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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). 1

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