Petr Halaxa, Petr Jelinek and Jan V. Krouzek:
Czech Republic


• Planning and delivery of Czech aid – summary of present practices and institutional structure
  • Criteria for providing aid
  • Sectoral selection criteria
  • Planning and delivery of bilateral aid
  • Present institutional structure
  • Planned institutional system
• Multilateral aid
  • Mandatory and voluntary contributions
  • The UN and its agencies
  • Other international organisations
• Activities prior to EU accession
• Trade between the Czech Republic and developing countries 1993–2000
  • Asia
  • Africa
  • Latin America
  • Europe
  • The Generalised System of Preferences and its impact on Czech trade with the least developed countries
  • Conclusions on trade

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Petr Halaxa, Petr Jelinek and Jan V. Krouzek: Czech Republic

The Czech Republic became a member of the OECD in November 1995, since which time it has become an emerging donor country. Efforts have been made gradually to improve the effectiveness and volume of Czech aid to partner countries and to "graduate" to the status of OECD/DAC donor country and emulate EU member states in this area.

Planning and delivery of Czech aid – summary of present practices and institutional structure

The Czech Development Aid programme is organised and implemented in accordance with Government Decision No. 153/1995 "Principles for providing Czech development assistance", which sets broad goals and criteria for the support of developing countries.

Criteria for providing aid

The major objective concurs with the efforts of the international community and concentrates on eliminating poverty and supporting sustainable development in less developed parts of the world. The Czech Republic supports the international development goals which emerged at UN international conferences in the 1990s, subsequently endorsed by the UN Millennium Summit in 2000. The Czech Republic also fully supports the Development Agenda adopted at the WTO Ministerial Conference in Doha in 2001 and the Monterrey Consensus passed at the international conference on financing for development in 2002.

The basic criteria for the selection of partner countries are that they have their own development policy and use their own resources to support Czech activities. The other selection criteria include:

• the urgency of aid;
• good governance and respect for human rights;
• equal access for all (regardless, for example, of gender) to education and health care;
• environmental protection and quality of life;
• suitable infrastructure for programme implementation;
• integration into global economy;
• promotion of new, innovative technologies;
• tradition of diplomatic relations with the Czech Republic;
• coordination with other donors.

Sectoral selection criteria

Development aid programmes focus on sectors or subsectors in which the Czech Republic might have a comparative advantage. These sectors include health care, education, and selected aspects of infrastructure and environment. This focus corresponds with the conclusions of the World Summit in Copenhagen in 1995, where the donor countries committed themselves to devoting 20 per cent of their bilateral aid programmes to social development if recipients committed 20 per cent of their national budgets. The Czech Republic also complies with the initiatives and recommendations of the EU, the OECD, and other international organisations (with the emphasis on environmental projects and support for regional cooperation).

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Table 1 Geographical and sectoral priorities for 2002–2007

Planning and delivery of bilateral aid

Currently, annual bilateral aid flows can be estimated at about USD 10 million. The budget is divided among ten line or sectoral ministries which are responsible, under the coordination of the Ministry of Foreign Affairs, for the identification and preparation of development aid projects, as well as their implementation and evaluation. The procedure usually follows the following pattern. The line ministries submit project proposals to the Ministry of Foreign Affairs based on proposals identified in the field by various stakeholders – private and state companies, non-profit and civic organisations, institutions, universities, and so on. In cooperation with the Development Centre (hosted by the Institute of International Relations, Prague) the Ministry of Foreign Affairs screens the proposed projects and, jointly with line-ministry representatives, carries out an appraisal, rejecting projects which are not eligible due to poor project design, policy, or financing constraints. The shortlist of project proposals is then incorporated into the overall aid package (including a small number of Ministry of Foreign Affairs projects) which is submitted to the government for final approval and financing.

