Out of Poverty with Aid for Trade

By Jaya Ramachandran | IDN-InDepth NewsReport

GENEVA (IDN) – Development assistance alone will not suffice to lead the way out of poverty. It must be backed by Aid for Trade. Inspired by this belief, the powerful European Commission, the OECD and WTO, are making an impassioned plea for boosting Aid for Trade (AfT) flows, arguing that these result in lower trade costs and improved trade performance.

One in six people in the world today live on less than a dollar a day, argues the European Commission. These poor people need decent jobs, in order to make a living and provide for their families. At the same time, governments need tax revenue to invest in social services and encourage economic growth.

Increasing trade and investment is one important way of achieving this and is part of the strategy for achieving the Millennium Development Goals (MDGs). But market access alone is not sufficient to generate trade, especially in the poorest countries.

The reason, the European Commission explains, is that many countries also face internal “behind the border” constraints such as a lack of productive capacity and ability to meet standards in high value export markets, excessive red tape, or poor infrastructure.

All of these make it difficult for developing countries to export their products and undermine the potential benefits of increased imports. “Targeting these constraints is what Aid for Trade (AfT) is all about, along with strengthening countries’ capacity to negotiate and implement trade agreements to their benefit,” says the European Commission.

This view is backed by an OECD-WTO analysis: “$1 in Aid for Trade funding increases exports from richer developing countries by $8, and by as much as $20 from the poorest countries. The impact of Aid for Trade funding is even higher for exports of parts and components, underscoring the benefits value chains offer to developing countries.”

The joint OECD-WTO report Aid for Trade at a Glance 2013: Connecting to Value Chains says that the emergence of value chains strengthens the rationale for trade-related assistance and should reinvigorate the aid-for-trade debate. As developing countries seek greater participation in value chains, aid for trade programmes are helping them achieve their economic growth, employment and poverty reduction objectives, avers the report.

“Aid for trade works, and it is making a difference,” OECD Secretary-General Angel Gurría said on July 8, 2013 at the Fourth Aid for Trade Global Review ‘Connecting to value chains’, at the World Trade Organisation (WTO) in Geneva.

“Mobilising aid flows to boost trade and help connect developing countries to global value chains is a good investment. The challenge today is maintaining momentum, fulfilling commitments, boosting results and making value chains accessible to all. An important next step would be the agreement of a comprehensive package of trade reforms, with a focus on trade facilitation,” Gurría said.

The OECD/WTO monitoring study assesses the tangible results of the Aid for Trade Initiative, including aid flows and the outlook for future funding. It also analyses the strategies, priorities, and programmes developed and developing countries are using to connect their suppliers to value chains.

Donors have disbursed more than $170 billion in aid for trade since 2006, and annual commitments in 2011 reached $41.5 billion, 57% above the 2002-05 average baseline. Aid to private sector development programmes has continued to grow, reaching $18 billion in 2011. Debt pressures and sluggish growth continue to affect many donors, but providers of South-South development assistance, such as China and India, have scaled up their efforts, complementing the efforts of donors participating in the OECD-DAC Creditor Reporting System.

To take full advantage of the development opportunities afforded by trade, the report suggests that future aid for trade flows be directed at programmes to improve trade-related infrastructure and improve the business environment. Donors and developing countries should also put in place frameworks for results-based management of aid for trade programmes, based on a menu of trade-related targets, as well as indicators to measure their performance.

OECD and WTO have recently published a range of complementary reports on the subject, including Aid for Trade in Action, Aid for Trade and Development Results: A Management Framework and five sectoral studies on Aid for Trade and Value Chains in Agrifood, Tourism, Textiles and Apparel, Transport and Logistics and Information and Communication technology.

The EU and Aid for Trade

The European Union’s Commission, which was represented by EU Development Commissioner Andris Piebalgs and EU Trade Commissioner Karel De Gucht at the conference, is also a strong proponent of trade facilitation, within the wider AfT initiative, according to official sources. In 2011, the share of EU and member in the global Trade Facilitation accounted for 59%, being the biggest providers of trade facilitation since 2008.

