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# 52012DC0022

**COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL AND THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE Trade, growth and developmentTailoring trade and investment policy for those countries most in need /\* COM/2012/022 final \*/**

  

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

1.
Purpose

The world economic landscape has changed
dramatically in the past decade, with deep implications for trade, investment
and development policies. Historically low tariffs
and the reorganisation of international trade along global supply chains
increasingly shift the focus of trade policies to regulatory and other
behind-the-border issues. Developing countries have gone through radical
changes. Some of them, such as China, India or Brazil, have managed to reap the
benefits of open and increasingly integrated world markets and are now among
the largest and most competitive global economies while others continue to lag
behind and risk further marginalisation. Least Developed Countries (LDCs) in
particular, mainly in Africa, continue to face many difficulties and are the
most off track in the achievement of the Millennium Development Goals.

The notion of "developing
countries" as a group is losing relevance as
a result and trade, investment and development policies now need to be
tailored to reflect this. The issue of development, however, and the specific
role of trade for development, remains pressing. The EU has a particular
responsibility as the world's largest trading power, the biggest trading
partner of many LDCs and other low-income or lower middle-income countries, and
the world's largest provider of development assistance (including for
trade-related programmes).

Further to the 2010 Communication on
Trade, Growth and World Affairs[1],
the present Communication updates the 2002 Communication on Trade and
Development[2]
to reflect changes in economic realities, to take
stock of the way the EU has delivered on its commitments and to outline the
direction the EU's trade and investment policies for development should take
over the next decade. While it confirms the main principles stated in 2002,
this Communication stresses the need to increasingly differentiate among
developing countries to focus on those most in need, as well as to improve the
way our instruments deliver. It also emphasises the need for our developing
country partners to undertake domestic reforms and for other developed and
emerging economies to match our initiatives to open markets to countries most
in need.

This Communication proposes concrete
ways to enhance synergies between trade and development policies. Effective trade policy is critical in boosting growth and jobs in
Europe and abroad and in projecting EU values and interests in the world. It
can also be a powerful engine for development, in line with the EU principle of
Policy Coherence for Development[3].
Effective development policy is essential in helping create better conditions
for trade and investment in developing countries, as well as to ensure
equitable distribution of their benefits for poverty eradication. The
"Agenda for change"[4] Communication promises greater
support to enhance the business environment, to promote regional integration
and to help harness the opportunities that world markets offer, as a driver for
inclusive growth and sustainable development. The EU is guided in all its external action by the core
values underlying its own existence, including the respect and promotion of
human rights[5].

2.
A changing world
2.1.
The great reshuffle in the world economic order

The world's economy is changing at an
unprecedented rate. Many countries have successfully
managed the potential of an open trading system to boost their exports of
manufactured goods and services relative to traditional commodity exports and
to enjoy sustained rates of GDP growth. China has become the world's biggest
exporter after the EU and the third largest economy after the EU and the US.
India, Brazil and other emerging economies are following a similar path. They
have attracted Foreign Direct Investment (FDI) and are now key global investors
themselves. Emerging economies are leading world growth and are recognised as
major economic and political players internationally. They are strengthening
their presence in poorer countries and their links with them. For the first
time in recent history, developing countries as a whole account for more than
half of world trade. The global economic and financial crisis has accelerated
the shift in economic power away from developed countries towards emerging
economies, which are now seen as part of the solution to the crisis.

Developing
countries' trade performance

Source: IMF

While these changes have helped to lift
hundreds of millions of people out of poverty, not all developing countries
have enjoyed such gains. LDCs in particular have
been further marginalised[6]. Though GDP and trade have grown significantly in some of them, that
is mainly thanks to a surge in oil and commodities exports with limited results
in poverty reduction. Many LDCs have become increasingly dependent on a few
export products, particularly primary commodities[7]. Nevertheless, some LDCs, such
as Bangladesh and Cambodia, have recorded good progress, driven by their
specialisation in low technology manufactures, primarily textiles. Some non-oil/commodity-exporting African countries have also done
well over the past decade and have even expanded services. Partly as a result
of a programme to stimulate
exports of agricultural products, such as coffee, and to attract tourism,
Rwanda's average annual increase in exports since 2001 has been 19%,
accompanied by high rates of economic growth and a steady improvement on human
development indicators. Another example is Cape Verde, which graduated from LDC
status and reached lower middle-income level in 2007, thanks to good
macroeconomic management and governance including progressive trade opening and
integration into the world economy.

In-between LDCs and emerging countries,
the performance of countries varied, notably in
relation to the scope of domestic reforms and their integration into the world
economy.

2.2.
Lessons for trade and investment policies for
development

Openness to trade has been a key element
of successful growth and development strategies. No
country has ever been able to sustain long-term growth without integrating into
the world economy. Access to markets abroad enables greater economies of scale
and specialisation, while access to cheaper and more varied inputs, including
more efficient services, opens up new production possibilities. FDI has also
become an essential contributor to economic growth and export performance (for
example foreign affiliates today account for 75% of China's trade). Openness for mobility of people can contribute to the transfers of
skills as well as investments to developing countries, especially bearing in
mind the role of diaspora communities[8].

