Addressing Tied Aid: Towards a More Development-Oriented WTO?

Abstract

‘Tied aid’ refers to aid granted by one country or countries to another on condition that the goods or services acquired are purchased from the donor(s). Despite the fact that tying aid seems contrary to the World Trade Organization's (WTO) basic principles of free trade and is an important issue for developing countries, it has received little attention from scholars or practitioners, even during the current ‘development round’ of negotiations. This article fills a gap in the literature by elaborating the way in which tied aid in relation to goods is affected by WTO rules. The analysis reveals that the WTO Agreements give little specific attention to the issue and that practices relating to tied aid are either outside the WTO rules or covered only in a limited or uncertain way such that the rules have little practical impact. Given the importance of tied aid for trade and for the WTO's development agenda, the analysis thus indicates that tied aid is an area requiring future consideration in the WTO. The analysis also serves to elucidate the complex legal architecture of the WTO Agreements as they relate to tied aid, which is important for any future efforts to address this subject.