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    Aid for Trade - ITC's Response

     

     
     
    International Trade Forum - Issue 3/2006, © International Trade Centre

    With billions of dollars at stake, Aid for Trade can be a shot in the arm for developing countries. When defining the scope, pay attention to the supply side, say ITC and its clients.

    The Doha trade talks may have stalled in July 2006, but there has been consensus on one issue: the importance of "Aid for Trade".

    At the WTO's last ministerial meeting in Hong Kong, Japan announced trade-related development assistance spending of $10 billion over three years, the United States announced Aid for Trade grants of $2.7 billion a year by 2010 and the European Union and its member states announced trade-related development assistance spending of €2 billion per year by 2010.

    A WTO Task Force on the subject released recommendations at the end of July. "[T]here was a clear consensus in the Task Force that Aid for Trade is important in its own right and that it should move forward expeditiously despite the current difficulties in the Round," said Mia Horn af Rantzien, Ambassador of Sweden to WTO and Chair of the Task Force.

    Organizations such as UNCTAD, the World Bank and ITC have linked trade and development in the past. Until recently, however, the link was not prominent in broader development circles. The tone began to change when world leaders announced the Millennium Development Goals in 2000 and gained momentum when the WTO launched a new round of talks in 2001.

    The Doha Development Agenda promised to put developing countries' concerns at the heart of trade negotiations. Belonging to the world's largest trading club is important and WTO members from developing countries are queuing to join.

    But being a member of the club isn't enough. Part of the answer lies in Aid for Trade. "The fact is that many developing countries have been unable to benefit from the market opening that WTO has achieved because they lack the necessary trade-related capacity and infrastructure," said WTO's Director-General, Pascal Lamy, at the September 2006 meeting of the World Bank and International Monetary Fund (IMF) in Singapore.

    Towards more coherence

    There is still debate and varying views about Aid for Trade. It means different things to different people.

    Various issues shape the Aid for Trade debate, relating to both the quantity and the quality of aid. One important influence is the Paris Declaration on Aid Effectiveness. The Organisation for Economic Co-operation and Development (OECD) is examining how to measure and evaluate the impact of aid for trade. Other commentators offer "lessons learned" or good practices from regional or bilateral trade-related assistance initiatives. Among such lessons are the need for more predictable financing, "demand-driven" programmes to ensure ownership and coordination among donors. Some are calling for a stronger poverty reduction focus. Most urge donors and beneficiary countries to implement the recommendations of the Enhanced Integrated Framework for trade reform in least developed countries.

    ITC is contributing to ongoing initiatives and encouraging debate. It organized a round table on Aid for Trade at its annual meeting in April with clients, donors and partners, held an online staff discussion and has been monitoring the WTO Task Force and other Aid for Trade debates.

    ITC's view

    Responding to questions from WTO's Task Force, ITC's Deputy Executive Director, Stephen Browne, suggested four broad areas in which to apply aid for trade:

    • Policy: National and international policies to support trade development. At the national level, export strategies in development plans; cross-border facilitation; rule-making.
    • Infrastructure: Roads, ports, utilities and other infrastructure necessary for trade.
    • Finance: Adjustments to compensate for tariff reductions, preference erosion and the cost of conforming to international standards. An example is helping textiles and clothing exporters adjust to the recent end of the Multi-Fibre Agreement.
    • Supply side: Trade-related technical assistance that helps countries develop the skills and capacity to export in competitive global markets.
    Since its creation, the totality of ITC's work has been "aid for trade", focused on building supply-side capacity. In recent years, to support the Doha Development Agenda, its work has touched on policy issues as well. Aid for Trade is a catalyst, as ITC projects demonstrate, for countries to become more competitive, by identifying new and promising sectors for exports, assisting business in reallocating resources towards new areas of growth and promoting contacts between businesses in developing countries. The Ministerial Declaration signed in Hong Kong recognizes this role, by encouraging WTO members to "cooperate with the International Trade Centre, which complements WTO work by providing a platform for business to interact with trade negotiators, and practical advice for small and medium-sized enterprises to benefit from the multilateral trading system".