However, while trade is a necessary
condition for development, it is not sufficient.
Trade can foster growth and poverty reduction, depending on the structure
of the economy, appropriate sequencing of trade liberalisation measures and
complementary policies. Domestic reforms are essential to sustain trade- and
investment-led growth. The economic performance of LDCs is often impeded not
just by poorly diversified economies and export bases, inadequate
infrastructure and services or a lack of adequate skills but also by political
factors linked to poor governance, corruption and fraud, lack of human rights
protection and transparency, weak administrative capacity, inefficient taxation
policies and wide-scale tax evasion, insufficient redistributive instruments,
weak social and environmental policy frameworks, unsustainable exploitation of
natural resources, security threats and lack of stability.

Making trade work for development
requires much more than lowering tariffs. Modern
and pro-development trade policies need to address a complex range of issues,
ranging from trade facilitation at local and regional level to technical,
social and environmental regulations, respect of fundamental rights, investment
supporting measures, protection of intellectual property rights, regulation of services, competition
policies and transparency and market access in government procurement. Progress
on these issues can boost transparency, predictability and accountability,
which are essential for inclusive development and poverty alleviation and which
tariff cuts alone cannot provide. Finally, active policies are needed to
minimise adverse effects of trade opening.

The growing diversity of developing
countries calls for more differentiation in the design and implementation of EU
policies. Emerging economies and poorer ones have
different potentials, needs and objectives thus requiring a different policy
approach. Policy must be carefully designed to reflect different situations.
Priority must go to countries that would have limited prospects of long-term
growth and sustainable development without external assistance, particularly
LDCs and other countries most in need, in line with what has been proposed in
the development policy field[9].
In parallel, we are stepping up our engagement with emerging economies, as
mentioned in the 2010 Trade, Growth and World Affairs Communication. But our
relationship with them is changing in nature, focusing less on development and
more on new forms of partnership based on mutual interests and benefits, as well
as evenly-shared global responsibilities[10].

3.
What we have done so far

The 2002 Communication on trade and development made commitments to grant developing countries
greater access to the EU market, to provide adequate funding for trade-related
assistance, and to make trade a central part of development strategies. The
commitments included using trade agreements to promote greater market access,
to support regional integration and to improve trade rules to help promote
development. The EU market is the most open to developing countries. Fuels
excluded, we import more from LDCs than the US, Canada, Japan and China put
together. We have delivered on our commitments, often leading the way at the
global level. Further progress is, however, needed.

3.1.
Innovative autonomous schemes

We have set up two new preferential schemes
as part of the Generalised System of Preferences (GSP)[11]:

·
The Everything But Arms (EBA) initiative in
2001 was radical in fully opening the EU market to LDCs without any tariff or
quota. Ten years later, EBA has proved to be an
effective engine for boosting LDC exports to our market. EU imports from LDCs
grew more than 25% faster than imports from non-beneficiaries of preferential
regimes (Bangladeshi textile exports being a salient example)[12]. On the other hand, the impact
on export diversification is mixed. Utilisation rates can still be improved.
Competitive pressure from more advanced preferential partners (which absorb
more than 40% of preferential exports under GSP) and preference erosion have become
stronger, indicating a need to reform the GSP system (see 4.1.1).

·
The GSP+ scheme set up in 2006 is a highly
innovative tool of EU trade policy in support of sustainable development,
specifically targeting vulnerable developing countries. Its additional preferences provide a powerful incentive to
countries committed to implementing core international conventions on human
rights, labour rights, environmental protection and good governance. There are
currently 16 beneficiaries[13]
and the scheme has boosted their exports to the EU, with commensurate benefits
in income for virtually all of them. A challenge for the future is to broaden
access criteria and incentives, and to bolster monitoring of effective
implementation of the core international conventions.

We have also
made substantial efforts to facilitate the use of existing preferential
schemes:

·
The new GSP rules of origin applicable since
2011[14]
address the criticism that rigid rules of origin inhibit developing countries
from making full use of EU preferences. The new rules are simpler and easier to comply with. They
offer extended possibilities of sourcing, with new opportunities for regional
and trans-regional cumulation between countries. LDCs benefit from
further flexibilities, beyond levels offered by most other developed countries
in their own GSP-type schemes. Improved rules have
also been proposed in Economic Partnership Agreements (EPA) negotiations (see
3.3).

·
In 2004, the Commission opened an on-line
service for potential exporters in developing countries on practical aspects of
gaining access to the EU market – the Export Helpdesk.[15]
The service provides detailed information on EU import tariffs, rules of
origin, customs procedures, technical requirements, etc. This is a unique tool
worldwide, though usage in LDCs could be increased.

3.2.
Leading on Aid for Trade (AfT)

·
The EU and its Member States have been
driving global AfT efforts, accounting for more than a third of global flows. In 2007, the EU adopted a joint strategy with EU Member States. We have
doubled our efforts, reaching €10.5billion in 2009, above our targets. More
than a third of EU development aid now supports trade-related needs. However,
we are concerned that LDCs receive only a limited share of AfT (22%). We have
worked to enhance effectiveness by promoting a better match with trade
opportunities, including through increased international coherence and
monitoring, although we recognise that here too further progress is still
needed.

