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The fundamental aim of aid for trade is to help low-income countries overcome the structural barriers and weak capacities that limit their ability to benefit from emerging trade and investment opportunities. Donors have substantially increased such contributions since 2005.
The WTO Aid for Trade Initiative provides a framework to connect a gamut of assistance activities (from training negotiators to building roads) within a coherent trade and development strategy that is shared between development partners. When it concluded its work in 2006 the WTO Task Force on Aid for Trade recommended that “projects and programmes should be considered as aid for trade if these activities have been identified as trade-related development priorities in the recipient country’s national development strategies. [...] At the same time, clear … benchmarks are necessary for reliable global monitoring of aid for trade efforts and … to assess additionality.”
Aid for Trade Flows Increasing
In 2006, total aid for trade commitments from bilateral and multilateral donors rose to US$23 billion in real terms, compared to an average annual flow of US$20.8 billion during the 2002-2005 baseline period. This constitutes a real growth of 10 percent, which is four times higher than the increase of total ODA minus debt relief. These figures only relate to official development assistance (ODA) and exclude non-concessional loans from the international financing institutions, which amounted to an annual average flow of US$10 billion.
Hong Kong Pledges Are Materialising
The average increase in aid for trade commitments from bilateral donors alone was 16 percent in 2006. Several donors, including Germany, the Netherlands, Spain and Sweden, increased their aid for trade programmes by more than 50 percent. Others, such as the EU, France, Ireland, Norway and the US expanded their programmes by more than one-third. Many of these significant increases in donor funding are in line with the aid for trade pledges some of these countries made during the 2005 Hong Kong WTO Ministerial Conference.
In the context of aid for trade, additionality means an increase in ODA that is not redirected from social programmes, such as health or education. In 2006, both aid for trade and aid to social sector programmes increased in volume. Assuming that the scaling up of total ODA will materialise, calculations by the OECD indicate that aid for trade could reach US$30 billion in 2010 (based on stable relative aid for trade share in total ODA), while a doubling of ODA volume could result in an increase of US$20 billion.
Asia and Africa Biggest Recipients, Infrastructure Outlays Dominate
Asia and Africa continue to receive the largest volumes of aid for trade (respectively US$10.5 billion and US$7.5 billion). This comes as no surprise, as these continents are home to the highest global concentrations of poor people. Asia’s share in total aid for trade flows fell from to 51 percent to 45.5 percent in 2006, although in volume the decline was only marginal. This was because flows to all other regions increased, most notably to Africa, where they grew by US$1.3 billion; this raised Africa’s share in total aid for trade to 32.7 percent.
A remarkable development in 2006 was the doubling of outlays for regional programmes, from US$2 billion during the baseline period to US$4.2 billion. This doubling was spread more or less equally over all regions. On a global scale, this means that over 18 percent of all aid for trade is being disbursed through regional programmes. Commitments for global programmes also expanded in 2006, but at a more modest rate, i.e. 15 percent in real terms, reaching US$1.6 billion.
In terms of relative shares, aid for trade categories are fairly balanced between regions and income groups. Given the typically large size of economic infrastructure projects, aid to support these programmes naturally dominates overall aid for trade flows, particularly in Asia. In 2006, aid to economic infrastructure reached US$12.2 billion, representing an 8.6 percent growth in real terms. Activities to enhance productive capacity, including trade development, reached US$9.7 billion – an increase of almost US$1 billion. Aid to finance technical assistance programmes aimed at deepening understanding of trade policy and trade policy regulations increased almost 60 percent, i.e. almost US$1 billion. Most of this growth took place in the least developed countries of sub-Saharan Africa.
Is Aid for Trade Working?
Despite initial scepticism and calls for the establishment of a dedicated financial facility, the initiative has so far been a success. More and additional aid for trade is being provided and most donors are on track to meet their Hong Kong pledges. However, maintaining this momentum requires explicit prioritisation of trade-related needs in the dialogue between donors and partners about national development strategies.
Frans Lammersen is Principal Administrator in the Development Co-operation Directorate of OECD in Paris.
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