Proposal on developing countries

Posted on Posted in 3. Rich societes

Mr. Bogdan Wenta

Development Commission (DEVE)


Dear Sir

The needs of developing countries are estimated at 3.3 trillion – 4.5 trillion $ annually [1]. And official development assistance from all OECD countries amounted to 142.6 billion $ [2] in 2016, or around 3-4% of needs. This disproportion may give the impression that helping developing countries is a “bottomless well”.

However, this “bottom” is slowly rising due to the economic development of poor countries. OECD countries contribute to this development, allocating approximately 3/4 of all foreign aid to their economic development (including humanitarian assistance and assistance to refugees).

The funds invested in business enterprises pay off in the following years in the form of additional income created in developing countries, which can again be invested in development, giving rise to a power-generating growth [3].

The most effective method of stimulating economic development seems to be creating external demand for goods produced in supported countries. Buying goods from these countries results in an increase in the profitability of entrepreneurship, which is a source of economic growth, while not allowing to stay in an inactive state of waiting for assistance from abroad.

Unfortunately, uncritical imports from these countries often do not give the expected benefits to countries and their societies, and even lead to great damage. The reason is the weak bargaining power of local governments and the tendency to corruption. As a result, production often takes place at the cost of exploiting cheap labor, land grabs, environmental degradation and tax fraud.

The remedy for this state of affairs for 40 years is trying to become an international Fair Trade movement. A dozen or so organizations that certify products or companies with the “Fair trade” sign examine the integrity of the production process and the supply chain [4].
The “Fair trade” movement is painstakingly paving the way to consumer awareness around the world. However, the share of certified products in the entire market is still negligible. Noble goals of movement lose with the basic consumer purchase criterion, which is the price. Production with respect for the rights of employees and their countries is more expensive than robbery, which results in certified products being more expensive than products that are manufactured according to the lowest cost principle.

It would be a very significant gesture if the European Union would help developing countries by recommending to Member States a reduction of VAT on imported products certified as “Fair trade”, especially from the poorest countries. Zero or preferential VAT rates in imports would, in large part, compensate for the higher than average costs of goods produced and sold in a fair manner.

Such a gesture would probably make the market share of certified products finally significant and the application of fair trade rules in developing countries would gradually become the norm. And for the European Union it would give a very good image effect.

That is why I am asking you to consider in the European Parliament the recommendation of preferential VAT rates for the import of products certified as “Fair trade”.

Thank you very much for taking the time to read this letter.

Friends From Afar
5. XII 2017.

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