Usually about two-thirds of the proposed projects are continued from the previous year. Subject to overall government budget approval the aid package is usually approved with minimum changes. It is to be noted that the financing available for the next financial year (that is, the financial ceiling for the package) is usually communicated to the Ministry of Foreign Affairs by the Ministry of Finance by the middle of the current year and the Ministry of Foreign Affairs joins with the line or sectoral ministries to weigh project proposals for the next year in light of this (interministerial taskforce in September–November). Apart from the ministries no other parties or stakeholders are allowed to participate in the appraisal exercise, since the ministries are made responsible by the government (in the course of approval of the package in

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December of the current year) for the implementation of the projects. The necessary funds for implementation financing are transferred directly by the Ministry of Finance to the line ministries, which report on the implementation results to the Ministry of Foreign Affairs by the end of the next year (early December). Neither the Ministry of Foreign Affairs nor the Ministry of Finance are under any pressure from Parliament or the still rather weak development constituency to increase the aid budget. The institutions and companies which implement the aid projects are appointed by the line ministries, which transfer the appropriate funds to them after public tender, progress reporting, billing, and so on. (Decree No. 199/1994 on public contract bidding is applicable here.) Delayed approval of the budget and the consequent chain reaction of transfers of funds can result in project commencement delays of several months in the field, interruption of long-term project implementation, and/or re-phasing by several months (the planning horizon for foreign aid is one year only) and difficulties for end-users in the field, as well as the implementing institutions. The Ministry of Foreign Affairs has tried to review this situation, but the Ministry of Finance, with one or two line ministries, has so far overruled it. The possibility of multi-year financing will again be raised with the Ministry of Finance at the end of 2002. Currently, about 80 development projects are implemented in over 40 countries in four continents.

Based on an evaluation of the above process and the effectiveness of the ODA projects during the years 1996–2000 the Development Centre, with the Institute of International Relations, Prague, prepared a set of recommendations for changes in the strategic framework of Czech ODA. The Ministry of Foreign Affairs used some of these recommendations to formulate by the end of 2001 the new "Concept of the Czech Republic Foreign Aid Programme for 2002–2007", which was approved by the government on 23 January 2002. This concept provides an assessment of the positive and negative results of Czech ODA, reviews international development targets, and sets territorial and sectoral priorities and principles for the gradual transformation of Czech ODA, in two stages, into an OECD/DAC- and EU-compatible system, strengthening the coordinating role of the Ministry of Foreign Affairs, using as a vehicle the Development Centre in stage one of the process and the Development Agency in stage two.

Present institutional structure

The supreme coordinating body under the Competence Act is the Ministry of Foreign Affairs. It carries out this coordinating role by means of regular interministerial meetings which draw together the representatives of line ministries entrusted with the development and implementation of projects. Since September 2001, the Foreign Ministry’s advisory body on development cooperation issues has been the Development Centre at the Institute of International Relations, Prague.

The role of the Ministry of Foreign Affairs can be summarised as follows:

• the preparation of conceptual documents related to foreign development cooperation;
• the submission of an annual aid plan and annual evaluation report to the government;
• cooperation with partner countries and coordination of activities with international institutions;
• statistical reporting and provision of information on development cooperation in the Czech Republic.

Since 1999, the UNDP project "Promotion of Capacities for International Development Cooperation" has been implemented in the Czech Republic. The project’s main goal is to help the Czech Republic step up from emerging donor to advanced donor. Owing to its success and benefits, especially in development education and research, the project has been extended

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until 2003 with the objective of making the Development Centre at the Institute of International Relations fully operational.

The Development Centre’s role can be summarised as follows:

• assessment of proposals for country strategies and long-term programmes, and screening of specific projects;
• cooperation with the relevant ministries on project planning and evaluation;
• cooperation with Czech implementing institutions (advisory services);
• cooperation with implementing development agencies in other donor countries;
• organisation of development training (project cycle management);
• coordination of development research in international development cooperation.

Planned institutional system

The medium-term concept of the Czech Republic’s foreign development aid takes into account the country’s accession to the EU and therefore envisages the establishment of a Development Agency as the authority responsible for the planning and implementation of Czech foreign development aid. The legal status, form of management, and executive powers of the Development Agency are currently being discussed by the ministries concerned. A proposal for the corresponding institutional provision of foreign development aid following the country’s accession to the EU will be presented to the government by the end of 2003. The Ministry of Foreign Affairs also plans to establish a Foreign Aid Council as an advisory body for the Foreign Minister in the sphere of development and humanitarian aid. This council will serve as an umbrella organisation for representatives of the Czech development constituency from the ranks of government and non-governmental institutions, political parties, the academic community, the media, trade unions, and civil society.