Collective EU Aid
for Trade (EU and EU Member States)

3.3.
Renewed bilateral and regional efforts

Further
to the Cotonou Agreement, negotiations started in 2002 with African,
Caribbean and Pacific (ACP) countries to conclude Economic Partnership
Agreements (EPAs). A comprehensive, regional EPA
has been signed and provisionally applied with the CARIFORUM group of States in
the Caribbean. We have negotiated interim EPAs with other countries and regions
to ensure continuity in trade in goods once the Cotonou preferences expired at
the end of 2007. Negotiations for enhanced agreements now continue with all
regions. Pending ratification of interim EPAs, temporary measures were adopted
in December 2007[16].
In September 2011, the Commission proposed to maintain these market access
arrangements after 2013 only for those countries that are taking the necessary
steps towards ratification of their respective EPA[17].

In 2006, the Global Europe Communication[18] launched a new
series of Free Trade Agreements (FTA) negotiations
with more advanced developing countries and regions. Talks are on-going with India and Mercosur. Because of slow
progress under the region-to-region approach with ASEAN, negotiations are now
advancing bilaterally with Singapore and Malaysia. We
have also concluded negotiations on comprehensive FTAs with Peru, Colombia and
Central America as well as with Ukraine.

The EU has consistently sought to
promote regional integration, notably as a means of
overcoming the drawbacks of small and fragmented markets, to make countries
more attractive to FDI and to spur economic growth. Our agreements with Central
America and CARIFORUM have strongly supported regional integration processes,
but we realised the need to adjust our approach where political will or
regional capacity were not strong enough. In some instances, we have to move
forward on a bilateral basis as an intermediary step towards the longer-term
objective of region-to-region agreements in ways that do not prevent other
regional partners from joining when ready. We have dedicated substantial
funding to regional integration, although results have often fallen short of
expectations. A key difficulty is the limited capacity of regional
organisations to formulate project proposals that are viable and supported by
their members.

3.4.
Mixed global picture

The EU was instrumental in launching the
Doha round of multilateral trade negotiations in 2001. However, ten years of
negotiations have failed to deliver a deal. Even an
interim agreement on a package of measures for the poorest
countries seems elusive. We have made considerable efforts to move negotiations
forward, including through tabling unprecedented offers with significant
advantages to developing countries, be it in terms of market access or
disciplines on agricultural subsidies. We have repeatedly made compromise proposals.
But structural difficulties combined with the lack of commitment of some WTO
members have meant it has not been possible to come to an agreement on key
parameters.

The commitment at the outset of the
global economic and financial crisis to refrain from protectionism, which the EU strongly advocated, was more successful, though
vigilance is still required[19].
The EU also supported the integration of several developing countries into the
WTO (e.g. recently Samoa and Vanuatu).

4.
Tasks for the next decade

Building on recent achievements and efforts but
also learning from experience where progress has not been as successful as
hoped, the EU will step up efforts to help those countries most in need to reap
the benefits of increasingly integrated world markets. However, this success
will primarily depend on developing countries' ownership and readiness to
undertake the necessary domestic reforms. There is much to be done in the
multilateral framework, where our efforts on behalf of countries most in need
have yet to be matched by other major trading powers.

4.1.
What Europe can offer

The EU must focus its efforts on the poorest and
most vulnerable countries and make sure those efforts are tailored to their
needs and constraints, while ensuring coherence and complementarity between
trade, development and other policies.

4.1.1.   More focused preferences

The Commission has proposed a reform of
the GSP scheme to make sure corresponding preferences benefit those countries
most in need[20]. The review takes into account the growing differences between
developing countries and their disparate needs, and suggests reviewing
eligibility criteria and graduation mechanisms to ensure that only LDCs, low-
and lower-middle income countries actually benefit from the system in sectors
where help is needed. Predictability for economic operators will also be
enhanced, based on an open-ended scheme and more transparent procedural steps
for necessary adjustments, with appropriate transition periods.

A package
to promote trade for small operators in developing countries

Small businesses form the backbone of the
economies of many developing countries, notably the vast informal sector and
they disproportionately suffer from complex administrative procedures, and a
lack of information, training, connections or access to finance. In order to
address these concerns, the following initiatives will be considered:

·
Extend practical information on trade
policies and market information. As a complement to
the EU Export Helpdesk, we will support a multilateral initiative on
transparency in trade to provide similar information
on all markets. This is especially useful for South-South and regional trade.

·
Facilitate the use of intellectual property
tools by small producers and farmers to help them
maximise the economic value of their goods, through developing and protecting
product identity and quality, using trade marks, geographical indications and
designs[21].

·
Train networks of diaspora small traders in
the EU (e.g. on trade procedures, standards, access
to finance) to make a positive contribution to development in their countries
of origin.

·
Promote dialogue with Small and Medium
Enterprises within the SME Finance Forum on Africa
established in 2011 and the Memorandum of Understanding signed with the Africa
Union Commission on 30 November 2011.

·
Facilitate access to finance for small
exporters/traders from developing countries. We are
ready to support the work of international financial institutions in this area
as well as the needs review that the G20 is undertaking in low income countries[22].

·
Extend the simplified procedure for obtaining
proof of origin. Trade preferences are relatively
less used for small transactions, partly due to the high cost/benefit ratio of
obtaining a certificate of origin. The 2011 reform of rules of origin for GSP
allows for a simplified procedure based on self-certification for all
consignments, based on prior registration by the exporter. If this system works
well, we will consider extending it to other preferential arrangements.

