Delivering growth through Aid for Trade

1 July 2013
ITC News

WTO’s Director-General looks at the achievements of Aid for Trade to date and the challenges that lie ahead.

On 8-10 July, the World Trade Organization (WTO) will host the Fourth Global Review of Aid for Trade. Ahead of what will be his last Review as Director-General of the WTO before he steps down in August, Pascal Lamy looks back at what has been achieved and the challenges facing the Aid for Trade agenda in the future.

At the World Trade Organization’s (WTO) Ministerial Conference in Hong Kong in 2005, an initiative was launched that sought to place the spotlight on the important role trade-related technical assistance and capacity building can play in supporting economic growth in developing countries. It would also provide a forum in which issues related to trade and development could be addressed.

What eventually became the Aid for Trade initiative was born out of the collective recognition that market-access opportunities would be made more effective if developing countries, particularly the poorest, could build the supply-side capacity and trade-related infrastructure necessary to benefit from these trading opportunities. It was collectively agreed that by addressing the more structural elements behind limited productive capacity, market access openings would be more economically meaningful.

A taskforce was established in 2006 to provide recommendations on how Aid for Trade could be put into operation. The taskforce subsequently published a report in July 2006 that places Aid for Trade within a broad development framework and sets out a series of recommendations. These include the strengthening of needs assessment at the country and regional level, ensuring meaningful donor responses, building ‘bridges’ between needs and responses, and ensuring robust monitoring and evaluation.

In this sense, the Aid for Trade initiative has distinguished itself from other international models in that it steps aside from the classical model of resource mobilization through a central fund, and instead takes a comprehensive approach that seeks to build on and improve on existing frameworks. The WTO set out to add value through its convening power, which has enabled bilateral donors and international financial institutions to better recognize the role of trade in development strategies. Through the G8 and later through the G20, we have consistently made the case for more and better targeted Aid for Trade.

Important resource mobilization

Significant progress has been made in mobilizing Aid for Trade resources since 2005. Commitments reached US$ 48 billion in 2010, an increase of 82% from the 2002-05 baselines. It is important to stress that the increase in Aid for Trade has been additional and the growth in assistance for trade has not been at the expense of other sectors. The share of Aid for Trade in aid allocated to specific sectors has remained constant, at around 32% since 2006.

The global financial crisis started to take its toll on Aid for Trade resources in 2011. Preliminary numbers indicate that commitments for 2011 stand at US$ 41.5 billion, down US$ 6.6 billion compared to 2010. Still, the figures are up by 56% on the 2002-05 baselines.

Since 2005, Africa and Asia have accounted for approximately 75% of total Aid for Trade flows. Commitments to other regions have also increased steadily over the years. The largest share of Aid for Trade, at 30%, goes to low-income countries. Funding for least developed countries (LDCs) has increased 94% from the baseline to total US$ 13.4 billion in 2011.

Since 2005, the WTO has put a lot of effort into strengthening its partnerships with multilateral development banks, United Nations agencies, regional economic communities and national governments to mobilize resources. Starting in 2007, various regional and sub-regional Aid for Trade reviews have been held in Africa, Latin America and the Caribbean, the Middle East and in Asia-Pacific to make the case for integrating trade in national and regional development strategies.

One particular example of Aid for Trade in action is the Common Market for Eastern and Southern Africa (COMESA) – East African Community (EAC) – Southern African Development Community (SADC) North-South Corridor Conference held in Lusaka, Zambia, in 2009. It generated more than US$ 1 billion in funding pledged by development partners to upgrade roads, rail and port infrastructure, and to support the implementation of trade facilitation instruments. Moreover, the pledges have since been translated into action: by 2011, the members of the North-South Corridor were engaged in the preparation, financing and construction of 1,295 km of roads.

Monitoring performance and showing results

The WTO has partnered with the Organisation for Economic Co-operation and Development (OECD) to monitor and evaluate results, which has led to a much stronger focus on outcomes and impacts. Showing results was the theme of the Third Global Review of Aid for Trade in 2011, which was enriched by a collection of case stories highlighting where Aid for Trade was working and where it could do better.

One difficulty in measuring results has been demonstrating attribution; for example, how a particular intervention has led to a specific impact. The complexities of trade and economic relations make even simple lines of causation difficult to trace. But the numerous case stories, as well as related research, have allowed us to build a robust case that demonstrates the positive impact that Aid for Trade can have on the ground in developing countries by making business easier to conduct, particularly across borders, and the associated economic benefits for job creation and poverty alleviation.