    Aid for Trade at ITC has a unique focus on developing business activity and building confidence between business and government. Its approach to Aid for Trade is based on ownership by beneficiary countries. It is a process in which countries actively engage, with ITC support, in assessing trade development needs, defining priorities and designing highly targeted projects.

    For ITC, business has a central role in developing trade. "Governments may create trade rules, but it is business that actually creates jobs and opportunities," says Mr Browne. "Aid for Trade should reflect this. If you want to build capacity to trade, you need to target the business community - not only large firms, but also, and primarily, the small and medium-sized enterprises that constitute up to 70% of the economy in most countries, and frequently more in the developing world."

    "Ownership" also means that key players - business, government and non-governmental organizations (NGOs) - need to work together. This emerged clearly from project reviews at a special briefing on Reducing Poverty through Trade, followed by a round table on Aid for Trade during ITC's annual meeting.

    Cambodia, with support from ITC, reoriented its traditional silk industry towards the requirements of foreign markets. In the process, it is tackling rural poverty and halting urban drift. Cambodia's Minister of Women's Affairs, Ing Kuntha Phavy, said the project saw monthly incomes grow from $20 to $60 among women weavers and the number of silk farmers, now benefiting from additional income of $130 per farmer annually, increased threefold by 2005.

    "The impact has been immense," she said, "with an increase in self-confidence and pride among women weavers and schooling for their children. Our long-term view is that a competitive, well-organized silk sector in Cambodia will weave a brighter future for all stakeholders."

    Denise Sinankwa, Minister of Trade and Industry of Burundi, said, "We used trade as a means to achieve economic reconstruction and to create jobs and diversify exports. That, in turn, is a major contribution towards our goal of peace and national solidarity." She recounted how ITC brought together a Haitian producer of perfume essences, Frager, and an agro-business firm in Burundi, Rugofarm, to cultivate patchouli, used in the manufacture of top-of-the-range perfume and soap.

    The project has, according to Stanislas Habonimana, Chairman of the Board of Rugofarm, "brought jobs to a region of high unemployment. It has the potential to provide some 20,000 local farmers with up to $300 in additional income annually. In a country where GDP [gross domestic product] per head of population is estimated between $600 and $700, this is considerable."

    Pascal Lamy, speaking at the September 2006 meeting of the World Bank and the IMF in Singapore, said, "Aid for Trade is not a substitute for a successful Doha Round […] but it is a necessary and valuable piece of our broader trade and growth agenda."


    ITC's lessons learned

    Extracts from ITC's e-discussion on Aid for Trade:

    1. Technical assistance works best when recipients request it and influence its design themselves.

    2. Inclusive and consultative processes, in which the private sector plays a vital part, are the only way to have meaningful, sustainable needs assessment and strategy developments in the trade field.

    3. The business community - the true exporters - need pragmatic technical assistance and have little time for theories about optimal conditions for trade.

    4. In addition to trade-related technical assistance (TRTA) for building export skills, developing countries are demanding more and more help to enhance competitiveness, design and implement export strategies and obtain basic knowledge about WTO rules, all of which are ITC specialties.

    5. Better dialogue between business, government and NGOs is essential to achieve results with TRTA.

    6. Greater awareness of the potential of advocacy helps the business sector of the developing world to keep faith in the multilateral trading system.


    Lessons learned from the IF in Cambodia

    by Siphana Sok, ITC

    Cambodia was the first country to have benefited enormously from the Integrated Framework (IF). Here are a few lessons from the Cambodian experience:

    • Encourage country ownership at all levels: government; business; civil society.
    • Back up policy advocacy with tangible interventions.
    • Sustain momentum with quick and timely responses.
    • Ensure continuity of activities over the long term for visible results. Organize technical assistance capacity-building activities as part of a systematic, long-term plan.
    • Clarify stakeholders' roles and expectations before launching initiatives.
    • Encourage stakeholders' participation - it empowers them.
    • Partnerships are the key to using resources effectively - and to the success of the activities.
    • Obtain full backing from the finance ministry to support the trade ministry.
    Writer: Prema de Sousa. Contributors: Natalie Domeisen, Christopher Simpson.