Multilateral aid

Mandatory and voluntary contributions

In addition to bilateral development aid, the Czech Republic contributes to the development activities of a number of international organisations. In 2001, these contributions amounted to approximately USD 15 million. The prospective share of this multilateral element in official foreign aid should come to roughly one-third under the medium-term concept. The Czech Republic monitors the effectiveness of the funds it grants and the compatibility of the activities of international organisations with the goals, principles, and territorial and sectoral priorities of Czech development cooperation. Multilateral aid can therefore suitably complement and initiate bilateral projects. Besides mandatory subscriptions stemming directly from membership of international organisations, the Czech Republic provides voluntary contributions to various agencies every year. This mechanism is mainly used in the system applied by the UN and its agencies.

The UN and its agencies

Since the dissolution of the Czechoslovak federation, the Czech Republic has been contributing to 16 UN programmes and funds. In 2001, development donations to the UN system amounted to CZK 75 million. The most important programmes in this respect are: United Nations Development Programme (UNDP), United Nations Children’s Fund (UNICEF), United Nations Population Fund (UNFPA), United Nations World Food Programme (WFP), United Nations Volunteers (UNV), United Nations Environment Programme (UNEP), United Nations Relief and Works Agency (UNRWA).

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Other international organisations

The Czech Republic is also involved in multilateral cooperation under the aegis of the Bretton Woods institutions. It makes contributions, for example, to the World Bank, the International Development Association (IDA), the International Bank for Reconstruction and Development (IBRD), and the Multilateral Investment Guarantee Agency (MIGA). In 2001, development donations to the World Bank group came to almost CZK 230 million. Other international funding includes the Poverty Reduction and Growth Facility (PRGF), the Heavily Indebted Poor Countries Initiative (HIPC), and the Global Environmental Facility (GEF). Within the framework of environmental protection, the Czech Republic is party to several international agreements (for example, CITES, the UN Convention to Combat Desertification, and the UN Framework Convention on Climate Change).

Activities prior to EU accession

The Development Centre of the Institute of International Relations, Prague, prepared a study on the possible impact of EU membership on Czech development aid. Using this study’s results an official document "Overview of anticipated rights and duties of the Czech Republic in foreign development assistance on accession to the European Union" was prepared by the Ministry of Foreign Affairs in January 2001 and presented to the government along with the medium-term concept. The purpose of this document was to inform the government of Community development policy and to outline the legislative, financial, and organisational aspects of the Czech Republic’s preparation for EU membership in this area. Negotiations are also under way with the European Union on the accession conditions. Issues of development aid are part of the preliminary closed chapter on "External Relations". The financial aspects have still to be negotiated. Table 2 presents projected ODA expenditure, including contributions to the EU communal aid budget in 2000–2007.

Table 2 Foreign aid budgets: projection for 2002–2007

Note: * Estimated.

EU accession will make the Czech Republic a member of the world’s largest donor community. Participation in the system of Community development aid will mainly entail accession to the Cotonou Agreement, participation in the financing of the European Development Fund, harmonisation of customs preferences for developing countries, and, in accordance with a

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new undertaking of EU members, ODA contributions of at least 0.33 per cent of GNP as of 2006, resulting in an EU average of 0.39 per cent. The Czech Republic’s accession to the EU will have both a financial and an organisational impact on Czech development assistance. On the other hand, during the pre-accession period the Czech Republic will have to implement EU and OECD/DAC compatible technical standards for PCM (Project Cycle Management) and develop or introduce compatible legislation required in respect of ODA (this involves over 80 directives and decisions).

Among the opportunities for the Czech Republic when it becomes involved in Community development assistance will be the ability to have some influence on where this is channelled. If the organisation of bilateral and multilateral development assistance is suitably implemented, the two elements (Czech and community) will complement each other. Czech firms and NGOs will be able to participate in the implementation of projects financed out of the European Development Fund and community annual budget.