·
Support participation of small businesses in trade schemes that secure added value for producers,
including those responding to sustainability (e.g.
fair, ethical or organic trade) and geographic origin criteria in development
cooperation with third countries. This can be an effective way for
producers to differentiate their product, have greater bargaining power over
them and gain price premiums.

4.1.2.   Better targeted Aid for Trade

We will continue to encourage developing countries to include trade
in their development strategies. In this context,
AfT can be instrumental and we will continue our efforts to further improve its
programming and delivery.

·
Improve complementarity between trade and
development policies: When trade policy
measures create increased opportunities for our developing partners (e.g. EPAs,
the new GSP, new rules of origin), we will be ready to offer AfT to help them
take advantage of them. Instruments such as sector-wide programmes or budget
support could assist with economic reforms needed to be able to take advantage
of trade and investment opportunities[23].
Besides geographical programmes, new thematic programmes could be used to
accompany trade openings[24].

·
Focus on LDCs. We
should maintain effective support to strengthen capacities for the identification,
prioritisation and implementation of AfT, building on the multi-donor developed
Enhanced Integrated Framework, which supports LDCs to develop trade.

·
Focus on small operators. We should ensure that small operators including rural smallholders
have appropriate access to AfT to facilitate their involvement in external
markets.

·
Step up economic
partnerships, regulatory dialogues and
business cooperation. Sharing
EU experience can help our partner countries manage their domestic reforms (see
4.2) and access the EU market. The
new Partnership Instrument the Commission has proposed can support such
initiatives in particular in emerging economies and help foster new forms of
cooperation in countries graduating from bilateral development assistance.

·
Review our approach in supporting regional
integration. While continuing to focus on capacity
building of both regional and national administrations in charge of
integration, we should tackle these issues more strategically in our political
dialogue with developing countries. Specific AfT regional programmes could be
designed for trade facilitation and connectivity. Where regional organisations
are streamlining their composition so as to better reflect economic and
political realities, we stand ready to support them.

·
Equip people for change: Policies in relation to skills and education, labour rights and
social protection are particularly relevant for the poorest and most vulnerable
segments of the population, including women and children, in particular in
relation to trade reforms. This dimension must therefore be fully integrated in
the EU's development cooperation, in line with its continuing support for
decent work, human rights and social protection[25].

·
Improve aid effectiveness: Delivery of AfT should follow principles
and commitments agreed in the High Level Fora on aid effectiveness[26]. As agreed during the Busan
Forum, AfT should focus on outcomes and impact, to build productive capacities,
help address market failures, strengthen access to capital markets and to
promote approaches that mitigate risk faced by private sector actors. Better coordination among EU donors is essential. Improving
cooperation with non-EU traditional or emerging donors will also be needed. As
also agreed in Busan, we will focus on implementing the commitments at country
level and support the new inclusive Global Partnership for Effective
Development Cooperation[27].

4.1.3.   Complementary instruments boosting
FDI

While FDI in
and from developing countries has surged in the past decade, it has largely
evaded the countries most in need due to poor economic prospects and
unfavourable investment conditions. Investors need
stable, transparent and predictable regulatory environments. The EU can help
improve the business environment through AfT and a range of FDI-related
instruments, now extended by the Lisbon Treaty, which has brought investment
under the framework of the EU commercial policy, an
exclusive competence of the EU[28].

·
Provisions
in EU FTAs grant investors greater legal certainty regarding market access and the conditions under which they are
allowed to operate. We include sectors (e.g. telecommunications,
transport, banking, energy, environmental services, construction and
distribution) that help build an enabling environment
for business and develop infrastructure. The EU shows flexibility and sensitivity to our partners'
needs in these negotiations: only sectors explicitly listed are covered, and
the right of countries to regulate and to enter limitations and restrictions is
preserved.

·
Investment protection granted by Bilateral
Investment Treaties (BITs) can also enhance FDI potential, as such protection provides
additional guarantees and increases legal certainty for investors. EU
Member States already have a large network of BITs with developing countries.
We intend to deploy investment protection agreements at EU level in a
progressive manner, either as part of on-going FTA negotiations or as
stand-alone agreements. We are ready to look into requests from developing
country partners interested in this possibility.

·
EU blending mechanisms can be used to leverage domestic and foreign investment in
developing countries[29].
Grants would be combined with e.g. loans or risk capital to support the
financial viability of strategic investments. We will aim at a higher share of
aid to be delivered through such innovative financial tools under the new
financial instruments covered by the multiannual financial framework for the
period 2014-2020[30].
The use of such financial
instruments will be assessed case by case in countries where debt
sustainability is fragile. Other instruments that will
be considered include guarantees, private equity and public-private
partnerships. Cooperation will be sought with the European Investment Bank and
Member States' or other development finance agencies. Greater coherence is also
needed with trade and investment agreements.

4.1.4.   Comprehensive and modulated
bilateral/regional agreements

Pursuing the Global Europe agenda[31],
we will aim for comprehensive FTAs and continue to take into account the level
of development of our partners,
offering flexible approaches tailored to their needs
and the capacities of each country.

