region (EU and EU Member States) in EUR million 

900

800

700

600

500

400

300

200

100

0

South of
Sahara

Asia

America

Africa

North of
Sahara

Europe

Oceania Unspecified

Source: OECD CRS  

2008

2009

7.3.  Only a limited share of Aid for Trade is channelled to LDCs 

•  The share of EU AfT to LDCs is only about 22% of the total (Figure 14). Despite the 
apparent  trade-related  needs  of  LDCs,  the  EU  and  its  Member  States  allocate 
relatively less of their ODA to AfT to LDCs than to other developing countries43. The 
share of collective EU AfT to LDCs as a percentage of the total remained relatively 
stable  at  22%  in  2009,  slightly  down  from  24%  in  2008.  LDCs  accounted  for  €2.3 
billion in 2009, compared to €7.8 billion for non-LDCs. The LDC share of EU AfT 
has been continuously higher than that of EU Member States.  

Figure 14: Aid for Trade to LDCs (EU and EU Member States) in EUR million 

Aid for Trade to LDCs
(EU and EU MS, in EUR million)

46%

43%

41%

42%

35%
32%

26%
23%

22%
22%

21%

19%

26%

34%

16%

30%

19%

24%

21%

17%

 34%

 22%

 24%

 27%

 29%

 32%

22%

 22%

 24%

 22%

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

50%

45%

40%

35%

30%

25%

20%

15%

10%

5%

0%

12.000 

10.000 

8.000 

6.000 

4.000 

2.000 

-

EU+EU MS AfT to LDC

EU+EU MS AfT to non LDC

EU: % LDCs in AfT

EU MS: % LDCs in AfT

43 Based on information received from EU Delegations and EU Member States in January 2010 through 
the joint EU Aid for Trade Monitoring questionnaire. Out of 113 EU Delegations, 77 provided a formal 
reply. 60% of those are established in ACP countries (i.e. 46 countries), 14 in Asia, 13 in Latin America 
and 4 in Neighbourhood countries. The sample includes 32 LDCs. 

35 

 
 
 
 
                                                 
Vietnam: trading its way out of poverty: 

In the five years leading up to January 2007, when Vietnam joined the WTO, the EU supported 
the country with two Multilateral Trade Assistance Programmes (MUTRAP I and II) worth €8.2 
million. These programmes funded a variety of technical assistance studies and helped Vietnam 
accelerate the complex process of WTO accession. Building on these two programmes, the EU 
supports  Vietnam's  post-WTO  accession  phase  through  MUTRAP  III,  which  helps  the  country 
implement  its  responsibilities  in  the  areas  of  competition  and  trade  policy,  notably  the 
implementation  of  its  WTO  accession  commitments,  multilateral  trade  negotiations,  and 
implementation of regional integration and free trade agreements. The total cost of the four-year 
programme, which got underway in 2008, is estimated at €10.7 million, including a contribution 
of €0.7 million from Vietnam. MUTRAP I, II and III have helped to promote Vietnam as a full 
member  of  the  international  trade  community.  Largely  thanks  to  legal  and  economic  stability 
brought about by the WTO accession reforms, Vietnam is now enjoying a considerable increase 
in FDI. Working with the government and other stakeholders – the private sector, universities and 
research institutions –has been a key to the success of these projects. 

7.4.  Quality has improved but there is room for further progress 
Some  16  EU  Member  States44  and  the  European  Commission  responded  to  the  2011 
OECD/WTO  AfT  Questionnaire  seeking  information  on  the  progress  achieved  by 
individual  donor  countries  with  a  particular  focus  on  outcomes  of  AfT  strategies  and 
programmes. The main findings were the following:  

•  There  has  been  improvement  in  the  quality  of  the  AfT  provided  by  the  EU  and  its 
Member  States,  bringing  it  increasingly  in  line  with  the  Paris  Declaration,  notably 
regarding the availability of trade needs assessments, increased national coordination 
processes in partner countries, as well as better coordination and harmonisation with 
EU Member States and non-EU donors.  

Leveraging the regional dimension to boost Caribbean integration in global trade: 

Caribbean trade performance is constrained by a narrow production base and high infrastructure 
cost  leading  to  high  production  costs  and  low  levels  of  competitiveness.  To  help  remedy  this 
situation,  the  EU  provided  €6.8  million  be tween  2008  and  2010  to  the  Caribbean  Export 
Development  Agency  –  CARIFORUM's  regional  export  development  and  trade  promotion 
agency  –  to  provide  training  and  technical  assistance  to  Caribbean  businesses.  On  this  basis, 
Caribbean  Export  provided  grants  to  197  companies  and  business  support  organisations,  50 
training and technical assistance events for companies in high potential niche sectors and support 
to business and trade promotion organisations. It also supported CARIFORUM in elaborating a 
strategy to create an enabling environment for trade and export development at regional level. A 
key  added  value  of  the  project  was  its  regional  approach,  which  allowed  to  take  advantage  of 
economies  of  scale  in  the  provision  of  services  aimed  at  strengthening  export  capacities  in  the 
region and allowed to build regional knowledge and networks. Another element of success was 
the  choice  of  a  funding  mechanism  allowing  Caribbean  Export  to  use  its  own  procedures  to 
implement the project rather than those of the donor. 

•  However,  further 

improvements  are  necessary,  notably  regarding  developing 
countries'  capacity  to  define  trade  related  priorities  in  collaboration  with  key 
stakeholders. There are still countries where the EU and its Member States appear to 

44 Belgium, Czech Republic, Denmark, Finland, France, Germany, Hungary, Ireland, Italy, Luxembourg, 
The Netherlands, Portugal, Spain, Sweden and the United Kingdom. 

36 

 
                                                 
provide  AfT  in  the  absence  of  a  comprehensive  trade  needs  assessment  (40%  of 
responses to the AfT Questionnaire). 

•  While  the  EU  devotes  a  considerable  amount  of  financial  resources  to  regional 
integration, results in this area can be strengthened further. Some barriers that should 
be  overcome  include:  the  lack  of  an  expressed  demand  for  regional  AfT;  lack  of 
coherence  between  national  and  regional  priorities;  lack  of  credible  lending 
authorities  at  regional  level;  lack  of  effective  coordination  at  regional  level; 
difficulties  of  monitoring  and  evaluation  at  regional  level;  lack  of  credible  mutual 
accountability  mechanisms  at  regional  level.  Another  problem,  particularly  in  Sub-
Saharan Africa, is the low absorption capacities of Regional Economic Communities 
(RECs) and low ownership of the integration process by partner countries. In many 
partner  countries,  there  appears  to  be  much  room  for  strengthening  the  support  to 
regional  integration.  Regional  priorities  for  AfT  were  rarely  considered  and 
addressed in the national development strategies, and in many cases no programmes 
on regional AfT priorities are funded45. 

EU support to the International Trade Centre (ITC):  

The European Commission plans to provide support to the ITC to fund a redeveloped Data and 
Market  Analysis  Tool  for  low  income  countries  over  the  period  2011-14.  A  first  phase  would 
cover  the  launch  of  a  re-developed  Market  Access  Map  application  (MAcMap)  and  enable 
immediate free access for all LDCs and developing countries. The wider objective of this project 
is  to  increase  global  trade  and  tariff  transparency.  The  project  acknowledges  the  increasing 
recognition  that  trade  and  development  are  inextricably  interlinked  but  that  there  are  many 
constraints in developing countries that must be addressed before they can fully benefit from the 
global  liberalisation  of  trade  –  one  key    constraint  being  the  lack  of  knowledge  and  tools  for 
analysing export markets both in commercial and technical terms. The project would contribute 
to addressing this constraint. 

•  The  private  sector  is  insufficiently  involved  in  the  development  and  evaluation  of 
AfT  projects.  It  can  also  contribute  leverage  finance.  For  instance,  the  EU-Africa 
Business Forum provides a major platform for discussion amongst the EU, the Africa 
Union (AU), RECs and the private sector on issues closely related to AfT. It sets an 
example that could be duplicated in other regions. 

•  In line with the principles of aid effectiveness in the EU’s own effectiveness agenda, 
coordination  among  EU  donors  as  well  as  with  non-EU  donors  requires  further 
improvement. In particular, there is significant potential for more joint AfT between 
the  EU  and  its  Member  States.  In  fact,  EU  Delegations  responding  to  the  AfT 
Questionnaire indicated that a doubling of joint activities was possible.  

Sharing South-South expertise to cut red tape at customs: 

Trade in Central Asia suffers from its distance from the sea and the heavy burden of bureaucracy. 
Until recently, a trader in Kyrgyzstan had to fill in 15 or so forms and collect up to 20 signatures 
to  gain  official  permission  to  import  and  export  goods.  A  so-called  single  window  for  pre-
customs procedures is widely recognised as one of the most effective ways to reduce non-tariff 
barriers to trade, making it possible to fill-in the necessary documentation, pay fees and receive 
the  necessary  certificates  through  a  single  internet  portal.  When  the  Kyrgyz  government  began 
researching  how  to  implement  such  a  system,  it  found  that  a  simple  but  effective  system 

45 EU Questionnaire. 

37 

 
                                                 
established  in  Senegal  was  the  most  appropriate  for  use  in  Central  Asia.  Consultants  from 
Senegal  subsequently  visited  Central  Asia  to  share  their  knowledge  of  designing  and 
implementing  such  a  system.  A  German-funded  programme, 
'Three-Party  South-South 
Cooperation', got underway in 2005 to help eliminate unnecessary administrative barriers to trade 
in Kazakhstan, Kyrgyzstan, Uzbekistan and Tajikistan and reduce technical barriers to trade. The 
€16.5 million worth programme aims to ensure that at least two-thirds of customs declarations in 
three  of  the  four  states  can  be  carried  out  though  a  single  window  or  a  similar  time-saving 
procedure by 2014. The introduction of the single window is expected to increase trade volume 
in the region, attract FDI, create more employment opportunities and ultimately lead to poverty 
reduction. Since 2007, Kyrgyzstan and Tajikistan have already reduced by 60 % the number of 
forms  that  need  to  be  completed  to  carry  out  foreign  trade  and  are  now  committed  to 
implementing a pre-customs single window. Uzbekistan has said it will implement a window by 
2015  and  Kazakhstan  is  studying  the  issue.  The  project  is  a  good  example  of  three-party  co-
operation, involving know-how transfer from an African country. 

•  Further  work  on  monitoring  and  evaluation  with  international  organisations  and 
partner countries would strengthen our knowledge and understanding of the impact of 
AfT.  The  impact  of  the  EU’s  support  can  be  increased  in  a  number  of  ways, 
including: 

o  Strengthened  results-based  management  in  AfT  programmes.  By  setting  out 
clearly  at  the  outset  what  are  the  objectives,  it  would  be  easier  to  learn  lessons 
about  what  works  and  what  doesn’t,  allowing  programmes  to  be  adjusted  to 
increase  their  impact  even  further.  Aid  effectiveness  principles  are  particularly 
relevant here. 

o  Continued  efforts  to  measure  impacts,  particularly  outcomes.  Attributing  final 
impacts  to  a  specific  programme  is  a  methodologically  very  challenging  area  – 
not only in the area of trade, but for ODA in general.  

o  Building  more  on  the  capacity  of  developing  country  governments  to  assess 
whether the focus and implementation of their own trade development strategies 
are appropriate or need to be adjusted. This is vital to ensuring our support has a 
real impact over the longer term.  

7.5.  The Enhanced Integrated Framework  

Launched in 2006, the EIF pursues the following objectives:  

-  Create a genuine partnership among LDCs, donors, multilateral bodies and other development 

partners. 

-  Mainstream trade into LDCs' national development strategies; 

-  Set up structures needed to coordinate the delivery of trade-related technical assistance.  

-  Build  capacity  to  trade,  which  also  includes  addressing  critical  supply-side  constraints. 

The Integrated Framework (IF) for TRA to LDCs was established in October 1997 at the 
High-Level  Meeting  on  LDCs'  Trade  Development  held  at  the  WTO.  It  has  helped 
prepare  trade  needs  assessments,  and  supports  capacity  building.  Transformed  into  the 
Enhanced  Integrated  Framework  (EIF)  after  its  2005  review,  this  AfT  partnership 
involving LDCs, donors and international organisations (UNDP, ITC, UNCTAD, WTO, 

38 

 
 
World  Bank),  supports  LDCs  in  becoming  more  active  players  in  the  global  trading 
system by helping them tackle obstacles to trade. EIF activities are financed through the 
EIF  multi-donor  Trust  Fund.  While  the  EU  was  not  a  donor  to  the  original  IF,  it  has 
committed a total of €10 million (€4 million in  2008 and €6 million in 2010) to the EIF. 
To-date, a total of €3.2 million has been disbursed by the EC to the Trust Fund Manager.  

The European Commission plays an important role in this initiative, having taken a seat 
on  the  Board  for  2009-2011  as  one  of  the  three  donor  representatives,  and  acting  as 
Donor Facilitator in more than 10 LDCs. It is also one of the larger donors to the EIF. It 
has  strongly  focused  the  EU's  support  to  the  EIF,  arguiing  for  a  programme  that  is 
designed  to  avoid  duplication  or  substitution  and  is  well  integrated  in  existing 
mechanisms  and  structures.  Its  focus  has  also  been  more  on  Tier  1  programmes 
(diagnostic trade integration studies) than Tier 2 programmes (specific sector activities to 
build  trade-related  and  supply-side  activities),  where  funds  should  typically  be 
channelled  through  the  usual  bilateral  cooperation  mechanisms  at  national  level  rather 
than through a vertical fund. 

The  EIF  is  considered  an  important  potential  tool  to  assist  LDCs,  placing  trade  issues 
more firmly on their development agenda by improving national capacity to diagnose and 
address  trade  constraints.  The  Commission  recently  conducted  a  survey  based  on  a 
Questionnaire  on  AfT46  which  revealed  that  one  of  the  major  constraints  on  increased 
AfT is the low capacity in partner countries for identifying needs and priorities – which 
is one of the core areas of support under the EIF.   

As the EIF became really operational only in the course of 2010, it is too early to draw 
firm  conclusions  on  the  results  of  the  EIF  but  the  Commission's  conviction  is  that  the 
approach taken by the EIF to seek maximum country ownership is the right one. 

