Pulling together or pulling apart: EU trade and development policy

Peter Holmes, Julia Magntorn Garrett, Jim Rollo 15 October 2020

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The rules and regulations governing what can be sold into the EU are adopted globally by international firms, even when their goods are not being sold directly to the EU. This ability to secure voluntary compliance with EU norms, described by Anu Bradford (2020) as The Brussels Effect, shows the EU’s soft power. Hand-in-hand with the EU’s regulatory influence comes the promotion of broader EU values. EU trade policy contains incentives and carries penalties to induce actors to align with EU norms. Such a combination of harder policy instruments with existing soft power is what Joseph Nye (2009) called ‘smart power’. If a country already has some goodwill towards the EU, less additional suasion will likely be needed to achieve a certain outcome. Using incentives in a ‘smart’ way, building on the EU’s existing soft power, can make external action more effective and less costly. Further, as acknowledged in its Trade for All strategy in 2015, the EU’s success in promoting its values and standards depends on its ability to act coherently, both across member states and across policy areas. More coherence in the values projected by the EU could increase the chances that partners will adopt common EU principles.

Measuring coherence

In a recent report (Apiko et al. 2019), we explored whether the institutions of the EU and its member states appear to support the same goals and project the same values through their trade-related policies. The focus was on trade-related aid, notably Aid for Trade, since it spans areas of EU exclusive competence (trade policy) and shared competence (development policy). 

Using data on bilateral commitments to official development assistance (ODA) by EU member state donors, as well as by EU institutions for the years 2007-2017, we explored the distribution of Aid for Trade commitments by each donor across detailed aid sectors (by which we mean the functional category for which the aid is committed) and across aid recipients. We considered the categories in which donors focused their aid to be a reflection of the values that donors wished to instil in recipient countries. The coherence of aid allocations was measured using a Finger-Kreinin similarity index (FKI), an index particularly well suited to measuring similarity for variables with restricted ranges. The FKI varies between zero and one, where an FKI of one means that a pair of countries have identical proportions of aid spending across all relevant aid categories or recipients; when the indicator is zero, the donors have no aid spending in common. The focus is on the EU institutions and four member states: Germany, France, the Netherlands, and the UK (which was a member state during the period of study). These member states together make up over 70% of all individual EU member states’ aid commitments.  

Coherence between member states and EU institutions

Table 1 summarises the similarity of aid priorities between Germany, France, the UK, and the Netherlands on the one hand, and EU institutions on the other. To give an external comparator, the table also includes the similarity between US aid priorities and those of the EU institutions. This gives us a yardstick to judge the extent to which the EU institutions and member states have distinct ‘European’ values which differ from those of the US. Overall, the member states and EU institutions appear to support similar activities and countries through their development aid, but the degree of coherence varies across member states. With respect to aid sectors, Germany and France have become gradually more aligned with the EU institutions over the period studied. Germany showed particular coherence with EU institutions, having an overlap of around 60% with the institutions’ spending across aid categories at the end of the period studied. The UK also displayed a relatively high coherence with EU institutions, while the Netherlands showed consistently more divergence from the institutions than the other member states. 

Across aid recipients, we found that EU institutions focused their trade-related aid on (relatively) closely integrated countries with the potential for future accession to the EU, a pattern that was not shared among the member states. The UK and the Netherlands in particular displayed a lower degree of coherence with EU institutions with respect to aid recipients. Nevertheless, a report by the UK Government (2013) concluded that no fundamental conflict existed between UK and EU aims, stating: “Our development leadership role and working relationships have resulted in the EU being an effective multiplier for UK priorities.” 

We found less coherence overall among the member states and EU institutions with respect to aid recipients than we did across aid sectors. This could be a reflection of national priorities playing a greater role when member states identify their target recipient countries compared to their target aid categories, or it could be driven by member states and the EU deliberately dividing up responsibilities by coordinating more effectively with respect to aid recipients than to aid sectors, thereby reducing the overlap in aid spending (European Commission 2007).