We will seek to conclude EPA
negotiations with all interested ACP countries and regions, in line with the Cotonou Agreement's objective to support deeper
regional integration, modernise our economic relationship and use trade to
boost economic growth. Time is of the essence to
finally provide certainty and predictability to operators. The sooner such
deals are struck, the earlier they will start delivering development benefits[32]. If ACP countries
so choose, EPAs will include commitments on services, investment and
trade-related areas, identified in the Cotonou Agreement as important drivers
of growth. If comprehensive and regional agreements prove to be out of reach,
variable geometry or multiple-speed agreements can be introduced. We confirm
our offer of free access to the EU market and improved rules of origin for
those ACP countries that have in the past received Cotonou trade preferences, while the ACP countries liberalise partially and gradually. We
have tabled and remain open to fine tune pragmatic solutions to the remaining
obstacles in the negotiations, guided by the fundamental principle that the
resulting EPAs must live up to the vision of the Cotonou Agreement to promote
the development in ACP countries and regions. Countries not ready to assume the
obligations of WTO-compatible trade agreements can opt to benefit from the GSP,
if they are eligible. However, this would not offer the same development
potential as EPAs, particularly in terms of regional integration, enhanced
investment and improved business environment.

In response to the Arab Spring, the EU
has also announced a partnership for democracy and shared prosperity going far beyond market access to further deepen integration with
countries in the Southern Mediterranean and promote human rights, good
governance and democratic reforms[33].
We will open negotiations for Deep and Comprehensive FTAs with Egypt, Tunisia,
Jordan and Morocco. We will also build closer trade ties with Armenia, Georgia
and Moldova in our eastern neighbourhood. The ultimate aim is to
help establish an area of shared prosperity, offering to countries in both
regions the prospect of participating in the EU internal market when conditions
are met[34].

4.1.5.   A values-based trade agenda to
promote sustainable development

One of the basic objectives of the EU is to
ensure that economic growth and development go hand in hand with social justice,
including core labour standards, and sustainable environmental practices
including through external policies. Such efforts are particularly relevant in
a development context, in which countries face significant challenges.

The GSP+
scheme is the flagship EU trade policy instrument supporting sustainable
development and good governance in developing countries. The Commission has proposed to make
it more attractive by eliminating graduation for its beneficiaries, relaxing
economic entry criteria and allowing countries to apply at any time. At the
same time, monitoring and withdrawal mechanisms will be reinforced to ensure
effective implementation of the commitments entered into by beneficiary
countries.

Recent EU
FTAs systematically include provisions on trade
and sustainable development. The aim is to
engage partner countries in a cooperative process involving civil society as
well as to strengthen compliance with domestic and international labour and
environmental standards. Provisions also allow for independent and impartial
review. As these agreements enter into force, we will have to make sure that
these mechanisms are effectively used and provide appropriate support in our
development cooperation.

We are
committed to better assessing the impact of trade initiatives on the EU and its
trading partners, including developing countries[35]. We
will ensure that the analyses carried out when a new policy is developed
(impact assessments), while an agreement is being negotiated (sustainability
impact assessments) or implemented (ex-post analyses), address all significant
economic, social, human rights and
environmental impacts, and build upon a wide consultation of relevant
stakeholders. Such analyses should also help design accompanying AfT measures.

We adopted measures
to promote the sustainable management of some key natural resources such as
timber and fish traded into the EU[36] . We will assist our developing partners
in the implementation of these schemes so that they maximize their potential
for sustainable growth. We will also cooperate with other countries which are
important markets for natural resources to promote similar standards.

We will promote
the elimination of tariff and non-tariff barriers on goods and services that
can deliver environmental benefits. This will
support our efforts to ensure improved access to green technology for
developing countries.

Trade
incentives arise not only from government action, but also from a shift in the
market place towards more sustainable products. Private sustainability-bound schemes (e.g. fair, ethical or organic) can be an effective way to
foster sustainable and inclusive growth in developing countries[37].
Public authorities can promote these initiatives. We will strengthen our
support for developing country producers taking part in sustainable trade
schemes by further mobilising cooperation, including AfT measures, improve
monitoring of related activities and continue to encourage our partner
countries to promote fair and ethical trade. We also intend to further facilitate
fair and ethical purchasing choices by public authorities in Europe in the
context of the upcoming review of public procurement directives.

Corporate
social responsibility also plays an increasing role at the international level as companies can contribute to inclusive and sustainable growth by
taking more account of the human rights, social and environmental impact of their activities. We encourage
companies to sign up to the internationally recognised guidelines and
principles in this area[38],
such as the OECD Guidelines for Multinational Enterprises, and our trading
partners to adhere to them. We also include
provisions in our agreements to promote responsible business conduct by
investors.