Trade between the Czech Republic and developing countries 1993–2000

Although developing countries [For the definition of „developing countries" the OECD classification from 2000 (as presented, for example, in the DAC Statistical Reporting Directive (DCD/DAC (2000) 10)) was followed. In fact, the 2000 definition is used even for earlier periods, because otherwise the differences in the classification of certain countries would reduce the value of the statement. The only deviation from the OECD classification was in the case of Slovenia, Malta, and Croatia, which were not considered to be developing countries (in conformity with the classification of the Czech Ministry of Finance as presented in Annex 13 of the External tariff). If Russia, Ukraine, and Belarus are considered as developing countries (as the Czech Ministry of Finance does) then the share of developing countries in Czech imports was 13.22 per cent in 2000 (12.97 per cent in 1993) and in exports 5.71 per cent (13.08 per cent).] are not particularly important trading partners for the Czech Republic, their position is not insignificant: nearly 6 per cent of Czech imports came from the developing world, which also accounted for more than 3.5 per cent of Czech exports in 2000. On the other hand, one cannot disregard the fact that developing countries had a much more important role in Czech foreign trade in the past.

A gradual reduction in the developing countries’ share in Czech foreign trade can be discerned from 1991, [Foreign trade statistics were not published separately for the Czech and Slovak Republics before 1991. The value of the data published for 1989 in the Statistical Yearbook of the Czech and Slovak Federal Republic (1990) is further reduced because it does not include Albania, Cuba, Vietnam, Mongolia, China, Yugoslavia, North Korea, Laos, Cambodia, and South Africa as developing countries. On the other hand, the Statistical Yearbook classifies, for example, South Korea as a developing country. See Statistická ro č enka Č eské a Slovenské federativní republiky 1990 (Prague: SNTL, 1990), pp. 462–8.] when the import share of developing countries was close to 11 per cent and that of exports exceeded 15 per cent. [Calculated on the basis of the data published in the yearbook on Czechoslovak foreign trade in 1991. Even in this publication the definition of ‘developing countries’ does not conform to the OECD classification. Besides the category of ‘developing countries’ it uses the category of countries with a system of state trade. It does not describe South Africa, Yugoslavia, and Albania as developing countries, but South Korea, Hong Kong, Singapore, and Taiwan are regarded as developing countries. Calculations could not be carried out separately for foreign trade with the developing countries of the former USSR, because in 1991 the foreign trade yearbook gives data only for the USSR as a whole. See Zahrani č ní obchod Č SFR v roce 1991 (Prague: Č eský statistický ú řad, 1993), pp. 3–11.]
By 1993 the share of developing countries was 3.24 per cent of imports and 8 per cent of exports, [Part of the difference might be ascribed to the use of different methods in the foreign trade yearbook in 1991 and in the period 1993–2000, published on the web pages of the Czech Statistical Office ( www.czso.cz ) and of the Customs Office ( www.cs.mfcr.cz ).] and by 2000 exports to developing countries had declined further to 3.54 per cent, but imports from developing countries had gradually

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grown to 5.93 per cent. Czech exports to the developing world stagnated (in 1993 the Czech Republic exported goods worth CZK 34 billion to the developing world and in 2000 the value of its exports was 40 billion), while Czech imports from developing countries grew rapidly (from CZK 14 billion in 1993 to 74 billion in 2000). As a consequence of this development the balance of Czech trade with the developing world has changed from positive to negative. However, there are significant differences between different parts of the developing world.

Asia

Czech trade with the Asian developing countries [We do not consider (in conformity with the OECD classification) Japan, South Korea, Taiwan, Hong Kong, Singapore, Brunei, United Arab Emirates, Kuwait, Qatar and Israel to be developing countries.] fully conforms to the abovementioned pattern of stagnation of Czech exports and rapid growth of imports. The Czech Republic imported from the Asian developing countries goods worth CZK 7 billion in 1993, increasing to CZK 53 billion in 2000. Czech exports, on the other hand, oscillated around the level of CZK 22 billion. China was the most important trading partner in the period 1993–2000, with imports growing rapidly from CZK 2.3 billion in 1993 to nearly CZK 27 billion in 2000. Trade with India developed gradually during the same period, both imports and exports reaching CZK 3 billion in 2000. Imports from South-East Asia grew rapidly as well. Between 1993 and 2000 imports from Malaysia rose from CZK 628 million to CZK 6.4 billion, while exports stagnated (1.3 billion in 2000). Czech imports from Thailand increased from CZK 615 million to more than CZK 3 billion between 1993 and 2000, while exports declined from CZK 2.2 billion in 1993 to CZK 500 million in 1999; however, in 2000 they rose again and exceeded CZK 1 billion. Imports from Vietnam grew from CZK 148 million in 1993 to more than CZK 2.1 billion in 2000. Czech exports to Vietnam also grew, but at a much slower rate (from CZK 180 million in 1993 to CZK 407 million in 2000). Even trade between the Czech Republic and Indonesia recorded a sharp increase in Czech imports (from CZK 380 million in 1993 to CZK 2.4 billion in 2000). Another important Czech trading partner was the Philippines.

