Thursday, December 15, 2005

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Everything you always wanted to know about Aid For Trade

A big issue that's come up at the Hong Kong Ministerial is the idea of Aid For Trade. What is Aid for Trade? According to paragraph 51 of the draft Ministerial text of the WTO:

Aid for Trade should aim to help developing countries, particularly LDCs [Least Developed Countries], to build the supply-side capacity and trade-related infrastructure that they need to assist them to implement and benefit from WTO Agreements and more broadly to expand their trade. Aid for Trade cannot be a substitute for the development benefits that will result from a successful conclusion to the DDA [Doha Development Agenda], particularly on market access. However, it can be a valuable complement to the DDA.
That's still a bit vague, so I've asked Paul Applegarth, a Senior Transatlantic Fellow at the German Marshall Fund of the United States -- and the former CEO of the Millennium Challenge Corporation -- to explain the idea in a bit more detail:

It has long been agreed that this WTO round should be a Development Round, benefiting the poorest people and the poorest countries in the world. Ironically, even as the on-going talks at the Hong Kong Ministerial struggle with issues important for development like agricultural Market Access and trade-distorting subsidies, there has been an increasing recognition that freer trade alone is not enough. Any trade agreement will need to be accompanied by a development financing package to help the poorest countries build the capacity to participate in freer markets.

Providing financing for development does not fall normally within the purview of the WTO, but the issue of Aid for Trade or Trade Capacity Building has achieved sudden prominence here in Hong Kong. The United States has announced its intention to double its Trade Capacity Building assistance by 2010, and it is not alone. Some EU states and Japan have also weighed in. Cynics argue that in some cases the offers are intended to distract from the failure to take more meaningful steps like granting increased market access, but in at least some cases the offers seem genunine. (The U.S. offer for example does not appear to be conditioned on an acceptable WTO deal).

A puzzle in all this is that despite all the talk, there seems to be little understanding of what exactly Aid for Trade or Trade Capacity Buidling is. Some talk about infrastructure, others about meeting international quality standards or reducing customs delays. The World Bank is pushing for expansion of something with the brain-numbing title of the "Enhanced Integrated Framework", notwithstanding the fact that this framework has been around for several years and accomplished little, and on initial examination seems to involve strengthening the capacity of poor countries to negotiate at WTO headquarters in Geneva and funding a number of expatriate consultants to write studies diagnosing the trade needs of LDC's. Good stuff, perhaps, but unlikely to have an immediate impact on boosting the incomes of the rural poor.

It would be easy to dismiss all of this as simply more international bureacratic chatter, if the stakes were not so high. The funding is real, and the opportunity to use it well is real. Fortunately, there are some groups and institutions trying to bring some clarity to the discussion, with the recognition that some concrete proposals need to be developed quickly if the opportunity is not to squandered.

Yesterday, the German Marshall Fund of the United States convened a discussion of key players to move the ball forward. The discussion was led off by remarks from Swedish Ambassador to the WTO Mia Horn, and Miguel Rodriquez of the International Centre for Trade and Sustainable Development in Geneva. There was active partcipation by senior representatives of the Wolrd Bank, the U.K.'s Department for International Development, UNDP, the IMF, USAID, Oxfam, the Overseas Development Institute, the Hewlett Foundation, the Development Assistance Committee of the OECD, the International Lawyers and Economists Against Poverty, the WTO Secretariat, and others.

There was no consensus on the initial range of issues discussed, other than that the opportunity existing to develop some meaningful proposals and that the work needed to be done quickly to take advantage of that opportunity. However, significant progress was made in identifying the key issues: who shoulfd benefit, how to determine effectiveness, funding, and expanding participation by the LDCs themselves.


posted by Dan on 12.15.05 at 10:35 PM


My understanding would be that it's not only developing trade-enhancing capacity building infrastructure on the ground (roads/ports/etc), but standardization of (and access to) trade rules that enhance market access. One example I can think of would be an continuously updated online database of current trade regulations for every country that trade ministries of LDCs could consult to help indigenous companies compete on a level playing field with those in more developed economies. Or providing training and equipment to LDC customs officers and departments to expedite their outflow, so their products don't sit stuck in warehouses for weeks and weeks waiting to be processed.

posted by: John Steven on 12.15.05 at 10:35 PM [permalink]

You are right that assistance in improving customs procedures could be an important type of Trade Capacity Building/Aid for Trade. For a good example of what a difference improvements in trade facilitation procedures can make, you make want to look at Sri Lanka's efforts to smooth textile exports.

posted by: Paul Applegarth on 12.15.05 at 10:35 PM [permalink]

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