4.1.6.   Helping vulnerable countries improve
their resilience and response to crisis

LDCs and other
vulnerable countries are more prone to crises, which can jeopardise their
long-term development efforts, in particular for those with a primarily
export-led growth strategy, as global commodity price shocks or domestic
natural disasters can induce severe balance of payments difficulties should
export revenues decline or imports costs soar. We can help to enhance
resilience to external shocks and response capacity:

·
Natural disasters can have major disruptive
impacts on supply chains, trade and economic activity. Following the floods of July 2010, the EU proposed granting
additional preferences to Pakistan, but the experience showed that this
approach did not trigger a swift enough reaction. It also caused concerns as to
the possible trade diversion impact on other poor countries. In future, we will
seek to use the temporary derogations to rules of origin requirements for
crisis-affected countries in the new GSP rules of origin. To improve
preparedness for natural disasters, we will seek to factor trade
vulnerabilities into the needs assessments undertaken in the context of EU
humanitarian aid policy. The EU is also helping to develop innovative index
based weather risk insurance in partner countries and we can learn from
successful examples of shifting weather related risks to the financial market,
for instance through the use of catastrophic bonds to hedge against the
financial risk to the government budget associated with an earthquake.

·
Several developing countries are plagued by
conflicts, which are often linked to the control of natural resources. The Commission has tabled draft directives
to promote disclosure of payments to governments for the extractive and
forestry industries both for companies listed on EU stock exchanges[39] and
for other large EU companies[40].
This is a first step towards a more transparent investment environment that can
reduce the risk of corruption and tax avoidance. Building on the experience of
the Kimberley process, the Extractive Industries Transparency Initiative (EITI),
the Forest Law Enforcement, Governance and Trade (FLEGT) and the Timber
Regulation, we will also explore ways of improving transparency throughout the
supply chain, including aspects of due diligence. At the same time, we will advocate
greater support for and use of the recently updated OECD Guidelines for
multinational enterprises, and OECD's recommendations on due diligence and
responsible supply chain management – something we need to promote beyond OECD
countries as well. In parallel we will continue to cooperate with and provide
support to developing country partners on sustainable mining, geological
knowledge and good governance in natural resources management[41].

·
Commodity price volatility has implications
for government budgets of partner countries. We can
help partner countries make use of market-based insurance mechanisms, like the
commodity futures market, to hedge against revenue shortfalls. Building on the Vulnerability Flex Mechanism (V-FLEX) set up in 2009 to
help mitigate the effects of global food and financial crises on ACP countries,
we will work to set up a new shock-absorbing
scheme focusing on broader exogenous shocks with a cross-country dimension[42].

4.2.
Domestic reforms and good governance are key to
trade-led growth

The main
impulse for economic growth is first and foremost domestic. Good governance is vital for private sector development and any
sustained trade- and investment-led growth. It starts with stable political
institutions and practices, an independent judiciary, protection of human
rights, transparency of public finances, rules and institutions and a strong
stance against fraud and corruption. Policies, regulations and institutions
supporting the development of the private sector, decent jobs and export competitiveness
are also crucial. Domestic reforms are needed to improve supply capacity and
capital endowment (including human capital), to reduce transportation costs, to
increase farm and industrial productivity, improve the implementation record of
certain labour and environmental standards and to enhance the investment
climate. They are essential to mitigate potential losses in tariff revenue and
to allow for necessary adjustments through efficient taxation and
redistribution tools and safety nets. They are crucial to transform the gains
of economic growth into effective poverty eradication.

External
assistance and trade agreements can support this process. Reformers in many countries are actually seeking to
conclude bilateral or regional trade agreements to anchor their own domestic
agenda and lock in domestic reforms. To be effective, such agreements need to
include rules that promote transparency, predictability and accountability.

Ownership is
a critical condition for success. Solutions
cannot be imposed from outside. Ultimately, developing countries must make
their own choices. Peru and Colombia, Central America
and CARIFORUM countries have gone for a qualitative change and concluded
ambitious agreements with the EU that induce structural changes in their
economies rather than relying on unilateral trade preferences. These agreements will help consolidate some of the
most important reforms that countries in Latin America have carried out since
the time of import substitution policies. This is a clear example of the
importance of political will over level of
development as countries such as Honduras, Nicaragua or Haiti are not among the wealthiest.

4.3.
The multilateral agenda until 2020

A strong multilateral trading system is vital to developing
countries' long-term interests both for its rulebook and for the market access
it guarantees in all key markets. Markets are increasingly located in
developing countries themselves. Indeed, for the first
time in recent history, South-South trade outweighs North-South trade, even
though barriers to South-South trade are significantly higher than for access
to developed countries' markets[43].
Multilateral negotiations are therefore essential. We
must get on-going negotiations to deliver, establish a firm basis for future negotiations
and refine the multilateral system to make trade work even more effectively for
development.

4.3.1.   Delivering on the development
dimension of the Doha Development Agenda (DDA)

The multilateral agenda remains a priority for the EU. The DDA is in serious deadlock but holds too much potential for
developing countries in general and LDCs in particular to be abandoned. The EU
remains committed to the DDA and to the specific package for LDCs. We believe
the WTO membership should pursue negotiations where feasible in 2012 and
onwards, to include for example mandated topics such as trade facilitation,
non-tariff barriers and dispute settlement, all of which have a significant
development dimension.

An agreement on trade facilitation offers substantial development
benefits by ensuring coherent reforms in all WTO
members to facilitate trade both domestically and in export markets. While all
WTO members stand to benefit, this would be particularly useful for developing
countries, especially the landlocked countries among them. Implementation would
be tailored to the needs and capacities of each country and supported, where
required, by external assistance. All stand to gain from early conclusion of
these talks.