Improving quality standards to boost Bangladesh's export trade: 

Bangladesh  has  traditionally  been  reliant on the  export of a narrow range of goods, principally 
garments, textiles and foodstuffs. In an attempt to diversify the country’s production and export 
base,  the  EU  supported  the  Bangladesh  Quality  Support  Programme  (BQSP)  with  the  aim  of 
helping the private sector understand quality and packaging requirements in export markets and 
to apply the value chain approach to enhance competitiveness. Under the programme, which ran 
from  2006  to  2010  with  an  EU  contribution  of  €10  million  out  of  €13.5  million,  the 
competitiveness  and  innovation  of  the  textile  and  garment  industry  was  improved  by 
strengthening institutions such as the National Institute of Textile Training Research and Design 
and  the  BGMEA  Institute  of  Fashion  and  Technology.  The  testing  and  controls  on  frozen  fish 
exports,  particularly  shrimps,  were  brought  in  line  with  international  export  standards.  The 
programme contributed in setting up a National Metrology Institute in 2009, which ensures the 
accuracy  and  traceability  of  various  products,  from  foodstuffs  to  engineered  goods.  It  also 
initiated  the  setting  up  of  the  Bangladesh  Accreditation  Board,  which  works  to  ensure  that  the 
country’s  certificates  are  internationally  recognised.  In  addition,  the  Bangladesh  Standards  and 
Testing Institute was strengthened. 

46 EU Delegations and EU Member States’ embassies in 89 partner countries across the developing world 
completed  the  Field  Questionnaire  in  2011  –  up  from  77  responses  in  2011.  In  61  cases,  the  responses 
were prepared jointly by the EU Delegation and EU Member States providing bilateral AfT in the partner 
country concerned. In the remaining cases, the EU Delegation completed the questionnaire on its own. 

39 

 
 
                                                 
8.  THE ECONOMIC PARTNERSHIP AGREEMENTS (EPAS) 

8.1.  Origins of the EPAs 

In  1996  the  Commission47  concluded  that  trade  preferences  had  not  been  sufficient  to 
enhance ACP export growth and diversification. ACP countries had not taken advantage 
of all the opportunities offered by the EU preferences and their poor trade performance 
was  reflected  in  a  falling  market  share  in  the  EU:  from  7%  under  the  first  Lomé 
Convention to barely 3%. What was needed was a more comprehensive approach with a 
view  to  creating  favourable  conditions  for  diversification,  exports,  investment  and 
growth.  If  ACP  policy,  capacity  and  governance  shortcomings  are  properly  addressed, 
the trade potential of these economies is significant. Economic Partnership Agreements 
(EPAs) were and still are designed in this perspective. 

The Cotonou Agreement stipulated in Article 37(1) that new trading arrangements should 
be negotiated and put  in place before the expiry on 31 December 2007 of the Cotonou 
trade  regime,  covered  by  a  WTO  waiver  since  2001.  Thus,  the  EPAs  aimed  at 
establishing new WTO-compatible trade arrangements to support the regional integration 
of African Caribbean and Pacific (ACP) countries and to foster their smooth and gradual 
integration into the world economy. 

On this basis, the 2002 Trade and Development Communication developed a number of 
guiding principles for the agreements: EPAs were to establish a partnership with mutual 
rights and obligations; they were to support existing regional integration initiatives; they 
were to build on the rules of the WTO; and their design should provide for flexibility to 
take  account  of  ACP  constraints  and  capacities  in  order  to  become  a  genuine 
development tool. 

Negotiations started in 2002 at the all-ACP level to allow ACP countries and the EU to 
establish  the  principles  of  the  agreements.  As  of  2003,  negotiations  continued  at  the 
regional level, for which ACP countries had grouped together into seven regions, based 
to a large extent on existing regional economic communities: five in Africa, and one each 
in the Pacific and the Caribbean.  

8.2. 

Situation at the end of 2007 

By  the  end  of  the  deadline  of  31  December  2007,  only  the  Caribbean  region  had 
completed negotiations for a comprehensive regional EPA. In other regions, the EU and 
some  or  all  of  its  regional  partners  agreed  to  conclude  WTO-compatible  interim  EPAs 
mainly covering at least trade in goods and other areas for which negotiations had been 
concluded.  The  interim  EPAs  were  expected  to  become  stepping  stones  to  inclusive 
regional  and  comprehensive  EPAs,  as  negotiations  continued  on  outstanding  trade-
related areas with all ACP countries48.  

The  Caribbean  EPA  combines  totally  free  market  access  for  Caribbean  goods  and 
unprecedented  access  for  their  services  with  improved  rules  of  origin,  provisions  on 
trade-related issues, including transparency in government procurement and chapters on 
social  and  environmental  issues  and  related  capacity-building  measures.  The  EPA  also 
includes  asymmetric,  progressive  obligations,  and  safeguards  to  take  account  of  the 

47   Green Paper (COM(96)570 final of 20 November 1996 )  
48 The only exceptions are : Timor-Leste, Somalia and  Eq. Guinea (suspended since 200x) 

40 

 
                                                 
different levels of development between CARIFORUM countries and the EU. It supports 
building a stable and predictable regional market where barriers to trade and investment 
are  gradually  removed  to  create  better  opportunities  for  growth  and  sustainable 
development.  

The interim EPAs with countries and regions in Africa and the Pacific are more limited 
in scope and address mainly trade in goods and some related areas such as trade defence, 
technical  barriers  to  trade  or  trade  facilitation  and,  in  most  cases,  link  up  with  a 
development chapter. 

The  EU  adopted  in  December  2007  a  Market  Access  Regulation  (MAR)  offering  ACP 
that  had  concluded  their  negotiations,  effective  duty  free  quota  free  (DFQF)  market 
access  for  their  exports  to  the  EU.  The  EU  set  up  this  arrangement  with  a  view  to 
avoiding trade disruption, in advance of provisional application of the interim EPAs, on 
the  understanding  that  these  processes  would  be  completed  "in  a  reasonable  period  of 
time". As a result, ACP countries' trade relations with the EU are either covered by: (i) an 
EPA,  where  provisionally  applied49;  (ii)  the  Market  Access  Regulation  advancing  EU 
application  of  EPAs  not  yet  applied50;  (iii)  the  GSP  (general  arrangement,  GSP+  or 
EBA);  or  (iv),  in  the  case  of  South  Africa,  the  Trade,  Development  and  Co-operation 
Agreement. 

Table 2: State of play of EPA agreements: 

Status 

Agreements under 
implementation 

Agreement 
Cariforum 

Pacific 

Signed  agreements  approved 
by the EP 

Côte d'Ivoire 

Cameroon 
SADC 

ESA 

Ghana 

EAC 

Signed agreements 

Signature pending  

Signature put on hold 

Comments 
Signed on 15 October 2008 and approved by the EP 
on 25 March 2009. Provisionally applied. 
Signed  by  the  EU  and  Papua  New  Guinea  on  30 
July and by Fiji on 11 December 2009. EP ratified 
on  19  January  2011.  EU  ratification  completed  by 
Council  on  15  Feb  2011.  PNG  also ratified so this 
EPA entered into force. 
Signed on 26 November 2008 and approved by the 
EP on 25 March 2009.  
Signed on 15 January 2009. 
Signed  by  the  EU  and  by  Botswana,  Lesotho  and 
Swaziland on 4 June 2009. Mozambique signed the 
agreement on 15 June 2009. 
Namibia has indicated it is not ready to sign.  
Signed  by  the  EU  and  by  Madagascar,  Mauritius, 
the  Seychelles  and  Zimbabwe  on  29  August  2009. 
Seychelles  have  ratified,  Madagascar  declared 
provisional application. 
Comoros and Zambia have not yet signed. 
Ghana 
arrangements are pending.  
EAC has indicated it is not ready to sign the iEPA 

and  European  Community 

signature 

49  The  following  countries  have  moved  towards  application  of  their  EPA:  15  countries  in  the  Caribbean 
except Haiti; Papua New Guinea; Madagascar, Mauritius and the Seychelles.  
50  In  addition  to  the  18  countries in the previous footnote, another 18 countries have initialled or signed 
EPAs but are not applying them 

41 

 
 
                                                 
Those ACP LDCs51 that have remained out of an EPA benefit from DFQF access to the 
EU  under  EBA,  whereas  the  10  ACP  non-LDCs52  that  opted  to  remain  outside  EPAs 
benefit from the EU's regular GSP. 

8.3. 

State of play in 2011 

Negotiations  continued  after  2007,  but  progress  was  slow  and  none  of  the  six  regional 
negotiations  has  been  closed.  While  in  some  regions  (in  particular  SADC  and  West 
Africa),  negotiations  have  been  taking  place  more  regularly,  in  others  (Central  Africa, 
EAC,  ESA,  Pacific)  engagement  was  often  intermittent  and  the  rhythm  of  negotiations 
slower,  in  particular  after  2009.  In  addition,  as  a  result  of  the  increasingly  long  time 
period between reaching the interim deals and their signature and application, some ACP 
regions  identified  issues  in  their  existing  interim  EPAs  on  which  negotiations  were  re-
opened. All in all, negotiations have advanced only sporadically although good progress 
was made forging solutions to some of the outstanding issues, in particular in 2010-2011, 
as a result of deeper efforts on the EU side to keep the process on track. 

These  renewed  efforts  were  based  on  stocktaking  performed  by  the  Commission  in 
201053.  The  Commission's  analysis  was  widely  shared  and  discussed  with  EU  member 
States, ACP countries and other stakeholders: 

•  Slow progress in signing and implementing interim EPAs has restrained mutual trust 

and credibility of the EPA process. 

•  The complexity of the issues and the lack of ACP experience and capacity in dealing 
with  regional  trade  negotiations  are  important  factors  to  explain  the  state  of  play. 
However, the situation also raises the question of ownership and commitment to the 
EPAs.  

•  Low  commitment  to  trade  liberalisation,  even  on  an  asymmetrical  and  progressive 

basis to be completed over several years. 

This  narrative  applies  to  different  ACP  regions  to  different  degrees.  The  guiding 
principles  for  the  EPA  negotiations  established in the 2002 Communication were not a 
sufficiently  strong  foundation  on  which  to  agree  concrete  provisions  for  development-
friendly  trade  agreements.  In  several  instances,  the  reality  of  regional  integration 
processes was not sufficiently advanced, both politically among the countries concerned 
and  capacity-wise.  Equally,  the  need  for  WTO  compatibility  proved  to  be  insufficient 
motivation  to  complete  negotiations  and  apply  agreements  within  a  reasonable 
timeframe. 

The  Commission  proposed  some  remedial  action:  reconfirming  the  commitment  to  the 
EPAs,  increasing  dialogue  to  reinforce  mutual  trust,  greater  flexibility  in  negotiations, 
progressing  towards  regional  AfT  packages  and  securing  market  access  arrangements 
compliant with WTO law and fair to all EU trade partners. At the Joint Ministerial Trade 
Committee meeting, on 22 October 2010, the ACP partners made a number of requests to 
the  EU,  which  in  their  view  needed  to  be  addressed  to  allow  negotiations  to  be 

51  Haiti,  Lesotho,  Madagascar  and  Mozambique  signed  an  EPA  while  Burundi,  the  Comoros,  Rwanda, 
Tanzania, Uganda and Zambia initialled such an agreement but have not yet signed it. 
52 Congo Rep (Brazzaville), Gabon, Nigeria and seven Pacific islands 
53 Cf. EPA Reflection Paper of 22 October 2010 

42 

 
                                                 
concluded:  more  flexibility  on  outstanding  issues,  more  financial  support,  lowering 
requirements  for  LDCs,  supporting  on-going  regional  integration  processes,  and 
maintaining,  or  even  extending,  market  access  under  MAR.  Requests  that  can  be 
addressed in the context of ongoing negotiations are being thoroughly looked into. 

On 30 September 2011, the Commission adopted a proposal to amend MAR that would 
maintain trade preferences for the 18 beneficiaries that have so far taken necessary steps 
towards  ratification;  Nine  more  ACP  countries  are  LDCs  and  are  therefore  eligible  for 
EBA  treatment.  The  remaining  nine  countries  are  non-LDCs,  of  which  two  are  upper 
middle-income  countries:  Botswana  and  Namibia.  In  order  to  maintain  or,  after 
exclusion, re-obtain duty free and quota free access into the EU market, countries have to 
either  notify  the  EU  of  the  application,  final  or  provisional,  of  the  EPA  negotiated  in 
2007,  or  to  conclude  the  ongoing  negotiations  for  a  regional  or  more  comprehensive 
EPA.  Failing  this,  they  would  have  to  rely,  if  eligible,  on  the  GSP,  thus  still  enjoying 
substantial  duty  reductions  on  many  products,  although  not  all.  The  proposal  gives  the 
countries  concerned  enough  time  to  apply  existing  EPAs  and/or  conclude  ongoing 
negotiations, as it would not take effect before 2014.  

9.  BILATERAL AND REGIONAL TRADE COOPERATION OUTSIDE THE ACP REGION 

In  2006,  with  the  Global  Europe  strategy,  the  Commission  reoriented  the  European 
bilateral  trade  agreements  perspective  through  a  new  generation  of  FTAs  with  Asian 
markets  and  enhanced  Europe's  focus  on  key  areas  such  as  intellectual  property  and 
access to raw materials. ASEAN, Korea, and MERCOSUR emerged as priorities as they 
combine  high  levels  of  protection  with  large  market  potential  and  they  are  active  in 
concluding FTAs with the EU's competitors. 

In  this  perspective,  FTAs  were  seen  as  important  tools  to  build  on  WTO  and  other 
international rules and to go further and faster in promoting openness and integration, by 
tackling  issues  which  are  not  ready  for  multilateral  discussion,  and  by  preparing  the 
ground  for  the  next  level  of  multilateral  liberalisation.  Many  key  issues,  including 
investment,  public  procurement,  competition,  other  regulatory  issues,  IPR  enforcement 
and  sustainable  development,  which  remain  outside  the  WTO,  could  be  addressed 
through FTAs. 