Table 1 Similarity with EU institutions’ Aid for Trade commitments

Notes: Cells have been colour coded according to their similarity, ranging from dark red (least similar) to dark green (most similar). Data on total Aid for Trade commitments from OECD's Creditor Reporting System (CRS). The Finger-Kreinin Index ranges from 0 to 1 and is based on the share of each recipient or aid sector in total AfT commitments by donor. It provides an index for the similarity of Member States AfT spending and that of the EU Institutions. Any recipients not identified by country (e.g. regional groupings, or unspecified recipients) have been excluded from the analysis.

Coherence of EU trade and development policy

Many of the EU’s trade agreements contain so-called non-trade policy objectives aimed at promoting sustainable development by conditioning preferential access to the EU market on partner countries making commitments in areas such as environmental protection, human rights, and labour rights. Since some agreements emphasise these development aspects more than others, there are questions about how coherent the development assistance provided by the EU is with the development objectives promoted through the EU’s trade policy. 

We explored this question using OECD data detailing the degree to which aid commitments had been motivated by three different sustainable development policy objectives: gender equality, environmental protection, and participatory development/good governance. Overall, we found that EU institutions display the strongest coherence between development assistance and trade policy objectives, while the member states display less coherence. This is rather unsurprising given that trade policy is an EU competence, putting the EU institutions in a unique position to ensure coherence between trade and development policies at the EU level. 

We found that a higher share of EU institutions’ total development assistance to GSP+ countries was focused on sustainable policy objectives compared to the standard GSP group, consistent with the stronger emphasis on sustainable development in the GSP+ programme. For example, from 2015 to 2017, some 68% of aid from EU institutions to GSP+ countries was motivated by an aim to improve participatory development and good governance, compared to 50% for the standard GSP group. Further, development aid from EU institutions to countries with an Economic Partnership Agreement (EPA) with the EU was also particularly focused on sustainable development objectives, consistent with the development focus of these agreements. Around 67% of aid had an explicit gender objective, 48% had an environmental protection objective, and 77% was targeted at improving participatory development and good governance. 

Concluding remarks

One could imagine a scenario in which EU institutions and member states replicate one another’s aid spending exactly as an expression of complete coherence, in which case there would be no point in any separate activity. There could also be pure ‘negative complementarity’, with member states doing exactly the opposite of what the institutions encourage in a spirit of a complete division of responsibilities. What we observed in reality was neither of these scenarios. Instead, we saw what we can call ‘positive complementarity’: EU institutions and member states appear to promote similar but not identical aims. The symbiotic relationship between soft power and smart power means that this result could be linked to soft power in a positive way. Where there is a favourable attitude in a recipient partner to a particular donor or a particular goal, it makes sense to link aid from the most favoured source and most acceptable objectives. Such coordination of development assistance is something the EU acknowledges. Indeed, the EU’s Code of Conduct on Complementarity and the Division of Labour in Development Policy (2007) sets out measures to enhance the complementarity of aid spending by EU donors and allow each actor to focus its assistance on areas where it can add the most value. A successful partnership of this kind, where the donor is perceived as acting in a benign way, increases soft power for the future.

References

Apiko, P, S Bilal, P Holmes, D Lui, J Magntorn Garrett and J Rollo (2019), “Report on the Coherence between Europe’s Trade and Development Policy”, RESPECT mimeo, December.

Bradford, A (2020), The Brussels Effect, Oxford University Press.

Commission of the European Communities (CEC) (2007), “EU Code of Conduct on Division of labour in Development Policy”.

Nye, J (2009), “Get Smart: Combining Hard and Soft Power”, Foreign Affairs 88(4): 160-163. 

HM Government (2013), “Review of the Balance of Competences between the United Kingdom and the European Union: Development Cooperation and Humanitarian Aid Report”, July.

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Topics:  Development EU institutions EU policies International trade

Tags:  EU, soft power, EU values, Aid for Trade, policy objectives

Jean Monnet Reader in the Economics of European Integration at the University of Sussex

Former Research Officer at the UK Trade Policy Observatory, University of Sussex Business School

Professor Emeritus, University of Sussex; Deputy Director, UK Trade Policy Observatory

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