Bridges Weekly Trade News Digest • Volume 11 • Number 41 • 28th November 2007

WTO Global Review Puts ‘Spotlight’ On Aid-For-Trade

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Aid donors and recipients demonstrated "general convergence" on how to proceed with ramping up assistance aimed at boosting poor countries’ ability to participate in international trade, sources said after a WTO conference on aid-for-trade in Geneva last week.

According to the WTO, the 19-21 November ‘global review’ aimed to "provide an overview of what is - and what is not - happening in the delivery of aid-for-trade, including current flows, existing gaps, and where improvements need to be made."

The high-profile gathering was attended by top representatives from a wide range of governments, regional development banks, the Organisation for Economic Cooperation and Development (OECD), and multilateral institutions including the World Bank, the International Monetary Fund, and the United Nations Development Programme. Its principal objectives were to take stock of what is happening on aid-for-trade, to identify what donors and recipients should do next, and to improve WTO monitoring and evaluation.

The review, most of which was open to the public, was "good for putting aid-for-trade on the map," said one official who attended the meeting. "It’s now on people’s minds, and has achieved a higher level of awareness in developed and developing countries." There is "general convergence on what needs to be done to respond to aid-for-trade needs," the source added.

Addressing a session of the WTO General Council dedicated to aid-for-trade on 21 November, Director-General Pascal Lamy said that the conference had pointed to the importance of improving the analytical ‘toolbox’ used to measure progress, sources said. He also told the WTO’s top permanent decision-making body that it would be necessary to identify and address needs at the national, sectoral, and regional levels, with input from civil society and the private sector.

The day before, Lamy had reminded participants of the origins of the WTO’s aid-for-trade initiative, at the Hong Kong Ministerial Conference in December 2005. "Ministers gave the WTO a mandate to help developing countries, especially the least developed, build the trade capacity they need to take advantage of trade opening," he said. "They did this in the belief that this could contribute to achieving their development goals." Although the WTO’s core business was removing obstacles to trade he said, rules are not enough.

In 2006, a ‘task force’ of WTO members identified a range of priorities on trade-related assistance ranging from the need for additional financing to monitoring and evaluation (see BRIDGES Weekly, 2 August 2006). This plan, along with input from multilateral donors, has formed the basis of the WTO aid-for-trade initiative, which has consisted of measuring aid flows, self-assessments by partner and donor countries, and discussions in the Committee on Trade and Development. It also included three ‘regional reviews’ in Latin America, Africa, and Asia in the run-up to last week’s global review (see BRIDGES Weekly, 26 September 2007).

Successful aid-for-trade, the WTO chief said, would rest on five key principles: leadership and ownership in recipient countries; picking the priorities that would return the most on investment; a regional focus; increased financing; and private sector mobilisation.

Speakers at the meeting repeatedly stressed that the effective delivery of aid-for-trade was essential, not least to ensure support for it in the future. Angel Gurria, the secretary-general of the OECD, said that this would require monitoring both of disbursements and results, in order to be able to track how trade performance changes at the local level. Indicators would be required in order to compare donors and recipients, as well as to compile easy-to-comprehend data.

Participants discussed various means of measuring aid-for-trade spending, which is often not simple to separate from development assistance in general. For instance, a country’s overall trade performance could serve as a proxy for determining how much investment in a highway could be counted as aid-for-trade.

Many recipient countries stressed the importance of the ‘additionality’ of aid-for-trade spending - that is, whether it comes over and above planned expenditures, and is not simply a reclassification of already-pledged money.

The OECD’s Gurria said that the Gleneagles aid pledges donors made in 2005 - to boost spending from $80 billion in 2004 to $130 billion in 2010, as well as to double aid to Africa - were the most specific and ambitious promises ever made. However, actual disbursements had not been matching up.

According to the OECD and the WTO, donors committed $21 billion per year on the aid categories more closely associated with aid for trade between 2002 and 2005. Some $11.2 billion of this went to build economic infrastructure, $8.9 billion to promote productive capacities (including $2 billion for trade development), and $0.6 billion for increasing the understanding and implementation of trade policy and regulations. At the WTO’s Hong Kong summit in 2005, the EU, the US, and Japan promised to ramp up aid-for-trade spending, pledges that they have subsequently reaffirmed.

For reporting aid-for-trade commitments, the global review revealed that donors were converging around using the OECD-World Bank ‘creditor reporting system’, sources said. This database has been retooled to allow donors to notify commitments under six areas identified by the WTO aid-for-trade task force, such as trade policy and regulations; trade development; trade-related infrastructure; and building productive capacity.

The conference also looked at region- and sub-region-specific priorities outlined during the recent regional reviews. For example, the need for regional cooperation and infrastructure projects to lower the costs of transporting goods from landlocked developing countries to international markets - from better ports and roads to waterways and other modes of transportation - was found to be particularly acute in much of Africa as well as the Central Asian republics. For rather different reasons, transport difficulties were also highlighted for Pacific island countries. Trade finance and export promotion were prominent among the needs identified in Latin America.

Participants were emphatic that aid-for-trade efforts were a substitute neither for domestic economic reforms nor for a successful conclusion to the troubled Doha Round negotiations. However, economic growth alone was not enough to promote development, cautioned Dominique Strauss-Kahn, the former French minister who this month became head of the International Monetary Fund. "Growth is useful to reduce poverty," he said, "but we also have to consider what has happened in Africa," where the last five years have seen higher rates of economic growth, but little poverty reduction.

A donor country official said that although the global review had been more of a "reporting-back" session than a forum for charting a course for future work, the immediate way forward on aid-for-trade seemed clear: use existing mechanisms for delivery, such as the ‘Enhanced Integrated Framework’ (EIF) for least-developed countries. In addition, regional and sub-regional approaches may be particularly beneficial for delivering aid-for-trade to low-income developing countries, which do not qualify for EIF funds. Above all, the official said, recipient countries would need to identify their trade-related needs, whether in terms of infrastructure, production capacity, or customs reform, and come forward with specific demands for assistance in specific sectors.

Despite the reports of convergence, Anne-Laure Constantin, of the Institute for Agriculture and Trade Policy, expressed scepticism about the WTO’s work on aid-for-trade. "After two years, there is still no clearly accepted definition of what counts as an aid-for-trade initiative, no guidelines for accessing funds, only a questionable list of priorities, no effective monitoring and evaluation mechanisms, and none of the promised additional money."

ICTSD reporting.