The  2010  Trade,  Growth  and  World  Affairs  Communication  confirmed  that,  although 
remaining strongly committed to multilateralism and to completing the DDA, the Global 
Europe  agenda  was  the  right  course  for  Europe  to  follow,  as  it  gives  the  EU  the 
possibility to take account of the differing levels of development of our trading partners 
and to include under these new trade agreements new areas such as regulatory barriers in 
goods,  services  and  investment,  IPRs,  government  procurement,  the  protection  of 
innovation, sustainable development and other important issues. 

9.1.  The Mediterranean 

The EU has a healthy trade relationship with Mediterranean countries and trade flows are 
increasing  under  the  association  agreements.  The  EU  is  the  main  trading  partner  for 
Southern Mediterranean countries, representing their primary source of imports and their 
largest  market  for  exports.  Euro-Mediterranean  total  trade  was  €141  billion  in  2010, 
excluding Turkey and Libya. EU exports to Southern Mediterranean countries accounted 

43 

 
 
for €80 billion whereas Southern Mediterranean countries exports to the EU represented 
around €60 billion. This represents almost 7% of total EU external trade, and more than 
40% of total Southern Mediterranean trade. 

Bilateral  trade  relations  are  governed  by  the  Euro-Mediterranean  Association 
Agreements concluded between the EU and each Southern Mediterranean partner (with 
the  exception  of  Libya  and  Syria).  These  agreements,  which  cover  essentially  trade  in 
goods, are being or have been supplemented by a number of additional negotiations:  

•  Negotiations  to  open  up  additional  agricultural  trade:  Negotiations  have  been 
concluded  with  Egypt,  Israel,  Jordan,  Morocco  and  the  Palestinian  Authority.  They 
will soon be re-launched with Tunisia. 

•  Negotiations  to  liberalise  trade  in  services  and  establishment:  Negotiations  are  on-
going with Egypt, Morocco, Tunisia and Israel. A scoping process prior to launching 
negotiations  has  been  finalised  with  Jordan.  Progress  has  been  limited  in  these 
negotiations, except in the case of Morocco.  

•  Negotiations  to  establish  bilateral  dispute  settlement  mechanisms  for  trade  matters: 
Protocols  have  been  signed  with  Egypt,  Jordan,  Lebanon,  Morocco  and  Tunisia. 
Negotiations are on-going with the Palestinian Authority. 

•  Preparations  for  the  negotiation  of  agreements  on  conformity  assessment  and 
acceptance of industrial products: the first agreement was signed with Israel in 2010. 
Discussions  are  ongoing  with  other  Southern  Mediterranean  countries,  aiming  at 
launching  negotiations  as  soon  as  possible.  If  the  pace  of  preparation  is  sustained, 
negotiations  could  start  in  2012  with  Egypt  and  Tunisia,  and  in  2013  with  Morocco 
and Jordan. 

Following  the  signature  of  the  single  regional  convention  on  Pan-Euro-Mediterranean 
rules  of  origin  on  15  June,  the  EU  must  ensure  a  rapid  revision  of  Pan-Euro-
Mediterranean  preferential  rules  of  origin,  to  be  based  as  much  as  possible  on  the 
recently reformed rules of origin for GSP beneficiaries.  

Deepening  South-South  economic  integration  is  essential  for  establishing  a  fully-
fledged Euro-Mediterranean Free Trade Area and increasing the economic potential for 
the Southern Mediterranean region as a whole. Southern Mediterranean partners are still 
in  the  process  of  setting  up  a  network  of  free  trade  agreements  with  each  other,  but 
significant progress has  been  made. The Agadir Agreement (Tunisia,  Morocco,  Jordan, 
and Egypt) has been in place since 2007 and open to other Arab Mediterranean countries. 
In  addition,  a  number  of  free  trade  agreements  have  been  concluded  by  Israel  and  by 
Turkey with Southern Mediterranean partners and other free trade agreements are being 
negotiated.  

Possible avenues to further develop and deepen our trade and investment relations 
with  our  Southern  Mediterranean  partners,  as  a  response  to  the  unprecedented  events 
across the Arab world since February 2011, were set out in the Joint Communications of 
March  and  May  201154  as  well  as  in  the  European  Council  conclusions  of  March  and 

54  Joint  Communications  from  the  European  Commission  and  the  High  Representative  of  the  European 
Union for Foreign Affairs and Security Policy on 8 March 2011 “A partnership for democracy and shared 

44 

 
                                                 
June  2011.  In  the  short  to  medium  term,  the  focus  is  on  accelerating  the  conclusion  of 
agreements, on-going negotiations, or preparations for negotiations.  

Going  beyond  existing  mandates,  and  following  the  invitation  by  the  June  Foreign 
Affairs Council, the Commission has submitted to the Council a proposal for negotiating 
directives  for  bilateral  Deep  and  Comprehensive  Free  Trade  Areas  (DCFTAs)  with 
Egypt, Jordan, Morocco and Tunisia. The main objective of future DCFTA negotiations 
would  be  the  progressive  integration  of  the  economies  of  these  partners  into  the  EU 
single market. DCFTAs, which would form part of the Euro-Mediterranean Association 
Agreements,  would  aim  at  improving  market  access  opportunities  and  the  investment 
climate  and  at  supporting  economic  reforms  undertaken  by  Southern  Mediterranean 
partners. They would be covering a full range of regulatory areas of mutual interest, such 
as  trade  facilitation,  technical  barriers  to  trade,  sanitary  and  phytosanitary  measures, 
investment  protection,  public  procurement,  competition  policy  and  sustainable 
development.  Nonetheless,  a  realistic,  balanced  and  flexible  approach  to  regulatory 
convergence  would  need  to  be  applied  in  the  negotiations,  taking  into  account  the 
different  economic  development  and  regulatory  priorities  of  Southern  Mediterranean 
partners.  

In  parallel,  work  continues  on  implementing  concrete  initiatives  to  bring  the  Euro-
Mediterranean  trade  partnership  closer  to  economic  operators,  following  the 
conclusions  of  the  9th  Union  for  the  Mediterranean  Ministerial  Conference  in  2010. 
These efforts include: 

•  Establishing  an  information  tool  on  trade  and  investment  conditions  in  the  Euro-

Mediterranean region: this tool is likely to be in place from 2012. 

•  Strengthening Euro-Mediterranean industrial cooperation across sectors and in sectors 
of interest to both sides of the Mediterranean: a meeting of experts will take place in 
early 2012.  

•  Enhancing  cooperation  with 

the  Euro-Mediterranean  business  community:  a 
consultation process on trade and investment initiatives for the region is likely to be 
launched before the end of the year. 

•  Reinforcing  cooperation  in  the  area  of  the  fight  against  piracy  and  counterfeiting:  a 

regional workshop will be organised in the coming months. 

The next Union for the Mediterranean Ministerial Conference will take place in the first 
half of 2012 and will assess progress made in implementing actions in all of these areas. 

9.2.  Eastern Neighbourhood Countries 

In March 2007, the EU and Ukraine launched bilateral negotiations of a new Association 
Agreement to replace the present Partnership and Cooperation Agreement that dates from 
1998.  An  FTA  will  be  embedded  in  the  new  Association  Agreement  as  an  integral 
element alongside others, such as political, social, and sectoral co-operation. It should be 
the first of a new generation of deep and comprehensive FTAs, covering all trade-related 
areas,  including  services,  intellectual  property  rights,  customs,  public  procurement, 

prosperity with the Southern Mediterranean" (COM(2011)200) and on 25 May 2011 "A new response to a 
changing Neighbourhood" (COM(2011)303). 

45 

 
                                                                                                                                                 
energy-related  issues,  competition,  sustainable  development,  etc.,  as  well  as  deep 
regulatory approximation with the trade-related EU 'acquis'. The EU believes that closer 
economic integration with the EU can be a key factor for Ukraine's economic growth. 

The EU is Ukraine's foremost commercial partner and accounts for about one third of its 
external  trade.  In  2010,  EU  exports  to  Ukraine  amounted  to  €17.3  billion  while  EU 
imports  from  Ukraine  amounted  to  €11.4  billion.  Ukraine's  main  exports  to  the  EU  are 
iron, steel, mining products, agricultural products, and machinery. EU exports to Ukraine 
are dominated by machinery, transport equipment, chemicals, and agricultural products. 
EU  investment  stocks  in  Ukraine  were worth €19.8 billion  in 2008. Between 2007 and 
2008, FDI outward stocks from EU Member States in Ukraine grew by more than 10%. 
In 2009, EU investments into Ukraine amounted to €3.4 billion.  

Ukrainian  exports  to  the  EU  are  to  a  very  large  extent  liberalised  as  Ukraine  has 
benefited from the EU's GSP since 1993. In 2010, the GSP utilisation rate reached a level 
of 72.2% of the eligible products. With € 2.15  billion of GSP preferential imports to the 
EU,  Ukraine  ranks  12th  among  the  most  effective  users  of  the  system.  Preferential 
imports  include  machinery  and  mechanical  appliances,  plants,  oils,  base  metals, 
chemicals and textiles. 

The  EU  has  been  a  strong  proponent  of  Ukraine's  WTO  membership,  effective  on  16 
May 2008. In joining the WTO, Ukraine benefits from secure access to the markets of all 
WTO  members  and  commits  to  providing  the  kind  of  stable  trade  and  investment 
environment that will attract further trade and investment. 

After a breakthrough reached during a ministerial meeting on 19 October 2011, the FTA 
negotiations with Ukraine are in their final stage. 

Good  progress  has  also  been  made  in  negotiating  an  Association  Agreement  with  the 
Republic of Moldova and significant progress has been made in negotiating association 
agreements with the Republic of Armenia, the Republic of Azerbaijan and Georgia. On 5 
December  2011,  the  EU  decided  to  launch  negotiations  on  the  DCFTA  part  of  the 
association  agreements  with  Georgia  and  the  Republic  of  Moldova.  The  first  round  of 
negotiations  is  to  take  place  in  early  2012.  Building  on  the  substantial  work 
accomplished, Armenia is pursuing its efforts to become ready for DCFTA negotiations 
as soon as possible. 

9.3.  China 

Since joining the WTO in December 2001, China has emerged as the world's third largest 
economy and the world's leading exporter, as well as increasingly an important political 
power.  EU-China  trade  has  grown  dramatically  in  recent  years.  China  is  now  the  EU's 
second trading partner after the USA and the EU's largest source of imports by far. The 
EU  is  also  China's  main  trading  partner.  EU  goods  imports  from  China  amounted  to 
€281.9 billion in 2010, and EU goods exports 
to China amounted to €113.1 billion. As 
for EU services imports from China, they amounted to €16.3 billion in 2010, while EU 
services exports to China reached €20.2 billion.  Regarding FDI, EU inward investment to 
China  was  worth  €4.9  billion  in  2010,  compar ed  to  €0.9  billion  for  China  inward 
investment to the EU. 

The  domestic  reforms  undertaken  by  China  in  the  run-up  to  and  shortly  after  WTO 
accession set the country on long-term growth trajectory, and this in turn enabled China 
to  lift  hundreds  of  millions  out  of  extreme  poverty.  The  EU's  open  market  has  been  a 

46 

 
large  contributor  to  China's  export-led  growth.  The  EU  has  also  benefited  from  the 
growth  of  the  Chinese  market  and  the  EU  is  committed  to  open  trading  relations  with 
China. Through the 2006 European Commission Communication on "EU-China: Closer 
partners,  growing  responsibilities55,"  the  EU  pledged  to  accept  tough  Chinese 
competition while pushing China to trade fairly, respect intellectual property rights and 
meet  its  WTO  obligations.  A  number  of  EU-China  dialogues  at  all  levels  have  been 
established to this end. 

Because  of  the  cross-cutting  nature  of  many  of  the  issues  that  arise  in  the  relationship, 
the EU-China High Level Economic and Trade Dialogue (HED) was launched in Beijing 
in April 2008. The HED strengthens the dialogue between the European Commission and 
the  State  Council  of  China,  at  Vice-Premier  level.  It  deals  with  issues  of  strategic 
importance to EU-China trade and economic relations and provides impetus to progress 
concretely in sectoral dialogues. This dialogue provides a tool to address issues of mutual 
concern in the areas of investment, market access, intellectual property rights protection, 
government procurement as well as other trade-related issues. 

In  January  2007  the  EU  and  China  launched  negotiations  on  a  comprehensive 
Partnership  and  Cooperation  Agreement  (PCA).  The  aim  is  to  further  improve  the 
framework for bilateral trade and investment relations and also to upgrade the 1985 EC-
China Trade and Economic Cooperation Agreement. However, positions remain far apart 
on  many  important  chapters,  and  the  European  Commission  has  called  upon  China  to 
demonstrate more ambition. 

The  EU  was  a  strong  supporter  of  China's  accession  to  the  WTO,  as  a  WTO  without 
China was not truly universal in scope. The commitments made by China in the context 
of  accession  to  the  WTO  secured  improved  access  for  EU  firms  to  China's  market. 
Import tariffs and other non-tariff barriers were sharply and permanently reduced. At the 
8th WTO Ministerial in December 2011, China announced its readiness to offer duty-free 
quota-free access to 97% of its market to LDCs and has expressed interest in acceding to 
the General Procurement Agreement. However, while China has made good progress in 
implementing  its  WTO  commitments,  there  are  still  outstanding  problems.  China's 
compliance with the commitments it undertook when joining the WTO was periodically 
reviewed in a process called the Transitional Review Mechanism. This process ended in 
December  2011,  10  years  after  China's  WTO  accession,.  The  EU  also  uses  the  regular 
Trade  Policy  Review  of  China  in  the  WTO  to  raise  a  number  of  concerns  regarding 
China's trade policy. These include inadequate protection of intellectual property rights, 
the maintenance of industrial policies which may discriminate against foreign companies 
especially in sectors like automobiles, barriers to market access in a number of services 
sectors  including  construction,  banking,  telecommunications,  and  express  postal 
services),  and  sustainable  development.  Export  restrictions  on  raw  materials  have  also 
been identified as a major trade obstacle.  

9.4. 

