The European Commission's position on ""Review Clauses"": Any Hope Left on Aid for Trade? (February 2007)

Rethinking Bretton Woods | Sat, Feb 3, 2007

By Aldo Caliari

The European Commission's position on ""Review Clauses"": Any Hope Left on Aid for Trade?

In the negotiations regarding Economic Partnership Agreements (EPAs) with developing countries, the European Commission (EC) has resisted the inclusion of "Development Benchmarks and Review Clauses."According to one proposed review clause, every five years there should be a formal review to ascertain if the Development Benchmarks --to be set out in the Agreement on the basis of "national development programs"-- have been attained by the individual East and Southern Africa (ESA) countries. The review should also determine the contribution of the Community's trade and development policies and assistance to individual countries achieving the development benchmarks and monitor policies and the release of resources towards finance activities aimed at building the ESA regional market. Importantly, if a country has not attained the benchmarks, the clause allows it to "apply for the derogation of tariff reductions set out in this Title and make provision for corrective measures."

The EC issued a response letter to the proposed review clause, in which it found the clause not acceptable on the basis that review clauses should be "limited in their scope and mainly aimed at accelerating or extending liberalization."The EC position vividly illustrates the limits of the faith that can be placed on the pro-development rhetoric that animates the promotion of the EPAs. The very reasonable character of the proposed clause derives from the fact that there is no pacifically accepted or proven causal relationship between trade liberalization and growth or development benefits. Even more ambiguous is the impact on development of other rules promoted in the EU EPA model, such as intellectual property and government procurement. In this light, a genuine concern with development would be consistent with allowing developing countries the flexibility to roll-back or opt-out of rules that prove damaging, or downscale tariff reductions if aid promises are not forthcoming. After all, if belief in the positive development impact of EPAs is genuine, the EC should hold no fear from such a clause. It is also far more consistent with a vision that sees trade as a means to development, not an end in itself.

"Review clauses" do have their caveats. In the multilateral context, they have not been of much benefit to developing countries. The GATS agreement, for instance, provides for a review an assessment of trade in services in overall terms and on a sectoral basis to be carried out before any new round of negotiations. This assessment should look at the goal set in Art. IV of the Agreement, which calls for facilitating the "increasing participation of developing country Members in world trade." But developing country proposals on the implementation of this provisions have not had any effective impact on the approach of the developed countries. A similar example can be found in the TRIMS Agreement which foresees, in its Art. 9, that the operation of the Agreement has to be reviewed. Attempts by developing countries to have the rules reviewed based on the harm they bring to their economies have so far deadlocked.

But the importance of the EC response probably lies more in the cautionary tale it brings to the ongoing debate on Aid for Trade and its linkages to the Doha Development Agenda. It is not secret that a key aspect of this debate has to do with the "operationalization" and the "delivery", where large questions loom regarding the additionality of the proposed amounts versus already promised aid and the mechanisms to monitor and enforce that they are actually disbursed (even after trade commitments have been entered into). The Aid for Trade Task Force has called for a "global periodic review", "mechanisms to facilitate reporting to the global monitoring body", reports by donors on "the commitments they have made and how they intend to meet their Aid-for-Trade targets", etc. Assuming the best of all this happens, the asymmetry between financial aid commitments and trade liberalization remains, insofar as trade agreements involve signing off legal obligations whereas aid commitments continue to be voluntary political commitments lacking enforceability. The question is: will developed countries (such as the EU) allow at the multilateral level what they are not willing to allow bilaterally ?