House of Commons - International Development

Select Committee on International Development Fifth Report

2 EU Development Policy

6. The European Consensus on Development was adopted by the European Council in December 2005. It sets out for the first time a common vision to guide both member states' bilateral efforts and European Commission activity in the field of development. One of the key elements of this vision is to give a clearer priority to assistance for least-developed countries and other low-income countries, with a commitment that half of EU aid increases should go to Africa.

7. The Commission told us that the EU has significantly increased its focus on poverty eradication in the poorest countries, with 46% of net disbursement of European Community (EC) aid going to least-developed countries in 2005.[3] In contrast, the low-income focus of the inter-governmental European Development Fund is around 90% and the average across multilateral donors is around 72%.[4] DFID has said that it would like to see 70% of EC aid going to low-income countries by 2008.[5] Bernard Petit, Deputy Director-General of Development for the Commission, told us that the Commission is constrained in its ability to prioritise assistance to the poorest and least-developed countries by the decisions taken by Heads of State and Government:

"The Consensus does not say that globally the Heads of State of Europe must leave the bulk of the resources to low-income countries. They said, 'Within the decision taken by the Heads of State what we have to do is give a focus to the low-income countries'."[6]

8. The structures delivering EU development assistance are highly complex. The Commissioner for Development is in charge of EU development policy for the African, Caribbean and Pacific states, while the Commissioner for External Relations (RELEX) deals with Asia, Latin America and all other states. Moreover the RELEX Commissioner is in charge of EuropeAid, the agency responsible for on-the-ground delivery of EU development aid. The Development and RELEX Commissioners jointly produce an annual report on the Commission's "development assistance and implementation of external assistance".[7] At a strategic level, the objectives which are labelled as of particular relevance for development policy and external assistance in the Commission's 2005 Annual Policy Strategy range from the "stabilisation and association process in the Balkans" and "further implementation of the European Neighbourhood Policy" to a "review and scaling up of the EU contribution to the Millennium Development Goals" and the launch of the EU Water Facility.[8] Mr Petit told us:

"If your point is to say that the structure to deliver and develop assistance within the Commission is not optimal I will agree with you entirely, because it is the only example in the world where you have two different departments dealing with development in different regions […]. This is not optimal."[9]

9. We strongly welcome DFID's advocacy of an increased focus by the Commission on poverty reduction in low-income countries. The European Council, however, now needs to make good on the commitments it made in the 2005 Consensus on Development to prioritise aid to the poorest countries, and to Africa in particular. We recommend that the Government look at all options available, including withholding funds, to encourage the European Union member states to agree parameters for Commission development activity that allow a dramatic increase in aid going to those who most need it.

10. We recommend that the Government encourage a long-term review of Commission development structures in order to streamline staff and institutions and to provide clearer lines of accountability. In the short term, we believe greater clarity could be achieved by disaggregating headline figures for development assistance for low- and middle-income countries from those for external assistance to neighbouring, candidate or potential candidate states.

'Millennium Development Goals Contracts'

11. The European Development Fund (EDF) is an inter-governmental fund, administered by the Commission. 90% of its spending is on low-income countries. The 10^th EDF settlement was agreed last year. €22.6 billion will be spent through the Fund in the period 2008-2013. Country Strategy Papers (CSPs) which will programme the Fund's expenditure are due to be finalised in March or April 2007.

12. Spending on health and education is identified by most developing countries as a priority. However, according to the Commission's draft CSPs, the focus on education and health will decrease under the 10^th EDF.[10] The Commission told us that education and health will, instead, be addressed by other development agencies or through the Commission's spending on budget support:

"It is a concern if you look only statistically in the draft Country Strategy Paper for the 10^th EDF that resource for health and education is seen to have decreased. I have expressed myself this concern. The answer to that situation is two-fold. The first answer is that we are working in terms of complementarity. The Commission cannot do everything everywhere. You have the Member States, so if education is adequately covered by others in a given country there is no point in the Commission adding resources to that. But, secondly, we have this budgetary support focus on health and education."[11]