 South Asia 

India is an important partner for the EU, in both strategic and economic terms. In 2004, 
India became one of the EU's "strategic partners". Since 2005, the EU-India Joint Action 
Plan, revised in 2008, aims at realising the full potential of this partnership in key areas 
of  interest  to  India  and  the  EU.  The  relationship  is  underpinned  by  an  institutional 

55 COM (2006) 631 final of 24 October 2006. 

47 

 
                                                 
framework, cascading down from the annual EU-India Summit, to a senior-official level 
Joint Committee, to the Sub-Commission on Trade and to working groups on technical 
issues  such  as  technical  barriers  to  trade  (TBT),  sanitary  and  phytosanitary  measures 
(SPS), agricultural or industrial policy. These are the fora where a number of day-to-day 
issues, such as EU market access problems, are discussed  

For  India,  the  EU  is  the  most  important  trading  partner.  India  is  also  a  very  important 
trading  partner  for  the  EU.  At  present,  India  is  only  in  8th  place,  but  its  market  size  of 
more  than  1  billion  people  and  growth  rates  between  7  and  10%  make  is  a  growing 
global economic power and one of the most dynamic emerging economies in the world. 
EU goods exports to India amounted to €34.7 billion in 2010 compared to €33.2 billion 
imports  from  India.  EU  services  exports  to  India  amounted  to  €9.8  billion  in  2010 
compared  to  €8.1  billion  for  EU  services  im ports  from  India.  Regarding  FDI,  EU 
outward  investment  to  India  in  2010  totalled  €3  billion  compared  to  Indian  inward 
investment to the EU of €0.6 billion. India is  a beneficiary of the EU's GSP scheme. In 
2010,  around  85%  of  Indian  exports  to  the  EU  entered  under  a  zero  or  a  preferential 
tariff.  

Although  it  is  far  from  the  closed  market  that  it  was  20  years  ago,  India  still  also 
maintains substantial tariff and non-tariff barriers that hinder trade with the EU. The EU 
and  India  therefore  hope  to  increase  their  trade  in  both  goods  and  services  and 
investment  through  the  ambitious  and  comprehensive  FTA  negotiations  that  they 
launched in 2007. Studies confirm that the benefits to be expected from the FTA will be 
higher the more ambitious the commitments undertaken. This holds true for both sides. 
At the same time, the FTA will take appropriate account of India's development needs, 
notably  concerns  about  livelihood  and  food  security,  particularly  in  the  area  of 
agriculture, as well as through transition periods for tariff implementation.  

The negotiations have entered a crucial phase and intensive activity is expected ahead of 
the EU-India Summit to be held on 10 February 2012. Concluding this negotiation would 
make this the EU's first substantive FTA with a major emerging economy. 

As for Pakistan, it remains an important partner for the EU in South Asia. Bilateral trade 
continues  to  increase  and  now  amounts  to  more  that  €7  billion.  However,  due  to  the 
current concerns regarding the stability in Pakistan and the region as a whole, trade and 
investment continues to be below its potential. In addition, Pakistan was hit in 2010, but 
also in 2011, by severe floods resulting in a serious impact on Pakistan's economy. As a 
response, the European Council in September 2010 agreed on a package of measures to 
assist in the recovery of Pakistan's economy. One element of this package is the granting 
of  time-limited  trade  preferences  on  a  number  of  goods  imported  into  the  EU  from 
Pakistan.  The  EU  is  currently  working  with  members  of  the  WTO  to  obtain  the 
respective  WTO  waiver  to  allow  the  EU  to  adopt  a  Regulation  implementing  these 
preferences.  

9.5.  ASEAN 

From an economical point of view, the ASEAN region holds considerable potential for 
EU exporters and vice versa. Therefore, it is important for the EU to remain committed 
to  strengthening  the  trade  relationship  with  ASEAN  as  a  region.  To  this  end,  the  EU 
presented  during  consultations  in  Da  Nang  between  the  EU  and  ASEAN  Economic 
Ministers (AEM) in August 2010, a paper containing a package of activities to re-launch 
the trade dialogue between the EU and ASEAN as a region. These activities have now 

48 

 
been  translated  into  an  ASEAN-EU  trade  and  investment  work  programme  endorsed 
during the last ministerial meeting held in Jakarta in May 2011. The overall objective of 
this  work  programme  is  to  enhance  economic  cooperation  so  as  to  be  able  to  address 
emerging challenges and opportunities for trade and investment between ASEAN and the 
EU.  Moreover,  this  work  programme  is  also  expected  to  support  ASEAN  economic 
integration, bringing broader economic integration within ASEAN as well as between the 
EU and ASEAN. 

Furthermore, and in parallel to this EU-ASEAN region-to-region trade dialogue, the EU 
and ASEAN countries have moved towards closer ties by opening FTA negotiations with 
Singapore and Malaysia, and the door remains open to other ASEAN partners wishing to 
share  EU  ambitions  for  negotiating  a  comprehensive  FTA.  Other  ASEAN  members,  in 
particular,  Indonesia,  the  Philippines,  Thailand  and  Vietnam  have  expressed  great 
interest in also starting FTA negotiations. These bilateral FTAs are however intended to 
become building blocks for a future agreement in the regional framework. It is clear that 
the  more  similar  these  FTAs  are,  the  easier  it  will  be  to  weld  them  into  a  regional 
framework. 

9.6.  Central America 

At the EU-Latin America and Caribbean (LAC) Summit in 2004, the EU and the Central 
American  region  agreed  to  negotiate  a  new  Association  Agreement.  Like  the  existing 
Political  Dialogue  and  Cooperation  Agreement,  this  new  agreement  would  aim  at 
reinforcing  the  political  and  economic  stability  of  the  Central  American  countries56, 
fostering  sustainable  development  and  deepening  their  process  of  regional  integration. 
This closer economic integration between the countries of the Central American region is 
important for attracting investment to the region and helping local businesses develop the 
strength in their regional market to compete internationally.  

Negotiations  on  this  Association  Agreement  were  launched  in  2007  and  were 
successfully  concluded  at  the  2010  Madrid  EU-LAC  Summit.  The  Agreement  was 
initialled in March 2011. It sets the appropriate framework for the further development of 
bi-regional  relations  through  political  dialogue,  cooperation  and  trade.  The  Association 
Agreement includes a balanced and ambitious trade component. 

In 2008, the EU was the second major trade partner of the region after the United States 
with  a  stable  market  share  -  over  the  last  decade  -  of  approximately  10%.  Central 
American  exports  to  the  EU  are  dominated  by  agricultural  products,  especially  coffee, 
bananas and other fruits, which together accounted for 36% of exports to the EU in 2007. 
The most important exports from the EU to Central America are machinery, chemicals, 
ships, boats, vehicles and fuels. EU goods exports to Central America amounted to €4.2 
billion in 2009 while EU goods imports from Central America amounted to €4.6 billion. 

9.7.  MERCOSUR 

Negotiations  for  an  inter-regional  Association  Agreement  between  the  EU  and 
MERCOSUR57 were launched in 1999 but were suspended in October 2004. In 2009 and 
2010, the EU and MERCOSUR conducted a process of informal contacts to take stock of 
the situations and assess if the conditions for a successful re-launch of the negotiations 

56 Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama. 

57 Argentina, Brazil, Paraguay and Uruguay. 

49 

 
                                                 
now existed. Taking into account the results of this informal dialogue, the Commission 
decided in May 2010 that it should be possible to re-launch the negotiations. 

The negotiations are based on a region-to-region approach and aim at an ambitious and 
balanced  result,  going  beyond  the  respective  WTO  obligations  of  both  sides.  The  EU-
MERCOSUR  FTA  would  have  an  extensive  coverage,  although  product  and  sectoral 
sensitivities on both sides would be taken into account. It would cover not just goods, but 
also  services,  investment,  government  procurement,  adequate  protection  of  intellectual 
property rights and geographical indications, effective competition policies, SPS as well 
as  trade  and  sustainable  development.  The  FTA  would  also  establish  an  effective  and 
binding dispute settlement mechanism to help resolve trade differences. 

In 2009, EU-MERCOSUR trade represented nearly as much as EU trade with the rest of 
Latin America put together. In 2008, the EU was MERCOSUR's largest trading partner, 
representing  20.7%  of  total  MERCOSUR  trade.  MERCOSUR  ranked  8th  among  EU 
trading  partners,  accounting  for  2.7%  of  total  EU  trade  in  2009.  The  EU  is 
MERCOSUR's leading market for its agricultural exports, accounting for 19.8% of total 
EU  agricultural  imports  in  2009.  EU  goods  exports  to  MERCOSUR  focus  largely  on 
industrial products including machinery, transport equipment and chemicals, accounting 
for €27.2 billion in 2009, while goods imports  amounted to €35.1 billion. The EU is the 
largest investor in MERCOSUR with €167.2 b illion in 2008. It currently has more FDI 
stock in MERCOSUR than in Russia, China and India put together.  

9.8.  Andean Community 

The  EU  is  the  second  largest  trading  partner  of  the  Andean  region  after  the  USA.  In 
2010,  the  Andean  Community  of  Nations  (CAN)  represented  0.7%  of  the  EU's  world 
trade  whereas  the  EU  totalled  14%  of  CAN's  trade  (2009).  In  2010,  EU  imports  from 
Andean  countries  amounted  to  €12.2  billion  a nd  consisted  predominantly  of  primary 
products:  agricultural  products  (41.1%)  as  well  as  fuels  and  mining  products  (44.7%). 
EU  exports  amounted  to  €7.9  billion  and  c onsisted  mostly  of  manufactured  goods 
(81.5%),  notably  machinery  and  transport  equipment  (46.5%)  and  chemical  products 
(13.8%). The EU grants the Andean countries preferential access to its market under the 
GSP+. 

Following  divergences  amongst  Andean  countries, 
into  FTA 
negotiations with Colombia and Peru which were successfully concluded in the spring of 
2010. The FTA with Colombia and Peru is based on a three-pillar structure including a 
political, a trade and a development cooperation structure. 

the  EU  engaged 

The  FTA  with  Colombia  and  Peru  offers  first  and  foremost  substantial  new  access  for 
bananas and sugar to the EU market. The new regime for importing these two products 
into the EU under the FTA will trigger significant tariff savings for Colombia and Peru. 
Other products will also benefit from substantial market access increases e.g. beef, rice 
and maize to name a few. These products are not covered by GSP+ and will thus result in 
real benefits directly to local producers. 

Moreover,  from  its  entry  into  force  the  FTA  covers  100%  of  Colombia  and  Peru’s 
exports  of  industrial  products  and  fisheries,  thereby  providing  an  incentive  for  the 
Peruvian  and  the  Colombian  economies  to  move  up  the  value-added  chain  and  benefit 
from  a  totally  open  market  in  the  EU.  Conversely,  tariff  dismantling  in  Colombia  and 
Peru will take place on these products over a period of 10 years, which is in accordance 

50 

 
with  the  asymmetrical  approach  the  EU  takes  in  its  FTAs  with  emerging  economies. 
Overall, the FTA is expected to boost Colombian GDP by 1.3% and Peruvian GDP by 
0.7% on the long term. Both imports and exports of these countries are likely to increase 
by 6% in the medium term and by 8% over the long run. 

10.  KEY  INSTRUMENTS  FOR  BETTER  POLICY  MAKING:  IMPACT  ASSESSMENTS, 

SUSTAINABILITY IMPACT ASSESSMENTS AND EX-POST EVALUATIONS 

Impact  assessments  (ex  ante)  and  evaluations  (ex  post)  are  fundamental  tools  for 
evidence-based  trade  policy  making.  Impact  assessments  provide  support  for  political 
decision-making by analysing and comparing the expected effects of proposed changes 
in  trade  policy.  Ex  post  evaluations  evaluate  the  actual  consequences  –  both  expected 
and unexpected – of changes in trade policy following their implementation and provide 
the evidential basis for fresh initiatives and a new cycle of policy-making.  

10.1.  Impact assessments 

In practice, two types of impact assessment are used to support decision-making in trade 
impact 
matters:  Commission 
assessments  (SIAs).  Common  to  both  are  a  balanced  and  integrated  assessment  of 
economic, social and environmental impacts, together with a comprehensive consultation 
of stakeholders .The main differences between the two concern their timing and scope. 

impact  assessments  (IAs)  and 

trade  sustainability 

The  European  Commission,  which  has  a  policy  of  systematic,  standardised  and  highly 
structured  impact  assessments  for  all  major  policy  initiatives,  is  stepping  up  a  gear  in 
embedding impact assessments in trade policy making. This includes carrying out impact 
assessments  on  legislative  proposals  (regulations)  and  on  proposals  for  new  trade 
negotiations with a potentially significant economic, social or environmental impact on 
the EU and its trading partners, including developing countries. The impact assessments 
analyse whether the options considered might have significant effects on certain sectors 
and  assess  the  possible  impact  on  third  countries  with  which  the  EU  has  preferential 
trade  arrangements  as  well  as  any  impacts  the  initiative  might  have  on  developing 
countries. 

Impact  assessments  are  prepared  in  order  to  provide  the  evidential  support  for  a 
Commission  decision  (i.e.  for  a  trade  negotiation,  the  adoption  of  a  proposal  for  a 
negotiating  directive).  They  prepare  evidence  for  political  decision-makers  on  the 
advantages  and  disadvantages  of  possible  policy  options  by  assessing  their  potential 
impact. They are based on an integrated approach which analyses both benefits and costs, 
and  they  address  all  significant  economic,  social,  human  rights  and  environmental 
impacts  of  the  suggested  trade  initiative.  They  are  accountable  and  transparent:  they 
include a consultation of interested parties and the reports are published online once the 
Commission has adopted the relevant proposal.  

Since  1999,  moreover,  all  the  EU's  major  multilateral,  regional  or  bilateral  trade 
negotiations  have  been  accompanied  and  supported  by  trade  sustainability  impact 
assessments  (SIAs).  Trade  SIAs  are  independent  studies  conducted  by  external 
consultants,  on  the  basis  of  which  the  Commission  sets  out  its  own  views  on  the 
identified impact, and on the policy measures proposed to address them.  

51 

 
 
They  consist  of  two  complementary  elements:  a  robust  analysis  of  the  potential 
economic, environmental, human rights and social impacts that a trade agreement might 
have,  both  in  the  EU  and  in  the  partner  countries;  and  a  transparent  and  very  wide 
consultation  process  which  ensures  a  high  degree  of  transparency,  aims  to  engage 
stakeholders  both  in  the  EU  and  in  partner  countries,  and  allows  the  studies  to  take 
account of the expertise, local knowledge, and concerns of the relevant interest groups, 
including in the partner countries.  

