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    Aid for Trade: A Wider Scope

     

     
     
    International Trade Forum - Issue 4/2006, © International Trade Centre 
     

    © Ministry of Foreign Affairs, Sweden 

    Go beyond trade policy when addressing what you need to improve your country's trade performance, recommends the Aid for Trade Task Force.

    Q: Is Aid for Trade worth it for developing countries? 

    A: From the development standpoint - which is my background - Aid for Trade is essential. For some countries, market access is not enough; they need parallel support. An important achievement of the Task Force is that the international community now accepts that some countries can't be real actors on the trade scene if they don't have roads to take goods to ports, the right laboratories and so forth.

    There may be short-term costs to opening up trade under WTO rules, too. Studies show that, without help to adjust to open markets and new rules, a few countries risk becoming short-term net losers.

    Q: Is there a shift in thinking about Aid for Trade? 

    A: Task Force discussions have helped to raise awareness and connect decision-makers in different circles. There is a growing insight in development circles that trade could be a very important tool for development and that donor and international agencies must do more to link development aid to trade. Here, ITC has a lot of experience. Apart from funding education or health, development agencies must also invest in building productive capacity. Trade bodies are now more aware that some countries need help to exploit opportunities and implement commitments.

    Aid for Trade is a way to link policy decisions in trade and development, increasing the potential development outcome - a true example of the benefit of increased coherence. We need a wider mindset about it. The focus used to be on trade policy support. It's now understood that supply-side capacity, infrastructure and adjustment issues are equally important.

    Q: How did the Task Force come about? 

    A: In May 2005, Valentine Rugwabiza, then Ambassador of Rwanda to WTO, and myself were asked by representatives of the World Bank and International Monetary Fund (IMF) secretariats to start an informal process in Geneva to come forward with ideas on how the Bank and the IMF could do more on Aid for Trade. We created a group of donors and recipients, had informal discussions and submitted our views to the two secretariats in July 2005. The interest in the issues continued in the Geneva context.

    In Hong Kong [at the WTO Ministerial Conference, December 2005], WTO's Director General, Pascal Lamy, was asked to set up a Task Force to see how Aid for Trade could be implemented. He was also asked to have consultations on the issue of mechanisms to finance Aid for Trade. The Task Force was established in February 2006 and after intense work, we produced our report in July 2006 - within the six-month time frame trade ministers had given us - and it generated broad consensus.

    Q: Who took part in the Task Force? 

    A: The Task Force was made up of the Ambassadors of Barbados, Brazil, Canada, China, Colombia, the European Union, Japan, India, Thailand, the United States and the coordinators of the African, Caribbean and Pacific nations (Mauritius), the African Group (Zambia) and the Least Developed Countries (LDC) Group (Benin). The members of the Task Force were asked to complement their WTO ambassadors with an expert on development cooperation, which resulted in trade ambassadors connecting with development experts in their administrations. Ambassadors from developing countries obviously also brought a personal development perspective and expertise.

    I was asked to chair the Task Force in a personal capacity. It was a learning experience for all. I was very impressed with the contributions and personal engagement of members. Ambassadors came personally, they came prepared, and we moved forward. There was also a lot of consultation with other WTO members, development agencies, think tanks and other stakeholders.

    As an example of our interaction with important actors, I put together a questionnaire, which we sent to agencies. In some cases, like at ITC, it generated considerable awareness-raising and discussion on how best to respond, as an organization, to the challenges of helping trade work for development. We got input from everyone - the World Bank, IMF, the regional development banks, UNCTAD, the United Nations Development Programme, the United Nations Industrial Development Organization, task force members, non-governmental organizations, the Organisation for Economic Co-operation and Development's Development Assistance Committee and many others.

    Q: How much money is available for Aid for Trade? 

    A: In Hong Kong, Japan announced development assistance spending on trade, production and distribution infrastructure 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. As I understand it, they have reconfirmed these pledges in their consultations with Pascal Lamy.

    I believe there is a true willingness to increase funding for aid for trade, but it must be based on demand. Spending more money, in isolation, won't work. Spending must be country owned, reflecting the insights of national stakeholders.

    Q: What is the scope of Aid for Trade? 

    A: To put Aid for Trade into practice, the Task Force report has recommendations for everyone.

    Recipients must show a political will to mainstream trade into development strategies. At the country level, it's important to build on what exists. LDCs should identify trade needs and suggest priorities to development partners through the Integrated Framework (IF). Poverty Reduction Strategy Papers can go further in incorporating trade needs. It's also important to consult broadly - with the private sector, civil society and relevant government agencies.

    So far, in many cases, trade has not had a big enough place in national poverty reduction strategies. One reason is that officials in these countries lacked the capacity to do this kind of analysis. Another reason is that donor awareness is weak regarding the power of small trade development projects to generate jobs.

    Donors, too, need to coordinate their approach. For example, in LDCs they should use the IF to identify areas for support and back efforts to prepare projects and programmes to become bankable.

    We recommend that donors strengthen their trade expertise both in the field and at headquarters.

    A regional perspective is important. Regional financing is not easy to obtain; often only countries can borrow, not regions. But some constraints are cross-border in nature, and regional solutions may be the best way to improve trade. For example, phytosanitary laboratories to carry out quality controls may be better organized at a regional level. Roads may have to go through several African countries to reach ports.

    We say that these programmes should take full account of the gender perspective. I think this is a first in a major WTO document.

    All this is important, because actions can then be followed up and monitored.

    Q: Where do businesses fit into this picture? 

    A: Effective national coordination has to include the private sector. Businesses are often the best sources to identify the strengths and weaknesses of economies and particular challenges facing the trade sector. Not just business associations, but businesses, including multinationals, should connect to government.

    Businesses can play a role in implementing projects. We underline: "Use local capacity."

    In monitoring and evaluation, the private sector should have an opportunity to report on their Aid for Trade contributions.

    Q: How do we know if we are moving in the right direction? 

    A: Developing countries have to gather data to assess the impact of globalization and set priorities for development cooperation. Many developing countries do not have the people or the capacity to carry out such studies from existing resources, and they will need help under Aid for Trade to do so. Countries also need to share best practices and experiences. Data collection requires an investment. Without it, economists may provide the wrong advice, projects may make the wrong interventions… and trade may not work for development.

    Monitoring and evaluation are essential to build confidence. WTO can play an important monitoring role. We recommend a global, periodic review of Aid for Trade by a WTO monitoring body, based on reports from various sources. These could then be compared with the earlier analysis and priorities. With a yearly discussion at WTO, we would find gaps, discuss solutions and put pressure; it will show what works and what doesn't.

    Q What has led to the shift in mindset? 

    A: The current round of trade talks is the Doha Development Agenda. We gave it that name, and it has given energy to researchers and non-governmental organizations to look into the developmental aspects of trade. Research and many policy documents such as the Blair Commission for Africa report (2005) were influential, as were background papers to the Global Public Goods report (2006) and UN Millennium Summit 2005.

    Swedish economist and diplomat Mia Horn chaired the WTO's Aid for Trade Task Force that made its recommendations in July 2006. 

    Trade Forum editor Natalie Domeisen and contributing editor Peter Hulm talked with Ambassador Horn about the rationale and promise of Aid for Trade