13. The shift from addressing key human and social development areas through EU programmes to addressing these through budget support will require a significant change in the Commission's management of these policy areas. We were, therefore, interested to hear the Commission's plans for a 'Millennium Development Goals (MDG) Contract' which it is developing with DFID as a vehicle for managing budget support spending.[12] We were told that MDG Contracts would offer greater predictability of resources and less conditionality for best-performing countries. It would also link funding more clearly to outcomes:

"A [MDG] contract ties a country […] but not on this kind of conditionality, privatisation, liberalisation or whatever, but on the results on education, on the results on health, the increase in the rate of vaccination, the increase in the number of teachers, these kinds of things."[13]

14. The policy shift on health and education spending under the European Development Fund away from programme expenditure towards budget support will need a parallel shift in the Commission's approach. We welcome DFID's involvement in developing the Millennium Development Goals (MDG) Contracts and the clearer links these should offer between spending and outcomes. We look forward to monitoring the progress of the MDG Contracts both as a potential framework for the Commission's new approach to health and education expenditure and, more broadly, as a possible model for outcome-oriented conditionality for budget support.

Limitations of aid for trade

15. Aid for trade is development assistance that is targeted at building the capacity of developing countries to take advantage of trade opportunities. Since our 2006 Report on the Doha Round, the WTO aid for trade task force has presented its report to the WTO membership.[14] The task force report recommends: an increase in resources available for aid for trade; that these should be "additional, predictable, sustainable and effective"; and that there should be a "border between aid for trade and other development assistance".[15] The task force also said that agreements on aid for trade should not be seen as a substitute for a successful Round and argued that a successful conclusion to the Round would increase the need for such aid to enable developing countries to make the necessary adjustments.

16. The EU, UK, Japan and the US have made resource commitments to increase aid for trade by 2010. The EU has decided that its commitment to increase such assistance from €300 million a year to €1 billion a year will be linked to the EPA process.[16] The Government, in its response to our 2006 Report, said that it had committed £100 million a year to aid for trade by 2010.[17] The Government also said that "Aid for Trade is now a key element of the DDA [Doha Development Agenda] trade negotiations", although it agreed that aid for trade was a "complement to, and not a substitute for, a successful DDA outcome."[18]

17. For trade to work as an effective development tool, we believe that opening markets alone is not sufficient—significant capacity-building in this area is also essential. We welcome recognition by the WTO aid for trade task force and the Government that aid for trade initiatives are complementary to the Doha Round. We are concerned, however, that without a successful outcome to the Doha Round the funds available for aid for trade will be minimal, as both the Round and aid for trade have developed in tandem. We recommend that the Government make explicit its commitment to ambitious aid for trade initiatives irrespective of the outcome of the Doha Round.

3 Q 17; EC aid refers to the Commission-managed multilateral aid budget and excludes member states' bilateral aid. Back

4 OECD Development Assistance Committee figures for the poverty focus of multilateral agencies in 2004: net ODA by income group (www.oecd.org/dac) Back

5 DFID 2005-2008 Public Service Agreement Targets: Target 3, Sub-target 1 Back

6 Q 19 Back

7 European Commission, Annual Report 2006 on the European Community's Development Policy and the Implementation of External Assistance in 2005: Highlights (ec.europa.eu/europeaid/reports) Back

8 European Commission, Annual Report 2006 on the European Community's Development Policy and the Implementation of External Assistance in 2005^{,p2(http://ec.europa.eu/europeaid/reports);andCOM(2004)133final.} Back

9 Q 22 Back

10 European Commission Directorate-General for External Relations (ec.europa.eu/comm/external_relations) Back

11 Q 26 Back

12 Qq 10-13 Back

13 Q 13 Back

14 International Development Committee, Third Report of Session 2005-06, The WTO Hong Kong Ministerial and the Doha Development Agenda, HC 730; 'Aid for trade' refers to trade-related assistance and capacity-building. Back