Undertaken  in  parallel  with  the  negotiation  process,  SIAs  provide  negotiators  with 
evidence-based  information  to  help  clarify  the  trade-offs  arising.  They  provide  diverse 
groups of stakeholders with a more extended opportunity to bring their concerns to the 
attention  of  the  negotiators.  They  also  provide  guidelines  for  the  design  of  possible 
flanking (complementary) measures (e.g. AfT), which can maximise the positive impact 
and reduce any negative impacts of the trade negotiations in question. 

Impact  assessments  can  help  gain  a  better  understanding  of  what  is  at  stake  in  trade 
agreements. They can help identify potential risks but also pursue effective trade policies 
leading  to  sustainable  development  and  inclusive  growth.  The  EU  is  the  only  trade 
partner with such an extensive and systematic practice of impact assessments. 

10.2.  Ex post evaluations 

But it is also important to ensure that the trade policy delivers its intended benefits. Since 
1996,  Commission  services  have  been  examining  how  effectively  budgetary  resources 
are  being  used.    More  recently,  the  focus  has  shifted  towards  the  question  of  whether, 
and to what extent, EU initiatives are achieving their policy objectives. 

In  trade  matters,  an  example  of  this  type  of  unified  cycle  of  policy  analysis  is  the 
evaluation  of  the  EU's  Generalised  System  of  Preferences  (GSP)  which  provided  the 
evidence base for the review of the GSP scheme. 

The ex post evaluation of trade policy activities has gradually increased, year after year; 
and  in  Trade,  Growth  and  World  Affairs  (COM(2010)612),  the  European  Commission 
specifically committed to more systematic evaluation of the effects of the EU's existing 
trade agreements. In 2010 an evaluation of the effects of the trade pillar of the EU-Chile 
association agreement was launched58, and further studies are planned. 

11.  INVESTMENT AND DEVELOPMENT 

11.1.  International rules on investments in EU trade agreements 

Investors  thrive  in  a  stable,  sound  and  predictable  environment.  An  attractive  domestic 
environment,  notably  as  far  as  the  regulatory  framework,  infrastructure,  human  capital, 
domestic policies and the political situation are concerned, is essential to attract FDI flows. 
International  rules  on  investment  contribute  to  improving  the  business  environment  by 
increasing legal certainty for investors and by reducing the perceived risk. These rules are 

58 Another study provides analysis of social impacts resulting from trade pillar of the EU-Chile Association 
Agreement; Ergon Associates, 2011, 'Trade and Labour: Making effective use of trade sustainability 
impact assessments and monitoring mechanisms'. See: 
http://ec.europa.eu/social/main.jsp?langId=en&catId=87 

52 

 
 
                                                 
laid down at the multilateral level through the WTO-GATS and at regional and bilateral 
level through FTAs.  

The  EU  has  concluded  FTAs  with  a  variety  of  developing  countries.  The  objective  of 
provisions in these FTAs can notably be to facilitate and strengthen trade in services and 
investments, by giving investors greater legal certainty regarding market access and the 
conditions under which they are allowed to operate. However, such commitments in EU 
economic agreements with developing countries do not force any developing country to 
open sectors that they deem not ready to be opened. 

Liberalisation  of  trade  in  services  and  investments  is  much  more  complex  than 
liberalisation  of  trade  in  goods,  which  is  mainly  a  matter  of  lowering  customs  tariffs. 
Because of this, FTAs with developing countries do not seek to open up all sectors in a 
uniform manner. Parties can choose and define which sectors they want to liberalise and 
by  how  much,  in  compliance  with  WTO  rules.  Similarly  as  in  the  goods  area, 
liberalisation  of  trade  in  services  and  investments  in  FTAs  with  LDCs  is  asymmetric, 
with the EU opening up its market to a significantly larger extent than LDCs.  

11.2.  New comprehensive EU international investment policy 

The Lisbon Treaty has included FDI within the EU Common Commercial Policy, which 
is an exclusive competence of the EU. In its Communication 'Towards a comprehensive 
European international investment policy' of 7 July 201159, the Commission has outlined 
the  objectives  of  the  EU's  future  investment  policy.  It  is  the  Commission's  objective  to 
develop and implement a comprehensive common investment policy, which will secure a 
level playing field for all EU investors, offering them not only access to foreign markets 
but also a high degree of protection for their investment abroad.  

This new policy will aim to secure and strengthen the EU's investment competitiveness 
and to affirm the EU's commitment to the open investment environment which has been 
fundamental  to  its  own  prosperity,  while  continuing  to  promote  investment  for 
sustainable  development.  Besides  rules  regarding  liberalisation  of  investments,  the  EU 
aims  to  include  in  its  economic  agreements,  rules  regarding  the  protection  of 
investments. This is a crucial feature to attract FDI, as it provides more guarantees and 
increases  legal  certainty  for  investors,  on  top  of  rules  regarding  access  to  foreign 
markets.  

A  key  objective  of  the  EU  Common  Commercial  Policy  is  to  promote  trade  and 
investment  in  such  a  way  as  to  contribute  to  sustainable  development.  This  equally 
applies to the future EU investment policy.  

The EU international investment policy will be consistent with the other policies of the 
EU  and  its  Member  States,  including  development,  human  rights,  protection  of  the 
environment,  health  and  safety  at  work,  consumer  protection,  cultural  diversity, 
competition  and 
include 
sustainability provisions, as is already the case under the EU's FTAs. Investors have to 
recognise and respect these principles and objectives when investing in foreign countries. 
In this respect, policies encouraging responsible business conduct play an important role.  

taxation.  EU  agreements  relating 

investment  will 

to 

59 COM(2010)343 final 

53 

 
                                                 
11.3.  EU policy on Corporate Social Responsibility 

The  Commission  published  a  new  Communication  on  Corporate  Social  Responsibility 
(CSR) in October 201160 which aims at setting out a renewed EU strategy in response to 
recent developments in this area. Further take-up of CSR is a critical element to achieve 
sustainability,  as  value  chains  spread  globally  and  criteria  other  than  financial  profit, 
including  social  and  environmental  costs  and  benefits,  are  increasingly  considered  by 
investors and decision-makers as indicators of overall performance and the 'shared value' 
generated  by  a  company.  The  Commission's  new  Communication  places  a  strong 
emphasis on the need to respect and promote internationally recognised CSR guidelines 
and principles.  

The  Commission,  along  with  21  EU  members  in  the  OECD,  contributed  to  the  recent 
update  of  the  'OECD  Guidelines  for  multinational  enterprises:  recommendations  for 
responsible  business  conduct  in  a  global  context'.  The  Guidelines  now  incorporate  a 
chapter  on  business  and  human  rights,  integrating  the  'Guiding  Principles  for  the 
implementation of UN framework on business and human rights'. They also introduce a 
new  comprehensive  approach 
to  due  diligence  and  responsible  supply  chain 
management,  updated  wording  on  employment  and  industrial  relations,  combating 
bribery,  the  environment,  consumer  interests,  disclosure  and  taxation,  as  well  as 
reinforced  procedural  guidance  strengthening  the  implementation  mechanism.  Finally, 
the  update  of  the  OECD  Guidelines  also  includes  a  proactive  implementation  agenda 
aimed at assisting enterprises in meeting their responsibilities as new challenges arise. 

Besides the  OECD Guidelines and the UN  Guiding Principles on Business and Human 
Rights, other internationally recognised CSR guidelines and principles highlighted by the 
Commission  are  the  UN  Global  Compact,  the  ILO  Tripartite  Declaration  of  Principles 
concerning  Multinational  Enterprises  and  social  policy,  and  the  ISO  26000  Guidance 
Standard on Social Responsibility. 

Delivering  on  development  policy  objectives  can  be  greatly  enhanced  by  companies 
better  meeting  their  social  responsibility  through  best  practices,  the  adoption  and 
implementation  of  industry-specific  codes  of  conduct  or  reporting  standards  and  the 
development  of  inclusive  business  models.  This  is  even  more  important  in  weak 
governance  countries,  where  exemplary  corporate  behaviour  of  European  investors  can 
have the positive effect of encouraging local authorities to improve regulatory standards, 
possibly inspired by European formats, and ensuring that local communities are properly 
involved. This plays a role in filling governance gaps. 

12.  EU SUPPORT FOR INVESTMENT 

EU  blending  mechanisms  combine  grants  with  additional  flows  featuring  different 
financial terms and characteristics (such as loans, risk capital) so as to gain financial and 
qualitative leverage and thereby increase the impact of EU development policy. The idea 
is to use the grant element strategically in order to make investment projects by public or 
commercial financiers financially viable and thereby exerts a leveraged policy impact. 

60 "A renewed EU strategy 2011-14 for Corporate Social Responsibility"; COM(2011)681of 25.10.2011. 

54 

 
 
                                                 
The  Commission  aims  at  achieving  four  main  objectives  through  the  use  of  blending 
mechanisms: 

•  Leverage61 additional public and private resources for key investments to pursue EU 

development policy objectives. 

•  Increase  aid  effectiveness.  By  using  the  grant  element  to  improve  the  quality  and 
sustainability  of  investment  projects  and  to  speed  up  processes,  blending  also  has  a 
non-financial  leverage.  Furthermore  the  careful  use  of  loans  can  assist  in  increasing 
financial discipline and ownership compared to exclusively grant receipts in public or 
semi-public investments. 

•  Promote donor cooperation and coordination between European aid actors. 

•  Increase the visibility of EU development aid and political leverage. 

The EU blending mechanisms intervene in markets to correct the allocation of resources 
in  a  way  that  increases  social  welfare  (i.e.  development  goals).  Therefore  interventions 
are  undertaken  very  cautiously  and  are  considered  case-by-case  in  order  not  to  distort 
markets in a negative way (e.g. co-financing marketable projects or providing more grant 
money  than  necessary).  Careful  consideration  is  also  given  to  the  issue  of  debt 
sustainability of sovereign borrowers. 

12.1.  EU Regional Blending Mechanisms  

Since  2007,  four  regional  blending  mechanisms  have  been  set  up:  the  EU-Africa 
Infrastructure Trust Fund (ITF), the Neighbourhood Investment Facility (NIF), the Latin 
America  Investment  Facility  (LAIF)  and  the  Investment  Facility  for  Central  Asia 
(IFCA).  The  EU  regional  blending  mechanisms  have  proven  to  be  an  effective  and 
efficient  way  of  joining  forces  to  support  investments  in  developing  countries.  Since 
2007, about €570 million in grants from the  EU budget and the European Development 
Fund (EDF) have been committed to about 100 projects in various sectors. Through grant 
co-financing,  EU  contributions  have  so  far  leveraged  some  €8  billion  in  loans  from 
European finance institutions. This has unlocked investment with a total volume of more 
than €20 billion. Further investment facilities for the other regions are under preparation. 

Grant  components  in  the  regional  blending  mechanisms  can  take  the  form  of  technical 
assistance,  direct  investment  grants,  interest  rate  subsidies,  loan  guarantees,  insurance 
premium, first loss tranche (structured finance) and risk capital. While so far the majority 
of  supported  projects  have  been  investments  in  the  public  or  semi-public  sector,  the 
significance  of  support  to  the  private  sector  particularly  through  risk  capital  operations 
and  risk  sharing  mechanisms  targeting  small  and  medium-sized  enterprises  (SMEs)  is 
increasing. 

In  November  2010,  the  Commission  decided  to  create  "Climate  Change  Windows" 
(CCWs) within all regional blending mechanisms. The CCWs aim to further increase the 
volume of investment projects related to climate change and are to be established in all 
regional blending mechanisms. 

61 The financial leverage of a project is defined as the ratio of grant to non-grant investment in a project. 
The  possible  leverage  depends  on  each  project  and  is  limited  in  certain  sectors,  in  which  the 
profitability of projects is rather low, or in countries with high concessionality requirements.  

55 

 
                                                 
12.2.  Other EU blending mechanisms 

ACP  Investment  Facility  (IF):  Primarily  intended  to  support  private  sector  investment 
projects, the IF is a revolving fund of €3.5  billion (EDF funds) managed by the European 
Investment Bank (EIB), supporting investors via loans, equity or guarantee mechanisms. 
The  amount  of  €400  millions  in  grants  is  reserved  for  financing  interest  rate  subsidies 
and technical assistance (technical assistance is currently limited to €40 millions, 10% of 
the  grant  amount).  Since  2003,  €290  million  from 
the  IF  resources  have  been  blended 
with  resources  from  European  Development  Finance  Institutions  (EDFIs)  dealing  with 
the private sector such as FMO, Proparco or DEG under the European Financing Partners 
(EFP) Initiative to finance the private sector in ACP countries. The Commission gives its 
opinion on project proposals before new projects are approved.  

Support  for  the  Facility  for  Euro-Mediterranean  Investment  Partnership  (FEMIP): 
FEMIP,  managed  by  the  EIB,  supports  the  private  sector  and  the  creation  of  an 
investment-friendly environment. The Commission supports FEMIP with €233 million in 
the  creation/strengthening  of  equity  resources  for  SMEs  and  via  technical  assistance. 
Each investment has to be submitted to the Commission for approval.  

Global  Energy  Efficiency  and  Renewable  Energy  Fund  (GEEREF):  GEEREF  is  a 
structured  fund-of-funds  aiming  to  promote  energy  efficiency  and  renewable  energy  in 
developing countries. It invests in Private Equity Funds whose investments target SMEs' 
energy efficiency projects. The Commission has made available €75 million to GEEREF. 
So  far,  the  other  investors  are  Norway  (€10  million)  and  Germany  (€24  million).  The 
EIB/European Investment Fund (EIF) acts as fund manager, but the Commission together 
with  the  other  investors  takes  the  investment  decisions  as  part  of  the  Investment 
Committee.  Blending  is  meant  to  take  place  at  the  level  of  the  private  equity  funds  by 
attracting  private  investments  via  the  GEEREF  investments.  In  addition  private  and 
public financiers are also expected to invest directly into GEEREF.  

