U.S. Leads In Tying Poor Nation Donations To Expensive Trade Deals

by Thalif Deen

(IPS) UNITED NATIONS -- Donor money that comes with strings attached cuts the value of aid to recipient countries 25 to 40 percent because it obliges them to purchase uncompetitively priced imports from the richer nations, says a new UN study on African economies.

The 24-page study singles out four countries -- Norway, Denmark, the Netherlands and the United Kingdom -- as the only donors breaking away from the concept of "tied aid."

The four nations now provide more than 90 percent of aid "untied," says the report, which will go before the current session of the UN Economic and Social Council (ECOSOC), scheduled to end July 23.

Tied aid mandates developing nations to buy products only from donor countries as a condition for development assistance.

About 60-75 percent of Canadian aid is tied, one of the world's highest amounts. The United States, Germany, Japan and France still insist that a major proportion of their aid money be used to buy products originating only in their countries, according to experts.

"This has ensured that aid money is eventually ploughed back into the economies of donor nations," says Njoki Njoroge Njehu, director of 50 Years is Enough, a coalition of over 200 grassroots non-governmental organizations (NGOs).

"The United States makes sure that 80 cents in every aid dollar is returned to the home country," she told IPS.

"It's not so much the volume of trade that is important," according to the UN report, "but rather its qualitative aspects that make a demonstrable difference from a developmental point of view."

Njehu cited the example of Eritrea, which discovered it would be cheaper to build its network of railways with local expertise and resources rather than be forced to spend aid money on foreign consultants, experts, architects and engineers imposed on the country as a condition of development assistance.

Strings attached to U.S. aid for similar projects, she added, include the obligation to buy products such as Caterpillar and John Deere tractors. "All this adds up to the cost of the project."

Njehu also pointed out that money being doled out to Africa to fight HIV/AIDS is also a form of tied aid. She said Washington is insisting that the continent's governments purchase anti-AIDS drugs from the United States instead of buying cheaper generic products from South Africa, India or Brazil.

As a result, she said, U.S. brand name drugs are costing up to $15,000 a year compared with $350 annually for generics.

The UN study is also implicitly critical of the much-trumpeted African Growth and Opportunity Act (AGOA), signed into U.S. law in May 2000, as being too restrictive in its scope.

Citing studies by outside experts, the report says that out of the 37 sub-Saharan African countries eligible for tariff preferences under AGOA, the only major beneficiaries have been South Africa and Nigeria.

South African exports to the United States were 45 percent higher in 2002 than in the preceding year while 60 percent of Nigeria's exports to the United States were under AGOA. But the bulk of this trade related to the oil industry.

The experts -- Aaditiya Mattoo, Devesh Roy and Arvind Subramanian -- say the benefits are limited because only "non-sensitive" products, such as textiles, are included in the agreement.

Secondly, excessively tight rules of origin and the limited list of countries admitted to benefits from the special textile preferences regime reduce the usefulness of the scheme for African textile producers.

Thirdly, the regime expires in 2008, "something which obviously tempers the reaction of potential investors." And finally, there is concern that the benefits of AGOA will be diluted as the U.S. government negotiates free trade agreements with other regions, such as the Middle East and Central America.

AGOA is more sinister than tied aid, says Njehu. "If a country is to be eligible for AGOA, it has to refrain from any actions that may conflict with the U.S.'s "strategic interests."

"The potential of this clause to influence our countries' foreign policies was hinted at during debates at the United Nations over the invasion of Iraq," she added.

"The war against Iraq was of strategic interest to the United States," Njehu said. As a result, she said, several African members of the UN Security Council, including Cameroon, Guinea and Angola, were virtually held to ransom when the United States was seeking council support for the war in 2003.

"They came under heavy pressure," she said. "The message was clear: either you vote with us or you lose your trade privileges."

Njehu said her organization has already called on the U.S. Congress to reject the renewal of AGOA. "Contrary to the intentions signalled by its name, we find that AGOA is a negative force on our continent."

Last year two of the countries benefiting from AGOA-- Eritrea and the Central African Republic-- were taken off the list for "failing to meet the eligibility criteria."

According to the activist, "while we are by no means opposed to trade, we are opposed to trade agreements which include conditions that infringe our nations' sovereignty and commit us to economic policies that harm the most vulnerable people in our countries."

Njehu said that inclusion in AGOA requires countries to comply with "structural adjustment" conditions of the International Monetary Fund (IMF) -- austerity policies that widen the gap between rich and poor and exacerbate already difficult conditions for the most impoverished and for women and children in African societies.

Rules of origin for goods exported under AGOA have been written so as to create markets for U.S. materials, and do not sufficiently guard against wholesale use of foreign materials and even foreign work forces, she added. "Any opportunities afforded by AGOA should go first to Africans."