The Czech Republic further developed its trade with the former Soviet Republics of Central Asia. Czech imports from Kazakhstan increased rapidly from a value of CZK 226 million in 1993 to CZK 4.7 billion in 2000, while exports oscillated around CZK 1 billion. Imports from Uzbekistan rose from CZK 507 million to CZK 1.5 billion between 1993 and 1998, but fell below CZK 1 billion thereafter. Czech exports to Uzbekistan stagnated and exceeded CZK 1 billion only in 1997.

Trade relations with the developing countries of the Middle East were characterised by a different pattern. The Czech Republic’s trade balance with Iran remained positive: exports did not fall significantly below CZK 1 billion in 1993–2000, peaking in 2000 at almost CZK 3 billion; imports oscillated between CZK 100 million and CZK 300 million (nearing CZK 1 billion in 1996). A similar pattern developed in trade with Saudi Arabia: Czech exports exceeded CZK 1.3 billion in 2000, while imports were negligible. Imports from Lebanon were also insignificant, but exports consistently exceeded CZK 1 billion. Czech exports to Syria oscillated between CZK 1 billion and CZK 2 billion in 1993–2000, exceeding CZK 1.9 billion in 1994, but falling to CZK 768 million in 2000. Imports from Syria were always lower than exports and usually did not exceed CZK 100 million (imports from Syria rose above CZK 1 billion only in 1996). Czech trade with the Middle East contrasts sharply with its trade with the rest of Asia.

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Africa

Czech trade with North Africa as a whole developed differently from its trade with the Middle East. Czech exports to the developing countries of North Africa [Libya is not considered as a developing country according to the OECD classification.] exceeded imports by more than twenty times in 1993 (Czech exports were worth CZK 5.8 billion and imports CZK 283 million). In 2000, however, Czech imports exceeded exports by more than CZK 2 billion (imports totalled CZK 5.2 billion and exports CZK 3.1 billion). The main reason for this development was the sharp increase in the volume of trade between the Czech Republic and Algeria. Czech exports to Algeria fell from CZK 800 million in 1993 to CZK 469 million in 2000, while imports rose rapidly to more than CZK 4 billion in 2000. The main item in Czech imports from Algeria was oil. Although Czech exports to Egypt declined slightly (from CZK 4.4 billion in 1993 to CZK 2 billion in 2000), the trade balance with Egypt remained positive. With Tunisia, however, the trade balance changed from positive (for example, the Czech Republic exported to Tunisia goods worth CZK 1.1 billion and imported goods worth CZK 28 million in 1995) to a slightly negative one (Czech imports from Tunisia were CZK 307 million and exports CZK 273 million in 2000).

A similar, but more graduated pattern characterises trade between the Czech Republic and Sub-Saharan Africa. The Czech trade balance changed from positive to negative between 1993 and 2000 (imports were worth CZK 1.3 billion and exports CZK 1.7 billion in 1993, although in 2000 they reached CZK 3 billion and CZK 2.2 billion respectively). The most important trading partners in Sub-Saharan Africa were South Africa, Nigeria, Ivory Coast, and Zimbabwe. The Czech trade balance with South Africa was slightly negative: imports rose to CZK 1 billion, and although exports also increased, their value usually did not exceed half that of imports. The only exception was 1996 when the Czech Republic exported to South Africa goods worth more than CZK 3.5 billion. Czech imports from Nigeria grew gradually after 1993 to peak in 1998 (CZK 570 million), but declined thereafter. Czech exports to Nigeria were usually about CZK 200 million a year. The Czech trade balance with Ivory Coast was markedly negative: imports grew from about CZK 300 million to more than CZK 500 million annually. The most important item was cocoa. Czech exports to Ivory Coast usually remained well under CZK 100 million. Czech imports from Zimbabwe were also much higher (in 1997 they came close to CZK 1 billion) than exports.

