Nielson-Patten row stalls bid to ban tied aid deals

Date: 11/01/01

By Simon Taylor

A DISPUTE between European Commissioners Poul Nielson and Chris Patten has stalled plans for new rules to stop EU countries using development aid as a backdoor subsidy to domestic firms.

The two were due to present new rules at the end of January which would ban certain types of 'tied aid', which forces poor countries to use development funds to buy goods and services from donor nations.

Campaign groups estimate that the practice costs developing countries up to €2 billion a year because they cannot award contracts to the cheapest supplier.

But a disagreement over the scope of the proposal between development chief Nielson and external relations supremo Patten has forced the Commission to delay its plans.

"We want to see things opened up but some people are worried that all tenders could go to the US or the Japanese," said one Commission official working on the proposal.

Patten favours scaling back tied aid deals to provide recipient countries with better value for money.

But development experts say that Nielson is reluctant to approve rules which would penalise Denmark, where the Commissioner used to be minister for overseas cooperation. "Nielson blocks everything that Patten comes up with," said one.

Copenhagen is the world's most generous provider of assistance to poorer countries in terms of gross domestic product, donating aid worth one percent of its total GDP. Danish officials argue that public support in the country for such a large amount of overseas aid depends on the fact that the donations directly benefit its companies through contracts for goods and services.

They also argue that most of the Union's development assistance is already 'untied' in the sense that any company from an EU country can apply for contracts to provide products and specialist advice.

In addition, the 77 countries which are part of the Union's African, Caribbean and Pacific (ACP) programme can bid for projects funded through the Union's European Development Fund.

But campaigners argue that aid contracts should be opened upto bidders from the beneficiary countries themselves to increase the effectiveness of anti-poverty strategies.

The Patten-Nielson row comes as the Commission is deciding whether individual EU countries' existing rules on paying out development aid clash with single market legislation.

Internal Market Commissioner Frits Bolkestein will decide in the next few weeks whether to launch legal action against any member states for breaking Union laws designed to ensure free competition and clamp down on illegal state subsidies.

Member states donate around 13 billion in assistance to developing countries, with over half of all aid being tied in some form or another.

Anti-poverty campaign group Action Aid, which forced the Commission to admit that many countries' current practices broke EU law, claims that developing countries pay around 15-30% more for goods and services such as medical supplies and water pumps than if they could buy them on the open market.

UK development minister Claire Short has already announced that she will be untying all development aid from 1 April this year.

Figures produced by Action Aid show that Spain is the worst offender with over 70% of all its annual aid budget tied in one form or another. The next biggest culprits are Italy, Austria and Belgium, where over 30% of all development monies are linked to buying goods and services from the donor country.

A dispute between European Commissioners Poul Nielson and Chris Patten has stalled plans for new rules to stop EU countries using development aid as a backdoor subsidy to domestic firms. The two were due to present new rules at the end of January 2001 which would ban certain types of 'tied aid', which forces poor countries to use development funds to buy goods and services from donor nations.