Finally, it is also worth mentioning the pooling mechanisms set up in the framework of 
the  ACP  Energy  and  Water  Facilities  under  the  10th  EDF:  within  each  facility,  €40 
million  have  been  made  available  for  financing  investments  in  those  two  sectors, 
capacity  building  actions  or  preparatory  studies  (either  via  direct  investment  grants, 
interest rate subsidy or technical assistance). Project proposals are submitted by the EIB, 
Member States development agencies or European development finance institutions.  

12.3.  The role of the EIB in investments in developing countries 

The EIB undertakes operations outside the EU in support of EU external policies based 
on unanimous decisions of its Board of Governors, either at its own risk for investment-
grade  operations  on  the  basis  of  Article  16  of  its  Statute  or  through  an  EU  budgetary 
guarantee covering risks of a sovereign or political nature. This guarantee is provided by 
means of a mandate (the so called 'external mandate') that takes the form of a decision by 
the Parliament and Council. Most recently, the EU guarantee was renewed by Decision 
No 1080/2011 EU of the European Parliament and of the Council of 25 October 2011. 
The  external  mandate  for  2007-2013  currently  covers  68  countries  and/or  territories  in 
Pre-Accession,  Neighbourhood,  Asian  and  Latin  American  countries  as  well  as  the 
Republic of South Africa. 

EIB  activities  in  ACP  countries  are  carried  out  under  the  separate  Cotonou  Agreement 
with EDF resources and with EIB own resources covered by a guarantee from Member 

56 

 
States. In relative terms, the lending activity outside the EU represents about 10% of the 
Bank’s activity. In 2010, projects signed outside the EU amounted to €8.8 billion out of 
an overall EIB financing of €71.8 billion. 

Regional ceilings of the EIB's General Mandate (2007-2013) 

A. Pre-accession countries: €9,048 million 

B. Neighbourhood and Partnership countries: €13,548 million broken down into the following 
indicative sub- ceilings:  

(i) Mediterranean countries: €9,700 million 
(ii) Eastern Europe, Southern Caucasus and Russia: €3,848 million 

C. Asia and Latin America: €3,952 million,  broken down into the following indicative sub-
ceilings:  

(i) Latin America: €2,912 million 
(ii) Asia (including central Asia): €1,040 million 

D. Republic of South Africa: €936 million 

Climate Change Mandate: €2,000 million  

TOTAL: €29,484 million 

13.  EU SUPPORT TO IMPROVING DEVELOPING COUNTRIES' RESILIENCE AND RESPONSE 

TO CRISES 

Crises,  in  particular  natural  disasters,  conflicts  –  often  linked  to  the  control  of  natural 
resources – and commodity price shocks, can jeopardise developing countries' long-term 
development efforts. The European Commission has launched its own initiatives to help 
developing  countries  address  these  issues  and  supports  a  number  of  promising 
international  initiatives  that  promote  good  governance  and  transparency  in  the  natural 
resources  sector.  Sustainable  management  of  natural  resources  offers  great  potential  to 
contribute  to  poverty  alleviation,  inclusive  growth  and  sustainable  development.  In 
several developing countries, however, the extraction and processing of natural resources 
have  been  associated  with  the  misuse  of  revenues,  economic  setbacks,  environmental 
destruction,  political  conflict  and  state  fragility.  The  evidence  from  many  resource-rich 
countries  shows  that  they  are  performing  lower  on  the  human  development  indicators 
than  less-endowed  countries,  an  underperformance  referred  to  by  the  term  "resource 
curse". 

13.1.  Forest Law Enforcement, Governance and Trade (FLEGT) 

Forests are a vital resource for many developing countries contributing to the livelihoods 
of the majority by providing food and raw materials for subsistence and supporting the 
local economy. Wood fuel is often the main source for all domestic and industrial uses. 

At  the  same  time,  illegal  logging  is  a  major  problem  for  many  timber-producing 
countries.  Illegal  logging  slows  down  sustainable  development  in  some  of  the  poorest 
countries  of  the  world  and  is  a  major  contributor  to  global  deforestation.  Consumer 
countries  contribute  to  these  problems  by  importing timber and wood  products without 
ensuring that they are legally sourced. In recent years, however, producer and consumer 
countries alike have paid increasing attention to illegal logging.  

57 

 
 
 
 
 
 
 
 
The Commission's Action Plan on Forest Law Enforcement, Governance and Trade 
(FLEGT)  was  endorsed  by  Council  in  2003.  The  Action  Plan  blends  measures  in 
producer and consumer countries to facilitate trade in legal timber, and eliminate illegal 
timber  from  trade  with  the  EU.  It  proposes  support  for  timber  producing  countries, 
efforts to develop multilateral collaboration to tackle trade in illegal timber, support for 
private  sector  initiatives  as  well  as  measures  to  avoid  investment  in  activities  that 
encourage illegal logging. 

The cornerstone of the Action Plan is the establishment of voluntary FLEGT Voluntary 
Partnership Agreements (VPA) between the EU and timber producing countries aimed at 
stopping  illegal  logging.  FLEGT  VPAs  are  bilateral  trade  agreements  which  aim  to 
guarantee that the wood exported to the EU is from legal sources and to support partner 
countries in improving their own regulation and governance of the sector. 

Six  countries  have  concluded  a  VPA  with  the  EU  and  are  implementing  the  systems 
agreed:  Ghana,  Indonesia,  Cameroon,  Congo,  Central  African  Republic  and  Liberia.  In 
addition,  four  countries  are  presently  negotiating  VPAs  with  the  EU:  Gabon,  Vietnam, 
Malaysia and the DRC. Furthermore, there are around 15 countries from Africa, Asia and 
Central and South America that have expressed interest in a VPA.  

Key facts about forests and illegal logging: 

-  Some  1.2  billion  people,  a  fifth  of  the  world’s  population,  depend  on  forests  for  their 
livelihoods. 

- Global deforestation still occurs at an alarming rate of 13 million hectares a year. Deforestation 
is responsible for half of the CO2 emissions from developing countries and account for close to 
20% of global emissions, more than the entire global transport sector. Illegal logging is one of the 
main drivers of deforestation.  

- Studies suggest that 20-40% of trade from tropical countries has been illegally harvested timber. 
Some  $15  billion  of  revenues  are  lost  every  year  due  to  illegal  logging.  Furthermore  it  is 
estimated that illegal logging depresses timber prices by 16%. 

- The EU is one of the largest consumers of timber in the world. In 2007, the EU imported the 
equivalent of 180 million m3 of timber for a value of $40 billion.  

In addition to the FLEGT VPA, in 2010 a new Regulation was adopted, Regulation (EU) 
995/2010  –  also  known  as  the  EU  Timber  Regulation.  The  Regulation  obliges  EU 
operators  placing  timber  and  timber  products  to  exercise  "due  diligence"  so  as  to 
minimise  the  risk  of  illegal  timber  being  present in the  supply chain.  It applies  to both 
EU  and  imported  timber  and  will  apply  from  March  2013.  FLEGT-licensed  timber  is 
explicitly recognised as complying with the requirements of the Regulation,   

Taken  together  with  development  cooperation  support  from  the  Commission  and  EU 
Member  States,  as  well  as  of  course  investments  of  financial  and  human  resources  by 
timber exporting countries, these represent a major effort to ensure the legality of timber 
in international trade, a basic precondition for sustainable forest management. 

58 

 
 
13.2.  European  Commission  proposal  on  mandatory  disclosure  requirements  for 

the extractive and logging industry 

On  25  October  2011,  the  Commission  adopted  legislative  proposals62  requiring  the 
disclosure  of  payments  on  a  country-and-project  basis  by  listed  and  large  unlisted 
companies with activities in the extractive industry (oil, gas and mining) and logging of 
primary  forests.  The  EC  proposal  would  apply to EU privately-owned large companies 
and  companies  listed  in  the  EU  that  have  activities  in  the  oil,  gas,  mining  or  logging 
sectors. Targeting both types of companies would create a level playing field in the EU. 
It  reflects  the  fact  that  large  unlisted  companies  can  potentially  make  significant 
payments to governments in the countries in which they operate. 

Both extractive and forestry industries are often associated with a great source of wealth 
in  resource-rich  developing  countries.  By  disclosing  payments  to  governments  by  the 
extractive and forestry industries, communities in resource-rich countries would be better 
informed  about  government  income  and  from  licensing  such  activity  and  whether  the 
cost to society from exploited the natural resource is adequate.  

In  order  to  cover  the  various  types  of  companies  active  in  these  industries,  the 
Commission  proposed  to  revise  both  the  Transparency  Directive63  to  cover  listed 
companies  and  the  Accounting  Directives64  to  cover  large  unlisted  companies.  During 
the  next  months,  both  the  European  Parliament  and  the  EU  Council  will  consider  the 
legislative proposal, and both bodies must be in agreement for it to be approved. 

13.3.  The Kimberley Process 

In  2003,  the  EU  became  a  founding  member  of  the  Kimberley  Process  (KP),  the  UN-
backed  international  initiative  to  combat  ‘conflict  diamonds’  that  fuelled  horrific  civil 
wars in Africa.. The EU has adopted Regulation (EU) n° 2368/2002 setting out detailed 
rules  for  implementation  of  the  KP’s  certification  scheme  that  aims  at  preventing 
diamond  trade  from  funding  conflict.  The  KP’s  efforts  to  promote  traceability  of 
diamond production and trade have proved remarkably successful, and have contributed 
to  reducing  drastically  the  occurrence  of  ‘conflict  diamonds’.  Furthermore,  the 
Kimberley Process’ emphasis on good governance and transparency has helped stabilise 
fragile countries and has supported development.  

The EU has actively contributed to the Kimberley Process, which it chaired in 2007. the 
EU continues to chair the KP’s Monitoring Working Group, provides statistical expertise 
and  satellite  imagery  to  strengthen  KP’s  implementation,  and  has  supported  KP 
implementation  in  countries  such  as  Liberia  or  Ghana  through  technical  assistance.  KP 
implementation,  however,  remains  a  challenge,  and  there  have  been  calls  for  a  wide-
ranging  reform  of  the  KP,  in  particular  as  far  as  its  focus  on  ‘conflict  diamonds’  is 
concerned.  

62   http://ec.europa.eu/internal_market/accounting/other_en.htm 
63   Directive  2004/109/EC  of  the  European  Parliament  and  of  the  Council  of  15  December  2004  on  the 
harmonisation of transparency requirements in relation to information about issuers whose securities are admitted 
to trading on a regulated market and amending Directive 2001/34/EC. 

64   COM  (2011)  684  Final,  Proposal  for  a  Directive  of  the  European  Parliament  and  of  the  Council  on  the  annual 
financial statements, consolidated financial statements and related reports of certain types of undertakings. 

59 

 
                                                 
13.4.  The Vulnerability Flex Mechanism (V-FLEX) 

Unlike  developed  economies  many  ACPs  do  not  have  sufficiently  developed  counter-
cyclical  fiscal  measures  or  “automatic  stabilisers”  such  as  the  use  of  unemployment 
benefits  to  cushion  the  impact  of  a  decline  in  overall  demand.  Low  Income  Countries 
(LICs) in particular are highly vulnerable to economic shocks because of the magnified 
impact on incomes and resultant negative effect on poverty indicators. 

In order to reduce the adverse effects of commodity price volatility, the EU designed the 
Vulnerability  Flex  Mechanism  (VFLEX)  in  early  2009  as  a  short-term  counter-cyclical 
tool to help mitigate the effects of macroeconomic pressure on those ACP countries most 
affected by the global food and financial crises.  

The  VFLEX  had  an  allocation  of  €500  million  over  the  period  2009-2010.  Some  €236 
million  was  allocated  to  15  eligible  ACP  economies  in  2009  and  the  balance  of  €264 
million allocated to 19 eligible ACP countries in 2010. Support was mostly provided as 
additional  disbursements  of  general  budget  support,  with  an  allocation  to  help  protect 
countries  faced  with  liquidity  rather  than  solvency  problems  from  further  economic 
destabilisation. It also avoided cuts in pro-poor or development expenditure. 

This followed the creation of the €1 billion  worth EU Food Facility at the end of 2008 
worth and the re-allocation of European Development Fund (EDF) monies in 2008-2009 
under the so-called Envelope B to help them absorb macroeconomic shocks in 2008. 

Whilst it is too early to assess the ex-post impact of VFLEX funding there is a general 
sense  that  the  tool  had  the  desired  effect  of  preventing  countries  faced  with  liquidity 
rather  solvency  problems  from  further  economic  destabilisation.  In  this  sense  the 
immediate impact as a counter-cyclical measure worked.  

The role of financial instruments in addressing natural disaster and food security 

Financial instrument can play a positive role in relation to natural disasters and food security at 
both  micro  and  at  macro  levels.  However,  in  developing  countries  these  instruments  and  the 
financial markets remain in general underdeveloped: 

-  Insurance:  Traditionally,  countries  rely  on  ex-ante  accumulation  of  reserves,  or  on  ex-post 
increase in taxes and/or debt levels and/or ad hoc external donor support to address the cost of 
natural  disasters.  Providing  for  disasters  by  means  of  insurance  secures  at  least  some  of  the 
needed  resources  in  advance.  The  experience  in  advanced  economies  shows  that  many  natural 
perils are insurable, and markets for disaster risk insurance are well established there. Some other 
countries have also made positive experiences: for instance, a group of Caribbean countries have 
insured  themselves  against  hurricanes,  others  against  earthquakes  and  some  governments  have 
"insured" themselves against unfavourable developments of key commodity prices by engaging 
at the futures market. Insurance can also offer a direct (or indirect via the government) financial 
support to farmers following a bad harvest caused by bad weather. Furthermore, by being insured 
against  major  losses,  farmers  may  more  easily  make  the  step  out  of  subsistence  farming,  by 
buying more inputs and investing in more efficient technology. 