We will keep
pushing for concrete results that benefit LDCs. We cannot be satisfied by continued failure among WTO
members to implement existing decisions on Duty Free Quota Free access, which
are essential to create new, secure trade opportunities for LDCs. It is also
important to reach a positive outcome on cotton in the agriculture negotiation.
Building on our recent reform of rules of origin, we will push for greater
coherence in preferential rules of origin for LDCs, including greater
transparency, simplicity and improved market access. The services waiver for
LDCs, adopted at the Eighth WTO Ministerial Conference in December 2011which
allows WTO members to grant preferential market access to LDCs in the area of
services, is a first step towards an LDC package.

Apart from the DDA
negotiations, and to allow as many countries as possible to benefit from the
system, we will continue to support and facilitate the
accession of LDCs to the WTO and actively contribute to the revision of
accession guidelines so that appropriate recommendations be made to that effect
by July 2012. The accession path is a useful
process and a driver of reforms, but it is often long and demanding. Whilst
preserving the integrity of WTO rules, we will continue to exercise due
restraint as regards market opening and we will assist LDCs in enacting and
implementing new disciplines.Also when examining the needs and requirements of
LDCs in relation to implementation of the WTO agreement on trade-related
intellectual property rights (TRIPS), we will give favourable consideration to
requests for the extension of the previous implementation deadline of 2013, as
well as appropriate technical assistance.

4.3.2.   Setting a firm basis for the future

Our
absolute priority must be to preserve and strengthen the multilateral trading
system. Any weakening of the WTO would be to the
detriment of its smallest and weakest members. This is particularly acute in
times of crisis, when the temptation to resort to protectionism is high.

The current impasse in the DDA reveals a
fundamental weakness in the WTO setting, which has not evolved as quickly as
economic realities. The major shift in the relative
economic power among major trading partners has not yet been fully reflected in
the WTO system. There is a growing imbalance between the contribution that large
emerging countries make to the multilateral trading system and the benefits
they derive from it. This is increasingly felt in poorer countries which see
the gap between them and emerging countries widening. Already tangible when the
DDA was launched, this tendency has grown significantly since, and is set to go
on doing so in future.

The issue of differentiation and the
role of emerging economies must be addressed in the interests of the
multilateral system and for the benefit of development. Emerging countries should show more leadership and assume more
responsibility for opening their markets to LDCs through preferential schemes
but also on a non-discriminatory basis towards the rest of the WTO membership,
of which four-fifths are developing countries.

In our view, this does not imply full
reciprocity of commitments with developed countries as an outcome of the DDA, but greater proportionality of their contribution with the
benefits they derive from the system.

4.3.3.   Tackling emerging challenges

Developing countries benefit from strong and enforceable
multilateral rules. Impediments to trade in the
modern global economy are increasingly less about tariffs and more about unnecessarily
burdensome or mutually-incompatible regulatory measures, which are often much
more challenging for the poorest developing countries and those with very
limited administrative capacities.

More attention will need to be paid to
how trade interacts with other issues of high interest to the poorest
developing countries. This has already been the
case as regards the inter-linkage between trade and food security, in
particular following the – as yet unfulfilled - G20 and UN calls to permanently
remove food export restrictions or taxes for the World Food Programme's food
purchases for humanitarian purposes. more
can also be done e.g. to improve transparency of food-related export
restrictions, due consideration of their effects and consultation of other WTO
members. Poor developing countries also face other global challenges, such as
securing sufficient, reliable energy supplies or adapting their economic
systems to changing global climate conditions and threats to their natural
resource base, as well as promoting and safeguarding
the competitiveness of their companies in the global marketplace. WTO members will need to pay more attention to these major issues
in the coming years. Effective cooperation with emerging countries will be
essential.

5.         Conclusion

The rise of emerging countries sends a powerful signal that
development is possible and that open markets in an increasingly integrated
world economy play a major role in this process. Yet many developing countries are still trailing behind.
They need help and that means the EU must maintain and scale up its strong
commitment, with a clearer focus on those countries most in need.

Support comes in the
form of a partnership in which developing countries too have choices to make
and responsibilities to take in the interests of consolidating the long-term
benefits of trade and investment.
Ownership and good governance are central in this respect. We will provide
support through development cooperation and offer trade and investment
agreements which support and lock in the institutional changes which are
essential for development.

Looking further
ahead, all parties must adapt to the shift in economic
power seen over the past decade. South-South trade
today, for the first time, outweighs North-South trade. Many developed and
emerging countries still have to match the EU's openness to trade with poorer
developing countries. This makes both a compelling case for multilateral
action, including the DDA and beyond, and for a thorough review of the basis
for multilateral negotiations. Large emerging countries must take more
leadership and responsibility in the multilateral trading system in the
interest of the system and for the benefit of global development.

An ambitious goal was set at the
Istanbul LDCs Conference in May 2011 to double the LDCs' share of global
exports by 2020. The approach set out in this
Communication can contribute to this goal. This should be reflected in major
international gatherings ahead, particularly UNCTAD XIII in Doha in April 2012
and the Rio+20 Conference for sustainable development in June 2012, which
should give new direction in progressing towards a green economy.