The monitoring exercise has highlighted positive national results in programmes and projects. Where trade opening has taken place, coupled with regulatory reforms and supported by Aid for Trade, this has helped attract domestic and foreign investment and stimulated economic growth that has resulted in poverty alleviation. It has shown a positive correlation between Aid for Trade and improved export performance, and it has underscored the importance of national ownership to achieve outcomes.

At the heart of this progress is improvement in mainstreaming trade in national and regional development strategies. Monitoring by the OECD-WTO has shown that partner countries are better at articulating, mainstreaming and communicating their trade-related objectives and strategies. This is particularly the case with LDCs that have made measurable progress with assistance from the Enhanced Integrated Framework (EIF) – the specific Aid for Trade vehicle for LDCs. In turn, this is having positive impacts on the alignment of development assistance with national needs. Since 2005, there has also been a rise in national and regional Aid for Trade strategies, notably in the Caribbean, the Pacific, and in some regions in Africa. This move towards better identifying and articulating trade-related needs and priorities, including from a regional perspective, is one of several success stories from the collective work on Aid for Trade.

Looking Ahead

Over the past seven and a half years, the Aid for Trade agenda has claimed a very visible spot in the trade landscape. The challenge is now to ensure that it adjusts to the changes in the overall trade and aid context.

A main challenge will remain how to better leverage growing South-South trade-related assistance to complement the efforts made by traditional donors. We need to find innovative ways to better integrate the intervention of the private sector in the Aid for Trade agenda. In fact, the time may be ripe to move from a focus on 'Aid for Trade' and instead look at 'Invest- ment for Trade'.

This focus on investment is reflected in the latest monitoring survey conducted for the Fourth Aid for Trade Global Review taking place in July 2013. One of its strongest conclusions is that developing countries, notably LDCs, view foreign and domestic private investment as being an important source of future development finance. This is further supported by the fact that developing economies now account for more than half of global foreign direct investment flows and, in 2011, foreign direct investment was higher than Aid for Trade flows for more than 20 LDCs. Given its links to small and medium-sized enterprises (SMEs), the International Trade Centre (ITC) has a particular and important role to play in bringing 'Investment for Trade' forward.

Global trade is increasingly characterized by transactions within complex, geographically dispersed value chains – many of which are intra-company in nature. The expansion of value chains is offering new opportunities for many developing countries as countries no longer seek to build vertically integrated infant industries, but can rather focus on where they may have a comparative advantage in one or more tasks in the value chain.

Aid for Trade can facilitate this process by addressing the main constraints that companies face. This is why the 2013 Aid for Trade Global Review will focus on 'Connecting to Global Value Chains' and unlocking their potential as instruments of development. It will be important to draw lessons from the review of the future Aid for Trade agenda, in particular when looking ahead to the WTO Ministerial Conference in December, which this year will be held in Bali, Indonesia.

The latest WTO-OECD monitoring and evaluation exercise conducted ahead of the Global Review surveyed almost 700 firms and associations from 120 countries and highlighted many of the constraints facing companies, in particular SMEs, in joining, moving up or establishing value chains. Access to trade finance, the regulatory and business environment, transport and shipping costs – notably those related to the performance of customs, transport and energy infrastructure – and labour skills and training are some of the constraints identified.

Another issue likely to require attention is finding ways to integrate sustainable development objectives into official development assistance. Among the 43 donors surveyed in the latest OECD-WTO monitoring exercise, the most important change expected over the next five years was a sharper focus on climate change and green growth. The ongoing debate on the post-2015 development agenda will likely further stimulate this process.

The same can be said of the need to continue the mainstreaming of gender development into Aid for Trade programmes and projects. ITC’s Women in Trade programme is a concrete example of how this can be achieved.

A lot has been achieved since the Aid for Trade initiative was launched in 2005. More than US$ 200 billion has been mobilized in commitments and some US$ 170 billion disbursed. Developing countries are getting better at integrating trade into their development strategies, including by leveraging Aid for Trade to better integrate their economies into the value chains that now characterize the global trading system. Aid for Trade has an ongoing role to play in achieving this, but will have a much greater impact if it moves to a model based more on ‘Investment for Trade’: a model that seeks to unlock the constraints faced by developing countries in joining, moving up and establishing value chains and which focuses on sustainable and sustained development gains.

The Aid for Trade initiative has created a forum where trade and development can meet. It has placed ownership, alignment and mainstreaming as the main principles for trade-related assistance. And it has highlighted the role that the private sector can play as a key partner. Aid for Trade – or Investment for Trade – is an initiative led by developing countries and owned by developing countries. My hope is that it will continue to deliver into the future by remaining firmly anchored in the WTO, while continuing to benefit from the invaluable support of ITC.