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    ActionAid: Untying Aid in the European Union


    © International Trade Centre, International Trade Forum - Issue 4/2001

    United Kingdom-based development NGO ActionAid has lodged a legal complaint about tied aid within the European Union. It argues that without positive efforts to boost developing country participation in aid contracting and procurement, many of the damaging aspects of aid tying will continue.

    In 1999, ActionAid, a United Kingdom-based development non-governmental organization (NGO), lodged a legal complaint alleging that tied aid breaches internal European Union (EU) rules on free movement, competition and procurement. The complaint received the support of the over 900 members of the European Community NGO Liaison Committee.

    ActionAid's case rests on two arguments. The first is that tying aid stops firms in other member states from tendering for contracts which breaches internal market rules stating the EU is one market rather than 15 and that each should have equal access to all. The second argument is that tied aid is a form of state aid because it grants advantages to national companies in the competitive process and is thus subject to European Community (EC) competition rules. Granting advantages to companies in donor countries discriminates against firms in Member States other than the donor country.

    A formal inquiry was launched in the 15 Member States. So far, the investigation has not produced any indication of infringement of European law, and the Commission has asked for further evidence. As ActionAid puts it, the success of this legal complaint will be crucial to galvanizing the international donor community to untie aid.

    Efforts to untie aid should not concentrate exclusively on the liberalization of aid procurement. According to ActionAid, they must also be combined with an equal commitment to using aid purchasing to build local capacities and boost local ownership of development. By using the purchasing power associated with aid spending together with strategically-oriented aid inputs, donor governments can:

    • help build private-sector capacities in developing countries by increasing the access of local firms to aid contracts;

    • promote exposure of the local private sector to international competition; and

    • enhance the skills-base and expertise of local companies and consultancies through joint venture schemes, mentoring, partnerships and subcontracting.

    ActionAid argues that through the support of local ownership and control, development interventions can be more effective and sustainable.

    The recent Recommendation of the Development Assistance Committee of the Organisation for Economic Co-operation and Development (OECD/DAC) to untie "to the largest extent possible" their aid to the least developed countries (LDCs) was welcomed by ActionAid. But it cautioned that while this decision represents a step in the right direction and hopefully will pave the way towards extended aid untying, the list of exemptions, technical cooperation, food aid and aid to non-LDCs, needs to be addressed.

    Without positive efforts to boost developing country participation in aid contracting and procurement, many of the damaging aspects of aid tying such as over-reliance on Northern companies' "know-how" and technologies will be retained. An open tendering process that encourages bids from local industries has the potential to promote the emerging private sector in developing countries and generate employment. Furthermore, if aid procurement is carefully targeted, it can help lift poor and marginalized people out of poverty.

    For more information about ActionAid, see its web site at http://www.actionaid.org