Latin America

The Czech Republic’s negative trade balance with Latin America mirrored that with Asia and Africa. However, there were differences between Central America and the Caribbean (where the Czech Republic had a positive trade balance in 1993–96) and in relation to South America (where the Czech Republic had a negative trade balance during 1993–2000, the trade deficit rising steadily from CZK 1.4 billion in 1993 to CZK 3.3 billion in 2000) CZK. The most important Czech trading partners in Latin America were Argentina, Brazil, and Mexico. The Czech trade balance with Brazil was negative throughout 1993–2000, but the volume of trade grew rapidly: Czech imports from Brazil rose from CZK 1 billion to more than CZK 4 billion, while exports rose from CZK 445 million to CZK 1.8 billion. Czech imports from Mexico also grew sharply (from CZK 122 million in 1993 to CZK 1.8 billion in 2000); exports fell after 1993, but then rose again, reaching almost CZK 1 billion in 2000. Finally, although the Czech trade balance with Argentina was negative in 1993 (imports CZK 1.2 billion; exports over CZK 500 million), in 2000 exports and imports stood at CZK 400 million.

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Europe

The pattern of Czech trade with European developing countries [Albania, Bosnia and Herzegovina, Yugoslavia, Macedonia, Moldova.] was positive. The most important trading partners were Yugoslavia and Bosnia: Czech exports to Bosnia and Herzegovina grew rapidly from CZK 73 million in 1993 to more than CZK 2 billion in 2000, while imports stagnated, never exceeding CZK 100 million. Czech exports to Yugoslavia also rose sharply (from CZK 136 million in 1993 to CZK 3.3 billion in 1998), while imports grew from CZK 6 million in 1994 to CZK 675 million in 2000.

The Generalised System of Preferences and its impact on Czech trade with the least developed countries

The Czech Republic grants trade preferences for the import of goods and services from developing countries under the Generalised System of Preferences (GSP). Its rules were applied in the former Czechoslovakia in 1989 by Federal Ministry of External Trade Regulation No. 69 on "Exemption of goods imported and originating from developing countries and the least developed countries from customs duties". The Generalised System of Preferences was also integrated into the government regulation by which external tariffs were issued and duties on goods originating from developing and the least developed countries set. Under the Czech external tariff reduced (preferential) duties are applied on certain goods originating from developing countries; all goods originating from the least developed countries enter the Czech Republic duty free. However, the application of these preferences is governed by a number of conditions: for example, at least 50 per cent of the value of the goods must be added in developing or the least developed countries and the goods must be imported directly from a developing or least developed country.

Although the General System of Preferences gives special preferences for the least developed countries, no country in this category became a major trading partner of the Czech Republic. The least developed countries did not take full advantage of the opportunity presented by trade preferences. Imports from the least developed countries to the Czech Republic grew significantly in only a few cases: from Afghanistan they grew from zero in 1994 to CZK 13 million in 2000; from Bangladesh from CZK 20 million in 1993 to CZK 281 million in 2000; from Benin from zero in 1996 to CZK 41 million in 2000; from Chad from zero in 1994 to CZK 150 million in 2000; from Myanmar from CZK 1 million in 1996 to CZK 24 million in 2000; and from Nepal from CZK 3 million in 1993 to CZK 13 million in 2000. In some cases it is difficult to assess whether there is a tendency towards long-term import growth because of the short period during which growth occurred. Cases in point include Cambodia and Mali: imports from Cambodia increased from CZK 1 million in 1998 to CZK 29 million in 2000, while imports from Mali rose from CZK 1 million in 1998 to CZK 129 million in 2000. By and large, however, imports from the vast majority of the least developed countries did not grow for longer periods of time, and some remained negligible. In some cases an increase in the volume of imports occurred only once, while in other cases imports grew for a time and then fell again (this applies to Burkina Faso, Eritrea, Ethiopia, Guinea, Yemen, Laos, Madagascar, Malawi, Rwanda, Senegal, Sudan, Tanzania, Togo, Uganda, and Zambia).

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Conclusions on trade

The Czech trade deficit with developing countries grew during 1993–2000, a development particularly fuelled by trade with Asia. The only regions of the developing world with which the Czech Republic maintained a positive trade balance were the Middle East and the Balkans. The share of developing countries in Czech trade as a whole fell (from 5.62 per cent in 1993 to 4.79 per cent in 2000). Trade with the least developed countries remains marginal despite the fact that their goods enter the Czech Republic duty free.