“The impact of trade facilitation can be very visible and tangible; it can lower transport costs, shorter queues at the borders, simplified controls and formalities, increase trade opportunities and create new market openings,” the Commission said.

The joint EU-AfT monitoring report 2013 (based on 2011 data) shows that the EU continued a relatively strong performance in 2011, despite the global economic downturn. The EU with its Member States confirmed their position as the largest provider of AfT in the world, accounting collectively for 32% of global AfT totalling €9.5 billion committed.

Trade related assistance (TRA) commitments (helping to facilitate trade, for example by improving customs or port facilities, or helping countries to meet EU safety and health standards) also increased by 7.9% in 2011, reaching a total of €2.8 billion for EU and EU Member States; far above the €2 billion target to which they committed in the 2007 joint EU Aid for Trade Strategy.

The EU and its Member States also remain the major providers of TRA in the world, with 71% of total commitments in 2011 (60% in 2010).

Africa remains the most important recipient of AfT, with almost 36% of all EU collective AfT allocated to the region. In 2011, the Sub-Saharan countries increased their share in the total amounts committed to Africa both for the Member States (68%) and the EU (82%).

Asia received the second largest share of AfT (17% of total in 2011), followed by America (11%) Europe (11%) and Oceania (less than 1%). 24% of EU AfT went to global initiatives, covering various regions.

Wider support

Against this backdrop, also 27 governments and organisations have underlined the importance of providing technical assistance to trade facilitation programmes of developing countries. They noted that trade facilitation commitments rose by 365 per cent in 2011 to a total of more than US$ 381 million.

In a joint statement on July 8, 2013, they said: “Trade facilitation reform delivers tangible benefits to economic growth and development. The widespread recognition of these benefits is reflected in the pursuit of trade facilitation initiatives in many developing and least-developed countries and regional cooperation bodies around the world. A WTO Trade Facilitation Agreement would add significant momentum to these initiatives, leading to even greater reductions in trade costs.”

The WTO (World Trade Organization) currently has 159 members, of which 117 are developing countries or separate customs territories. Over the past 60 years, the WTO, which was established in 1995, and its predecessor organization the GATT have helped to create an international trading system. The WTO also provides a legal and institutional framework for the implementation and monitoring of these agreements, as well as for settling disputes arising from their interpretation and application. The current body of trade agreements comprising the WTO consists of 16 different multilateral agreements (to which all WTO members are parties) and two different plurilateral agreements (to which only some WTO members are parties).

The joint statement said: “Because of the tangible economic benefits for developing and least-developed countries, we attach particular importance to assisting in the implementation of trade facilitation reform. A total of more than $381 million was committed to trade facilitation programs in 2011. This represents an increase of 365% (in real terms) of Official Development Assistance to trade facilitation compared to the 2002-2005 average. Since 2006, over $1.2 billion in ODA (official development assistance) for trade facilitation has been disbursed. This underlines the strong and sustained support globally for trade facilitation efforts.”

A WTO Trade Facilitation Agreement would build on the progress made to date, the statement added. “We recognise that there are WTO Members that will require support to fully implement the Trade Facilitation Agreement, complementing the support provided to date. Developing and least-developed WTO Members can be confident of our ongoing support for their implementation of a WTO Trade Facilitation Agreement.”

The joint statement was signed by WTO members: Australia, Canada, Denmark, European Union, Finland, France, Germany, Japan, Netherlands, New Zealand, Norway, Sweden, Switzerland, United Kingdom, and United States.

Organisations joining the statement are: African Development Bank, Asian Development Bank, European Bank for Reconstruction and Development, Inter-American Development Bank, International Monetary Fund, Islamic Development Bank Group, Organisation for Economic Cooperation and Development, United Nations Conference on Trade and Development, United Nations Development Programme, United Nations Economic Commission for Europe, World Bank Group, and the World Customs Organization. [IDN-InDepthNews – July 9, 2013]

Image credit: bubblews.com

2013 IDN-InDepthNews | Analysis That Matters

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