-  Capital  markets:  Two  innovations  have  enhanced  the  possibilities  for  passing  risk  to  capital 
markets: the use of parametric insurance triggers and the growth of the catastrophe bond market. 
Examples  of  parametric  insurance  are  so-called  weather  derivatives,  which  link  payouts  to  the 
occurrence  of  a  certain  weather  event (such as precipitation falling short of certain thresholds). 
As for catastrophe bonds, they are high-yield debt instruments that are usually insurance-linked 
and  meant  to  raise  money  in  case  of  a  catastrophe  such  as  a  hurricane,  other  adverse  weather 
conditions  or  an  earthquake.  They  include  a  special  condition  which  states  that  if  the  issuer 

60 

 
(government,  insurer  or  reinsurer)  suffers  a  loss  from  a  particular  predefined  disaster,  then  the 
issuer's  obligation  to  pay  interest  and/or  repay  the  principal  is  either  deferred  or  completely 
forgiven. 

The  EU  supports  the  World  Bank's  commodity  risk  management  team  to  develop  targeted  risk 
management  schemes  for  developing  countries.  It  is  also  the  main  donor  of  the  Global  Index 
Insurance  Facility,  managed  by  the  IFC  of  the  World  Bank  Group,  with  the  aim  to  make 
parametric weather insurance workable on the ground in developing countries. 

14.  SUSTAINABILITY-BOUND SCHEMES 

Sustainability schemes  can  be a means  to secure a greater share of the value added for 
producers, notably small-holder farmers and cooperatives, in developing countries. Fair, 
ethical  and  organic  products  enjoy  growing  demand  by  consumers  in  emerging  and 
developed countries. Sustainability-bound production and trade schemes offer a market-
based  business  model  that  can  contribute  to  poverty  alleviation  and  be  an  effective 
strategy to increase the development impact of trade, especially for the poorest and most 
marginalised parts of the population in developing countries.  

14.1.  Fair and ethical trade 

The Commission, in its Communication of 5 May 2009 on "Contributing to sustainable 
development:  The  role  of  fair  trade  and  nongovernmental  trade-related  sustainability 
assurance  schemes65,"  recognised  the  potential  contribution  to  sustainable  development 
of fair trade and other trade-related sustainability assurance schemes66. Underlining the 
voluntary nature of such schemes, the Commission has opted for an approach which aims 
not to privilege one scheme above another and to let the private initiatives and the market 
(including through public procurement) do their work. 

Following the 2009 Communication, the Commission undertook a number of initiatives 
in support of fair and ethical trade: 

•  Public procurement: Adoption in January 2011 of "Buying social67," a document that 
provides  specific  guidance  to  public  authorities  on  how  to  promote  fair  and  ethical 
trade through their purchasing policies and practices a guide to social considerations 
in  public  procurement.  It  encourages  contracting  authorities  to  take  sustainability 
issues  into  account  in  a  neutral,  non-discriminatory  way  in  their  purchasing 
decisions.  

Tackling rural poverty in the Occupied Palestinian Territory 

Agriculture is one of the most significant sectors of the Palestinian economy and the country’s 11 
million  olive  trees  provide  a  living  for  some  100,000  families.  To  help  improve  the  income  of 
some  of  the  more  marginal  olive  farms,  the  EU  funded  a  three-year  project  targeted  at  about 

65   COM(2009) 215 final  
66  Other  communications  have  made  similar  statements,  including  the  2006  Communication  “Making 
Europe  a  pole  of  excellence  on  corporate  social  responsibility”  and  more  recently  the  2011 
Communication on “A renewed EU strategy 2011-14 for corporate social responsibility” 
67   "Buying Social - A Guide to Taking Account of Social Considerations in Public Procurement" 

61 

 
 
 
 
                                                 
2,400 olive-farming households in 10 villages in the West Bank. The project aimed to improve 
efficiency  by  providing  olive  farmers  with  training  on  pruning  techniques  and  pest control and 
also improve product quality by clamping down on the rampant adulteration of new oil with old 
oil or the mixture of olive oil with other types of oil. By the end of the project, 467 new farmers 
became certified as organic producers and the area of land dedicated to growing olives using the 
organic  system  had  increased  by  338%,  well  above  the  target  of  200%.  Delays  in  sending 
collected  harvests  to  olive  presses  were  reduced  and  hygiene  at  olive  presses  was  improved.  A 
number  of  olive  mills  in  the area were refurbished and provided with spare parts and technical 
training. Production at the farms of certified organic Fairtrade olive oil increased from 112 tonnes 
in the first year to 282 tonnes in the third year of the project. The project has shifted the focus of 
oil farmers in the West Bank from quantity to quality and the main aim is now the extraction of 
high quality olive oil. The project is widely seen as a success with olive oil from the area recently 
taking a number of national and international awards for its quality. 

•  Financing:  Funding  of  specific  development  cooperation  programmes  has  helped 
increasing  the  participation  of  small  producers  in  developing  countries  in  various 
schemes, such as 'Fair Trade'. Further support for the uptake and development of fair 
and ethical trade has been provided mainly through: 

o  General  trade  and  private  sector  development  support  programmes  that  aim  to 
foster  an  improved  business  enabling  environment  or  strengthen  productive 
capacities and can benefit all private sector actors, including those active in fair 
trade and other sustainability schemes; 

o  More  targeted  trade  and  private  sector  development  support  programmes, 
including  pro-poor  value  chain  and  responsible  supply  chain  development, 
capacity-building  for  small  holders  and  producers,  development  of  fair  and 
ethical trade product lines, etc.  

o  Support  for  fair  and  ethical  trade  in  agricultural,  rural  development  and  food 
security programmes contributes to poverty reduction, given that the majority of 
poor  people  live  in  rural  areas  and  work  in  agriculture.  Support  to  such 
programmes  helps  ensure  that  agricultural  development  can  benefit  small 
producers in a sustainable way and protect their rights. 

o  Support  for  non-state  actors  in  the  areas  of  awareness-raising  and  educational 
activities  in  EU  Member  States,  activities  supporting  market  transparency  of 
voluntary standards schemes in the EU, or impact assessments or development of 
fair and ethical trade activities in developing countries; 

•  Policy  coherence:  The  Directorate  General  for  Trade  hosts  the  Commission's  fair 

trade focal point. 

EU  support  for  the  International  Trade  Centre  (ICT)  for  transparency  in  voluntary 
sustainability standards 

The  European  Commission  provides  €200,000  worth  of  support  to  ITC  for  the  further 
development and dissemination of the Trade for Sustainable Development (T4SD) project, a web 
portal  providing  free,  impartial,  comprehensive,  up-to-date  and  comparable  information  on 
voluntary  sustainability  standards.  The  project  aims  at  improving  transparency  in  voluntary 
sustainability  standards  and  strengthening  the  capacity  of  policy-makers,  producers,  exporters 
and buyers to participate in more sustainable production and trade. 

62 

 
14.2.  Organic production 

Organic  farming  is  a  method  of  agricultural  production  which  uses  organic  production 
methods and places the highest emphasis on environmental and wildlife protection and, 
with  regard  to  livestock  production,  on  animal  welfare  considerations.  Organic 
production  involves  holistic  production  management  systems  for  crops  and  livestock, 
emphasizing  on-farm  management  practices  over  off-farm inputs. This is  accomplished 
by  avoiding,  or  largely  reducing,  the  use  of  synthetic  chemicals  such  as  fertilizers, 
pesticides,  additives  and  veterinary  medicinal  products,  replacing  them,  wherever 
possible, with cultural, biological and mechanical methods.  

Under  EU  rules,  farming  is  considered  to  be  organic  if  it  complies  with  Regulation 
834/2007 of 28 June 2007 on organic production and labeling of organic products. The 
EU regulatory system allows for all third country imports to be labelled as organic and 
sold on the EU market either by recognising the equivalence of the non-EU system or by 
approval of control bodies who undertake to certify product as complying with EU rules. 
Developing  country  imports  are  mostly  managed  by  approved  certifying  bodies,  both 
international  bodies  and  bodies  from  developing  countries.  Within  the  EU,  the 
Commission manages directly labelling schemes for organic farming which are open to 
producers in developing countries. 

The EU accounts for 48% of the world market for organic product and was worth about 
€12 billion at wholesale price in 2009.  

African Union – EU initiative on agricultural quality products 

In order to boost awareness of the potential of organic farming in Africa, the African Union (AU) 
Commission  and  the  European  Commission,  meeting  in  June  2011  in  the  “College-to-College” 
process, agreed to hold a joint workshop on organic farming. The conclusions of the workshop, 
held in Brussels, Belgium, in July 2011, evidenced substantial activity across Sub-Saharan Africa 
in the development of organic farming. In particular, for smallholders using low-input or no-input 
production, the transition to a productive agricultural system using rotation, composting, rotation 
and  improved  seed,  can  be  accompanied  by  increasing  yields  (contrary  to  the  experience  in 
developed countries), which offers the perspective of sustainable intensification by conversion to 
organic  methods.  The  workshop  also  noted  the  development  of  the  AU’s  Ecological  Organic 
Action Plan (2011), which provides a blueprint for development of the sector across Africa. 

14.3.  Other schemes 

A wide variety of other certification and product assurance schemes operate, in particular 
in the agricultural, fisheries and forestry sectors, to give importers, buyers and consumers 
guarantees  about  product  including  from  developing  countries.  Many  focus  on 
environmental  and  sustainability  criteria,  such  as  carbon  emissions,  water  use, 
sustainable farming, sustainable fishing, or adherence to good agricultural practice (e.g. 
in the use of pesticides).  

63 

 
Over  400  private  schemes  operate  in  the  agricultural  sector68  alone,  providing 
information to consumers about product characteristics or production attributes, backed 
up  by  certification.  Consumers  must  be  able  to have confidence  in  the labelling claims 
and  in  2010,  in  response  to  comments  from  stakeholders,  the  Commission  adopted  a 
Communication  on  agricultural  product  quality  policy69  addressing  EU  and  private 
schemes in the agri-food sector. Concerning private schemes, EU best practice guidelines 
for  voluntary  certification  schemes  for  agricultural  products  and  foodstuffs70  were 
adopted  by  the  Commission  after  extensive  consultation  with  stakeholders.  The 
transparency 
guidelines 
recommendations  and  the  need  to  take  account  of  impacts  of  schemes  on  producers  in 
developing countries and facilitate their participation in such schemes.  

lay  down  best  practice  for 

these  schemes 

including 

15.  MULTILATERAL ASPECTS 

The EU has consistently advocated trade liberalisation and a strong rules-making system 
flanked  by  a  robust  dispute-settlement  mechanism  as  a  driver  for  establishing  and 
promoting  a  sound  and  growth-oriented  domestic  framework,  and  for  ensuring  a  level-
playing field in the  global trading system.  In  this  context,  transparency and monitoring 
the implementation of WTO rules by its members also remains essential (including under 
the Trade Policy Review Mechanism). While the system offers substantial opportunities 
for  all,  the  EU  has  strived  to  ensure  that  developing  countries,  and  particularly  LDCs, 
effectively benefit from the multilateral system.   

15.1.  WTO accession 

One  of  the  indicators  of  the  attractiveness  of  the  multilateral  trading  system  lies  in  the 
momentum  towards  membership.  Out  of  the  48  LDCs,  31  have  already  become  WTO 
members.  Some  29  countries  are  currently  candidates  for  WTO  membership/applicants 
in negotiations; most of those are developing countries, including 12 LDCs. 

Whilst  the  EU  is  convinced  that  seeking  WTO  accession  is  a  driver  for  reforms  of 
domestic administrative, regulatory and institutional practices and rules, and creates the 
conditions for benefiting from increasing global trade flows, the EU also acknowledges 
that such a process is often long and demanding. It can constitute a challenge, especially 
for countries facing capacity constraints and having to address policy shortcomings and 
structural  weaknesses.  The  EU  has  thus  constantly  showed  readiness  to  respond  to 
technical assistance needs in the context of WTO accessions. 

Taking account of the specific needs and challenges faced by LDCs, the EU, along with 
other WTO members, has continuously expressed willingness to streamline and simplify 
the accession process for these countries in a way that both preserves the robustness of 

68  See 2010 'Inventory of certification schemes for agricultural products and foodstuffs marketed in the 
EU Member States' prepared for the European Commission, at: 

http://ec.europa.eu/agriculture/quality/certification/inventory/inventory-data-aggregations_en.pdf 

69  COM(2009) 234, 28.5.2009 

70  2010/C 341/04, OJ C 341 of 16.12.2010 p.5. 

64 

 
 
                                                 
the  system  and  responds  to  their  requests  for  assistance  and  guidance.  This  approach, 
clearly set out in the 2002 Communication, has translated into a strong EU support to the 
General Council Decision of 10 December 2002 on the accession of LDCs, against which 
any LDC request for accession is now assessed. Thus, the EU holds the view that, while 
there  should  be  clear  commitments  in  terms  of  reforms,  there  is  room  for  a  flexible 
approach  in  terms  of  commitments  on  trade  in  goods  and  services,  and  the  EU  duly 
exercises restraint in that respect. 

15.2.  Taking development into account in mainstream WTO work 

Following  the  Uruguay  Round,  the  WTO  agreements  provide  for  a  consolidated 
framework for liberalisation and a comprehensive set of rules. The EU believes that these 
ensure that the conditions for fair and balanced competition are in place at a global level, 
but  also  acknowledges  that  the  implementation  of  these  agreements  may  create 
difficulties for some developing countries struggling with internal weaknesses. In many 
areas,  the  WTO  agreements  already  take  account  of  such  challenges  and  include 
commitments  to  provide  assistance  to  developing  countries  in  order  to  improve  their 
regulatory,  administrative  and  institutional  capacity.  The  EU  has  been  keen  to  address 
the needs expressed in that context.  

Aid for Trade (AfT) plays a key role in helping developing countries, especially LDCs, 
to improve their trade-related knowledge and capacity in order to make the most of the 
WTO agreements. Beyond technical assistance, developing countries can rely on specific 
–  more  favourable  –  provisions  allowing  for  special  and  differential  treatment  (SDT) 
enshrined in the various WTO agreements or further developed on the basis of these.  

The EU has taken the position that SDT provides flexibilities that may prove suitable for 
addressing the specific needs of some countries either horizontally or on a case-by-case 
basis. The EU has for instance played a leading role in the intensely negotiated Decision 
on the Implementation of Paragraph 6 of the Doha Declaration on the TRIPS Agreement 
and Public Health adopted in 2003 and which establishes a mechanism aimed at allowing 
poorer  countries  to  benefit  from  generic  versions  of  patented  drugs.  Likewise,  the  EU 
was actively engaged in the negotiation leading to the adoption in 2004 and revision in 
2009 of a Procedure to Enhance Transparency of Special and Differential Treatment in 
Favour of Developing Country Members under the WTO Agreement on the Application 
of Sanitary and Phytosanitary Measures. So far, the EU has also be the only one to put 
this provision into practice.  

