Aid for Trade approach
International trade and investment are drivers of development, fostering economic opportunity, efficiency and growth. They encourage the use of international norms and connect local economies to regional and global value chains. Indeed, the statistics bear this out: the World Trade Organization (WTO) estimates trade has helped lift one billion people out of poverty since 1990.
Today, however, we are faced with growing concerns about the legitimacy and desirability of international trade. In this context, it is imperative that we regain the ‘social licence’ for trade by ensuring the global trading system is working for the benefit of all. This will require us to adopt a more integrated trade and development approach while addressing a number of broader challenges.ECONOMIC GOVERNANCE
At the most basic level, citizens and businesses need to have the confidence to participate in the economy. This puts a premium on good economic governance, including transparent and predictable regulations; stable fiscal and monetary policies; functional capital markets; fair and broad-based taxation systems; and responsive and effective public spending. Targeted domestic investments are necessary to limit market gaps, institutional failures and other binding constraints to growth. This is especially true in the network infrastructure that is so essential for the modern economy: energy, transportation, storage, and digital communications.
Sound social spending can also stimulate trade, investment and growth. Investments in people, education, and skills are complementary and mutually reinforcing, generating growth by reducing risk and increasing the returns on human capital. This in turn generates the resources to further increase and improve social investments. Such a virtuous circle works best when aimed at inclusion gaps and determinants of poverty, such as gender, youth, disability, isolation, or social exclusion. The promotion of women’s economic empowerment and entrepreneurship is a clear candidate for more Aid for Trade assistance.CONNECTING SMEs
Small and medium-sized enterprises (SMEs) drive employment growth, include more people in the benefits of growth and diversify economic exposure to external shocks and price fluctuations. Despite unique challenges in terms of size, informality and productivity, SMEs are increasingly using e-commerce to buy and sell on a global scale – and there is potential to unlock even more growth in this area. One place to begin is with development assistance aimed at providing trade-related technical assistance and enhancing SME trade readiness.
Another important, but often overlooked, dimension is competition law and policy, which can help address abusive monopolies and state-owned enterprises while creating a more open business environment in which SMEs can grow. Trade facilitation efforts and improved border/beyond-the-border logistics can also help ease the barriers to entry faced by SMEs. The WTO’s Trade Facilitation Agreement is a good start in this regard.PROGRESSIVE APPROACHES TO TRADE
Trade only supports truly sustainable development if its benefits are offered equally to all segments of society. Unfortunately, for too long, trade’s opportunities have been largely unavailable to women, youth, indigenous peoples and the poor. Canada has begun implementing a Progressive Trade Agenda to ensure its approach to trade and investment benefits all Canadians, including these underrepresented groups. However, this is just a start. It will be important for all countries – including Canada – to begin thinking more broadly about how the form and function of international trade could be evolved to better incorporate development considerations.TOWARD A MORE INTEGRATED APPROACH
This diagnosis indicates that trade and investment alone are not sufficient. Complementary domestic policies are necessary to foster an environment of increased economic security and inclusion and enable truly sustainable development. Seen in this light, ‘Aid for Trade’ is a somewhat misleading moniker: all development assistance aimed at strengthening domestic economic and social frameworks – including through public-private parnerships – should properly be understood as trade-related.
The United Nations Sustainable Development Goals (SDGs) agreed in 2015 are universal, interconnected and ambitious. Clearly, trade and investment will be crucial if we are to achieve the SDGs and attain inclusive growth and sustainable development for all.
Still, reaching these goals will also require us to move well beyond traditional donor-government models. This will include consideration of new and innovative mechanisms and partnerships to incentivize increased private investment and knowledge exchange. While public-private partnerships can be challenging, they also present incredible opportunities. As Canadian experience on issues like blended finance (the Convergence platform) and development financing (our recently announced Development Finance Institution) attests, this type of systemic change – although difficult – is well worth the pain.
The ongoing Aid for Trade review is an opportunity to begin laying the groundwork for a more integrated trade and development approach. By promoting trade and investment as catalysts and enhancers of broad-based and sustainable development growth, we can unleash the potential of our entrepreneurial populations, generate increased economic opportunity, strengthen the legitimacy of the global trading system, and make the world a better place for all.