[1]               "Trade, Growth and World Affairs: Trade Policy
as a Core Component of the EU's 2020 Strategy", COM(2010)612, 9.11.2010

[2]               "Trade and Development: Assisting Developing
Countries to Benefit from Trade", COM(2002)513, 18.9.2002

[3]               Article 208 of the Treaty of the Functioning of the
European Union requires the EU to take account of the objectives of development
cooperation, the primary one being poverty eradication, in the policies likely to
affect developing countries.

[4]               "Increasing the impact of EU Development Policy:
an Agenda for Change", COM(2011)637, 13.10.2011

[5]               "Human Rights and Democracy at the Heart of EU
External Action: Towards a more effective approach", COM (2011)886,
12.12.2011

[6]               Collectively, they account for 0.6% of world GDP in
2010, against 0.7% in 2000.

[7]               On average, three export products make up more than
75% of all their exports. In 8 LDCs this share is above 95%.

[8]               "The Global Approach to Migration and
Mobility", COM(2011)743, 18.11.2011 and proposal
for the Directive on conditions of entry and residence of third-country
nationals in the framework of an intra-corporate transfer, COM(2010) 378,
13.7.2010

[9]               COM(2011)637

[10]             European Council Conclusions, 16.09.2010

[11]             The GSP scheme was itself reviewed in 2006 to cover
more products, simplify rules and enhance predictability. The reform boosted
beneficiary countries' exports and FDI, and supported export diversification of
many countries.

[12]             CARIS, Mid-term evaluation of the EU's GSP, 2010

[13]             Armenia, Azerbaijan, Bolivia, Cape Verde, Colombia,
Costa Rica, Ecuador, El Salvador, Georgia, Guatemala, Honduras, Mongolia, Nicaragua,
Panama, Paraguay, Peru

[14]             Council Regulation (EC) No 1063/2010, 18.11.2010

[15]             www.exporthelp.europa.eu

[16]             Council Regulation (EC) No 1528/2007, 20.12.2007

[17]             COM(2011)598, 30.09.2011

[18]             "Global Europe: Competing in the World",
COM(2006)567, 4.10.2006

[19]             See
EU's Eighth Report on Potentially Trade Restrictive Measures (October
2010-September 2011): http://trade.ec.europa.eu/doclib/docs/2011/october/tradoc\_148288.pdf

[20]             COM(2011)241, 10.5.2011

[21]             See upcoming Communication from the Commission
"Strategy for the protection and enforcement of intellectual property
rights in third countries"

[22]             Cannes Summit of the G20 - Final Declaration, “Building
Our Common Future: Renewed Collective Action For The Benefit Of All”, 4.11.2011

[23]             "The Future Approach to EU Budget Support to Third
Countries", COM(2011) 638, 13.10.2011

[24]             The thematic programme for "global public goods
and challenges" of the Development Cooperation Instrument proposed by the
Commission in "Global Europe: A New Approach to financing EU external
action " COM(2011) 865, 7.12.2011 foresees inter alia the support to the
definition and implementation of trade policies and agreements, assistance to
integrate into the multilateral trading system, promoting investment relations
between the EU and partner countries and regions.

[25]             COM(2011)637

[26]             Rome 2003, Paris 2005, Accra 2008, Busan 2011

[27]             Busan Partnership for Effective Development
Co-operation, Fourth High Level Forum on Aid Effectiveness, Busan, Republic of
Korea, 29.11.2011-1.12.2011

[28]             In its Communication “Towards a comprehensive European
international investment policy", COM(2010)343,
7.7.2010, the Commission has outlined the objectives of the EU’s future
investment policy.

[29]             Such as the EU-Africa Infrastructure Trust Fund, the
Neighbourhood investment facility and the Latin America investment facility and
the Investment facility for Central Asia

[30]             COM(2011)865

[31]             COM(2006)567, 4.10.2006

[32]             Once ACP countries have concluded an EPA, other ACP
countries can of course seek accession.

[33]             “A Partnership for Democracy and Shared Prosperity with
the Southern Mediterranean”, COM(2011)200, 8.3.2011

[34]             “A new response to a changing Neighbourhood”, COM(2011)303,
25.5.2011

[35]             COM(2010) 612

[36]             "Timber Regulation" (EP/Council Regulation
(EU) No 995/2010 20.10.2010) and "Regulation against Illegal, Unreported
and Unregulated (IUU) fishing" (Council Regulation (EC) No 1005/2008, 29.10.2008)

[37]             "Contributing to Sustainable Development: The Role
of Fair Trade and Non-governmental trade-related Sustainability Assurance
Schemes", COM(2009)215, 05.05.2009

[38]             "A renewed EU strategy 2011-14 for Corporate
Social Responsibility", COM(2011)681, 25.10.2011

[39]             Directive
2004/109/EC of the European Parliament and the Council of 15.12.2004 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

[40]             Proposal
for a directive on the annual financial statements, consolidated financial
statements and related reports of certain types of undertakings, COM(2011)684

[41]             Communication on commodity markets and raw materials, COM(2011)
25, 2.2.2011

[42]             Multiannual financial framework
regarding the financing of EU cooperation for ACP States and Overseas Countries
and Territories for the 2014-2020 period (11th European Development
Fund)

[43]             Almost three times higher in the estimation of P. Kowalski
and B. Shepherd (2006), “South-South Trade In Goods”, OECD Trade Policy Working
Papers, No. 40

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