This  being  said,  while  flexibilities  remain  a  useful  tool,  practice  raises  the  issue  as  to 
why  they  have  been  used  so  little.  For  instance,  the  system  established  under  the 
Declaration  on  the  TRIPS  Agreement  and  Public  Health  was  used  only  once,  while  no 
member  has  had  recourse  so  far  to  the  Procedure  to  Enhance  Transparency  in  the  SPS 
field. 

15.3.  Intellectual Property Rights and development 

While  the  majority  of  existing  IP  rights  (IPRs)  are  held  in  developed  countries, 
developing  countries,  in  particular  emerging  economies,  are  fast  redressing  the  balance 
of ownership, thus making IPRs increasingly relevant. Some of the main benefits of IPRs 
in developing countries include the protection of their own intellectual assets, promoting 
foreign  investment,  safeguarding  jobs  and  tax  revenues,  and  combating  risks  regarding 
health and safety. As in developed countries, the situation in developing countries varies 

65 

 
greatly in terms of their innovative potential, the education of their work force, and in the 
structure and funding of research and development. 

Geographical Indications (GIs), which identify and protect the name of a product whose 
quality,  reputation  or  characteristics  is  essentially  attributable  to  its  geographic  origin, 
are of particular relevance to developing countries. In addition to providing protection of 
legitimate producers against misuse and imitation, offering the possibility of registering 
GIs  encourages  diversification  of  production  and  related  tourism;  it  can  furthermore 
contribute  to  preserving  natural  resources,  rare  plants  or  breeds  and  traditional  know-
how.  

Marketing under GI-protected labels is a proven way of distinguishing quality products 
in  the  market  place.  This  assists  consumers  seeking  products  linked  with  their  specific 
region  of  production,  and  enables  producers  of  authentic  product  to  secure  a  price 
premium.  By  linking  the  attribute  with  its  origin,  the  GI  system  also  ensures  that  the 
value  added  of  the  label  accrues  to  the  original  producers  in  the  geographical  area.  In 
sub-Saharan  Africa,  the  regional  intellectual  property  offices  are  in  the  process  of 
developing  and  implementing  effective  GI  systems.  In  addition  the  African  Union 
Commission  and  the  European  Commission  have  launched  a  joint  initiative  to  boost 
development of GIs in the frame of the AU-EU “College-to-College” process. 

Example of a protected geographical indication: Darjeeling 

In October 2011, the EU registered71 the name ‘Darjeeling’ as a protected geographical indication 
(PGI) to designate tea from gardens situated at an altitude of between 600 and 2,250 metres on 
steep slopes in the district of Darjeeling, in the state of West Bengal, India. The environmental 
factors  of  the  area  and  the  production  method,  including  selective  hand  harvesting  of  leaves, 
result  in  a  tea  having  specific  characteristics.  The  final  registration  decision  of  'Darjeeling' 
clarified that the name only be used as a sales designation for tea that is wholly produced in the 
geographical area in accordance with the specifications. Blends of Darjeeling and other teas may 
not  bear  the  name  ‘Darjeeling’  as  the  sales  designation.  However,  existing  users  of  the 
‘Darjeeling’  name  to  designate  teas  not  in  conformity  with  the  specifications  were  granted  a 
transitional period limited to five years to continue to use the name. The Darjeeling registration 
illustrates  how  developing  country  producers  can  ensure  that  a  product  marketed  under  the 
registered geographical indication corresponds to the specifications laid down by the producers 
themselves. 

The geographical indication system enables producers of a specific and geographically-
linked  product  in  developing  countries  to  exercise  some  control  over  the  quality, 
handling and marketing of the product in the EU. In particular, the producers collectively 
can ensure that products like coffee and tea sold under the protected name corresponds to 
the quality specification laid down, ensuring the consumer receives the authentic product. 

The  Commission's  Policy  Coherence  for  Development  Work  Programme  2010-2013 
contains a section on IPR, include the following three targets: 

71  Commission Implementing Regulation (EU) No 1050/2011 entering a name in the register of protected 
designations of origin and protected geographical indications (Darjeeling (PGI)) OJ L 276, 21.10.2011, 
p.5. 

66 

 
 
                                                 
 
−  To make better use of IPRs for development, for example to promote investment and 
innovation  and  to  facilitate  IPR  protection  in  the  EU  of  export  products  from 
developing countries. 

−  Ensure  that  balanced  IPR  provisions  (e.g.  in  bilateral  agreements)  help  developing 
countries  to  leverage  the  value  of  their  intellectual  creations  and  to  promote 
technological progress, innovation and support domestic and foreign investment. 

−  Preserve  access  to  affordable  medicine  in  line  with  the  principles  of  the  Doha 

Declaration and subsequent WTO agreements and EU legislation. 

The Commission incorporates a differentiated  approach according to countries' level of 
development, particularly in regard to LDCs. For instance, in examining specific needs 
and  requirements  in  relation  to  TRIPS  implementation,  the  EU  has  agreed  to  give 
favourable  consideration  to  a  duly  motivated  request  from  LDC  Members  to  extending 
the  previously  agreed  implementation  deadline  of  1  July  2013,  as  well  as  appropriate 
technical assistance. Concerning patents related to pharmaceuticals, the transition period 
under the TRIPS agreement is until 2016 for all LDCs. 

Access to medicines and public health 

It is important to ensure access to medicine, including generics, for developing countries, while 
ensuring incentives for further pharmaceutical research and innovation through the protection of 
intellectual property rights (IPRs). To this end, a careful balance needs to be maintained between 
these  two  objectives.  In  this respect, the EU played a leading role in the adoption of the WTO 
Doha Declaration on TRIPS and public health in 2001. The EU was also actively involved in the 
negotiation of the WTO Decision of August 2003 on the implementation of Paragraph 6 of the 
Doha  Declaration  which  allows  developing  countries  to  grant  compulsory  licences  for  the 
production of medicines for export. 

The EU is also the largest provider of resources to support public health policies in developing 
countries In addition, the EU has: 

- Implemented at the EU level the WTO decision allowing the manufacturing and export under 
compulsory licence of generic medicine to developing countries with public health problems and 
without  sufficient  production  capacities,  and  accepted  the  Protocol  amending  the  TRIPS 
Agreement to make this solution permanent (Regulation (EC) No 816/2006); 

- Established a tiered pricing mechanism with regard to essential medicines (Council Regulation 
(EC)  953/2003).  Price  segmentation  between  developed  countries  and  the  poorest  developing 
countries  is  necessary  to  ensure  that  the  latter  are  supplied  with  essential  medicines  at  heavily 
reduced prices; 

- Clarified that clinical trials conducted with a view to the marketing of generic medicines shall 
not  be  regarded  as  contrary  to  patent  rights  (Directive  2004/27/EC).  This  facilitates  the 
preparation of generic medicine in advance of loss of exclusivity. 

In  addition,  it  is  vital  to  protect  public  health  by  preventing  the  marketing of fake, low quality 
and potentially high risk medicines. 

Last but not least, it shall be noted that EU FTAs do not prevent the other party from using the 
TRIPS flexibilities or, generally, promoting access to medicines. 

67 

 
15.4.  Effective participation of developing countries 

The  progressive  transformation  of  the  global  system  has  gone  hand  in  hand  with  a 
stronger affirmation of developing countries in the WTO decision-making process. While 
"developing countries" – a 'status' based on self-designation – do not constitute a group 
per  se,  they  form  the  wider  part  of  the  WTO  constituency  and  have  increasingly 
participated in the work of WTO committees, be it in formal sessions or in more informal 
settings  such  as  small-format  consultations.  LDCs  have  organised  themselves  as  a 
distinct group with contributions of its own. This transformation has also been tangible in 
the litigation pillar of the WTO. For instance, from a mostly defensive position upon its 
accession in 2001, China has now become a litigator equivalent to the EU or the US. 

The WTO is one amongst many international organisations where the shift in economic 
power at the global scale has resulted in developing countries gaining a major say. That 
changing picture therefore raises the issue of whether and how to adapt institutions like 
the  WTO  to  new  realities  in  order  to  maintain  the  smooth  functioning  of  these  entities 
while ensuring that due consideration is given to countries most in need. 

15.5.  The Doha Development Agenda 

The  EU  remains  convinced  that  the  completion  of  the  Doha  Round  remains  the  best 
avenue  for  boosting  recovery  and  enhancing  growth  worldwide.  Responses  to  the 
Commission's on-line public consultation showed broad support for a fast conclusion and 
implementation of the Doha Round. Several respondents also emphasised that the DDA 
and the multilateral level should remain the EU trade policy's priority. 

Trade facilitation 

With  production  processes  becoming  deeply 
intertwined  and  business  competitiveness 
increasingly  conditioned  by  rapid  and  seamless  supply  chains,  trade  facilitation  (involving 
measures  to  simplify  and  modernise  customs  and  other  import  and  export  procedures  and 
requirements) has become a core element of any trade-led development strategy. For businesses, 
this  is  crucial  to  promote  transparency,  cut  red  tape  and  stop  the  proliferation  of  incompatible 
requirements. For governments, trade facilitation provides greater security through more effective 
controls, it improves the investment climate and promotes higher customs revenues72 (which still 
account for a large share of developing countries' fiscal revenues but where losses can exceed 5% 
of GDP because of inefficient border procedures). 

Trade  facilitation  projects  can  be  extremely  effective  in  this  respect:  in  Burundi,  tax  revenue 
increased by 25% between 2009 and 2010 after the Burundi Revenue Office was implemented; 
custom reform in Cameroon increased revenue by 12% while the number of declarations assessed 
by officials in a day increased by 130%; in Colombia, the administrative procedure for certifying 
origin  was  cut  down  from  2-3  days  to  ab  average  of  10  minutes;  in  Ethiopia,  custom  reform 
increased  import  transactions  by  about  190%  and  export  transactions  by  200%,  and  custom 
revenues  increased  by  51%;  the  time  needed  to  register  a  new  business  in  Mexico  went  down 
from 34 days to 2.5 hours, eliminating double certification costs of $213 million; in Mongolia, 
data  processing  modernisation  reduced  imports  clearing  time  from  more  than  3  hours  to  23 
minutes, and export clearing time from over 2 hours to 13 minutes on average. 

72 To be noted that trade agreements do not necessarily lessen tariff revenues. Studies show that the DDA could 
actually increase tariff revenues in Africa thanks to the elimination of prohibitive tariffs and trade volumes 
increases. 

68 

 
                                                 
There is a growing literature showing that trade agreements in their own right (simply by cutting 
tariffs  and  boosting  trade  volumes)  lead  to  lower  transport  costs  and  trade  facilitation 
improvements (a 10% increase in trade volumes reduce transport costs by 0.8%). An agreement 
on  trade  facilitation  as  mandated  under  the  DDA  offers  substantial  development  benefits  by 
ensuring coherent reforms in all WTO members to facilitate trade both domestically and on the 
export markets. While all WTO members stand to benefit, this would be particularly useful for 
developing  countries  and  the  landlocked  countries  among  them.  Moreover,  the  ongoing 
negotiations break new ground in respect of special and differentiated treatment. They envisage 
an  implementation  structure  tailored  to  the  individual  needs  and  capacities  of  each  developing 
country  and  supported,  where  required,  by  donor  assistance.  The  EU  has  provided  specific 
support  within  the  framework  of  the  ongoing  WTO  trade  facilitation  negotiations  including 
regular funding of participation officials from capitals in the meetings of the Negotiating Group 
on Trade Facilitation, a contribution to the need assessment exercise and an ongoing contribution 
to the process of implementation planning with regard to the future Trade Facilitation Agreement 
channelled via the UNCTAD Trade Facilitation Trust Fund.  

In  this  multilateral  negotiation  exercise,  it  was  clear  from  the  outset  that  all  members 
were to contribute, just as benefits were expected for all. That said, the Doha Round was 
conceived  as  a  development  round,  where  the  development  of  a  consolidated  system 
would be combined with appropriate flexibilities for the poorer countries. In line with its 
mandate, the EU has strived for suitable arrangements throughout the negotiations. 

In terms of market access, the EU has for instance supported the development of specific 
modalities  for  small  and  vulnerable  economies  or  a  specific  treatment  of  livelihood  of 
agriculture  in  the  draft  Agriculture  Modalities.  Anticipating  and  already  going  beyond 
the implementation of the commitments agreed at the Hong-Kong Ministerial Conference 
in 2005, the EU is one of the few WTO members offering duty-free quota-free access to 
LDCs across the full range of tariff lines. The EU also believes that the new regime of 
rules  of  origin  it  has  applied  to  LDC  countries  since  1  January  2011  under  the  GSP 
scheme will also greatly contribute to improving their market access. 

16.  CONCLUSION 

The  present  Staff  Working  Paper  supports  the  European  Commission's  Communication 
on "Trade, growth and development – Tailoring trade policy for those countries most in 
need". 

It illustrates the dramatic transformations that have taken place in the world economy in 
the past decade, with deep implications for trade, investment and development policies. 
Developing  countries  have  undergone  radical  changes.  Some,  particularly  emerging 
economies, have reaped the benefits of open and increasingly integrated world markets 
and  are  now  amongst  the  largest  and  most  competitive  global  economies.  Yet  others 
continue  to  lag  behind  with  the  associated  cost  of  deeper  marginalisation.  LDCs  in 
particular,  most  of  them  in  Africa,  face  many  difficulties  and  are  the  most  off-track  to 
achieve the MDGs. 

The  Staff  Working  Paper  also  illustrates  the  EU's  considerable  achievements  in 
delivering on its trade-related development commitments. At the same time, it makes it 
clear  that  more  remains  to  be  done,  and  sometimes  differently,  to  ensure  that  the  EU's 
trade  and  investment  policies  for  development  are  fit  for  purpose  for  the  next  decade. 
This notably concerns the need to differentiate among developing countries to focus on 
those most in need, and to improve the way EU instruments deliver. 

69