4 Law & Dev. Rev. 1 (2011)

handle is hein.journals/ldevr4 and id is 1 raw text is: 





Serra: The Practice of Tying Development Aid


I. INTRODUCTION

The present paper attempts to outline some major legal implications brought about
by so-called tied aid (TA) at both the European and the international level. TA
consists in the practice of tying the granting of aid to the purchase of goods and
services in the donor country. More specifically, under a TA regime, a developed
country  grants funds to a  developing  partner country on  condition that the
donation is spent by the latter through tender procedures reserved to companies
established in the former. A  further restriction is sometimes imposed on  the
recipient: products and services must originate from the donor country (double
tying).
     From  a macroeconomic   perspective, expenditure through TA procedures is
not accounted for under financial outflows from the donor country towards  the
rest of the world. They rather increase public expenditure and boost domestic
companies'  investments (as well as consumption by their employees), ultimately
instigating, via the Keynesian multiplier,1 a more than proportional increase in the
donor's aggregate income. As  the beneficiary country is a mere recipient of the
final products, TA does not contribute to reducing developing countries' structural
dependence  on  external aid. This jeopardizes the realization of the contested
right to development. Moreover, from a microeconomic  perspective, TA creates
an artificial competitive advantage that infringes on world trade liberalization (i.e.,
WTO   law) as well as on the discipline of competition in the EU internal market.
     Leaving   aside  the  ongoing   debate  on   aid  effectiveness and   the
harmonization  of donors' practices, this essay focuses on TA  with a view  to
shedding  light on some significant, yet not extensively researched, legal short-
circuits between development cooperation and the market (i.e., trade liberalization
and competition).


II. TIED  AID AND  THE  RIGHT   TO  DEVELOPMENT

TA's  shortcomings as to the desirable objective of truly helping poor countries to
develop  are the subject of international socio-economics. It is useful to briefly
recall the main arguments used to substantiate the ineffectiveness and inefficiency
of TA.
     The   main  criticism focuses  on  the fact that, by  circumscribing  the
participation in tender procedures for the awarding of aid contracts to national
firms, an advanced country produces a positive macroeconomic  effect only at the

I Keynes' multiplier is a factor of proportionality that measures how much an endogenous variable,
such as a country's aggregate income, changes in response to a change in some exogenous
variable (e.g., government expenditure).


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