AID FOR TRADE

Why, what and how?

Why Aid for Trade?

 Trade can be an engine for growth that lifts millions of people out of poverty But many developing countries face barriers that prevent them from benefiting from the world trading system

 Some of these barriers are in export markets which the Doha Round of multilateral trade negotiations aims to reduce or eliminate. These include non-tariff barriers which are increasing in significance as well as traditional tariff barriers.

 But internal barriers lack of knowledge, excessive red tape, inadequate financing, poor infrastructure can be just as difficult for exporters to overcome
Targetting these supply-side constraints is what Aid for Trade is all about

 Aid for Trade is part of overall development aid, but with the specific objective of helping developing countries, in particular the least developed, to play an active role in the global trading system and to use trade as an instrument for growth and poverty alleviation. It is not a substitute for trade opening, but a necessary and increasingly important complement
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Increased trade, competitiveness and growth

Aid for Trade

trade reform

catalyst

entrepreneurship private investment

trade-related capacity and infrastructure

There are four main areas where Aid for Trade is needed
Trade policy and regulation
Building capacity to formulate trade policy, participate in negotiations and implement agreements

There are four main areas where Aid for Trade is needed
Economic infrastructure
Investing in the infrastructure roads, ports, telecommunications, energy networks needed to link products to global markets In Sub-Saharan Africa, alone, annual infrastructure needs are $17-22 billion a year, while spending is about $10 billion

There are four main areas where Aid for Trade is needed
Productive capacity building
Strengthening economic sectors from improved testing laboratories to better supply chains to increase competitiveness in export markets

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There are four main areas where Aid for Trade is needed
Adjustment assistance
Helping with any transition costs from liberalization preference erosion, loss of fiscal revenue, or declining terms of trade

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Three export stories and how

Aid for Trade can make a difference

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Dairy products from the Kyrgyz Republic

Facing significant supply-side constraints:
The Kyrgyz Republic could be a successful exporter of dairy products But there has been a 14% drop in production in recent years The most serious supply-side constraints include:
Lack of appropriate standards and testing services (i.e. SPS-control and breed selection) Lack of cold storage and transportation facilities Lack of infrastructure for milk distribution Lack of interstate co-operation

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Cut flowers from Kenya

Making progress, but problems remain:
The cut flower sector has seen a growth rate of 35% annually over the last 15 years, partly because of investments in Aid for Trade, such as:
New cold storage and transportation facilities Improved cargo facilities at Nairobis airport More efficient air transportation and increased frequency of flights Technology transfers

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Cut flowers from Kenya

But flower exporters still face major obstacles, including
Inability to meet certain international standards (e.g., maximum pesticide residue) Deteriorating road and rail networks Backsliding on the competitiveness of air freight

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Mangoes from Mali

Transformation of mango export sector by making key investments in Aid for Trade:
Formed innovative business partnerships Improved testing facilities and met international standards Increased cold storage facilities (reducing postharvest loss) Built a new transport corridor (reducing shipping time from 25 to 12 days)

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Mangoes from Mali

Total exports of mangoes from Mali are steadily increasing
Metric Tons 4000 3500 3000 2500 2000 1500 1000 500 0 2000 2001 2002 2003 2004 2005 2006 By Sea By Air Total

Average annual growth rate of almost 30% from 2000-2006

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Similar challenges exist across many developing countries and regions

In the Andean Community, trucks spend more than half of the total journey time at border crossings Transport costs for trade within Africa are more than twice as high as those within South East Asia
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Similar challenges exist across many developing countries and regions

Power

generation costs in Burkina Faso are more than four times the costs in neighbouring Cte dIvoire and ten times the cost in France Power outages in Malawi average 30 days per year causing product damage and delays in production and packaging that add 25% to costs
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Similar challenges exist across many developing countries and regions

116 days to move a container from the factory in Bangui in the Central African Republic to the nearest port Same transaction takes five days from Copenhagen

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Similar challenges exist across many developing countries and regions

Most direct flight between Chad and Niger is via France over 4,000 km Only one flight a week from Bangui in the Central African Republic to Europe

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The result? A huge missed opportunity

For example, if Africa enjoyed the same share of world exports today as it did in 1980, exports would be $119 billion higher equivalent to about five times current aid flows

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What is happening?

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Share of Trade Related ODA in Overall Development Aid

Baseline 2002-2005 average
26%
Trade policy & regulations Economic infrastructure Productive capacity

GBS

Non-sector allocable
Debt relief Multi-sector initiatives

33%

Emergency aid Administrative cost

Social & Administrative Infrastructure

Education Health Governance

41%

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Overall distribution of trade related ODA by program and project

US$ million (2004 constant prices and exchange rates) Baseline 2002-2005 average
35 30 25 20 15 10 5 0

2001

2002

2003

2004

2005

Trade related structural adjustment Infrastructure

Productive capacity building Trade policy & regulations

Source: OECD

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Total trade related aid by donor

(baseline 2002-2005 average)
US$ million
Japan World Bank United States EC United Kingdom Germany France Netherlands ADB AfDB Denmark Spain Sweden Canada Norway IDB Switzerland Italy Belgium Australia IFAD Finland Ireland Portugal Austria
0 1000 2000 3000 4000 5000 6000

Source: OECD

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Trade related aid as share of donors sector allocable ODA

(baseline 2002-2005 average)
Japan World Bank IDB AfDB ADB EC Italy Denmark IFAD United Kingdom France Switzerland Spain Netherlands Germany United States Belgium Finland Canada Norway Portugal Sweden Austria Ireland Australia 0 10 20 30

Global baseline (2002-2005) Average (39.9%)

40

50

60

70

Per cent

Source: OECD

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Overall distribution of trade related ODA by region

US$ million
Africa

Oceania
South and Central America

2 205

South and Central Asia

Far East Asia Europe
4 232

2 494

1 551

237

9 095

Source: OECD

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Trade policy and regulations

US$ million
2400
2000 1600 1200 800 400 0 European countries in transition Regional/multicountry UMICS LMICs OLICs

LDCs 2001 2002 2003 2004 2005

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Source: OECD

Trade policy and regulations by donor

US$ million

United Canada 26 Kingdom 29 Japan 35 Wordbank (IDA) 53

Sweden 10

Australia 10

EC 421 United States 180

Source: OECD

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Trade policy and regulations by region

US$ million Africa Oceania South and Central America South and Central Asia Far East Asia Europe 131 355
Source: OECD

156

84

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31

Economic infrastructure
US$ million
15000 12000 9000 6000 3000 0 2001 2002 2003 2004 2005
Source: OECD

European countries in transition Regional/multicountry

UMICs LMICs
OLICs LDCs

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Economic Infrastructure by donor

US$ million

France 326 Germany 516 EC 1238

Sweden 95

Australia 47

Canada 34

Japan 3870

United States 1574 Worldbank (IDA) 1725

Source: OECD

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Economic Infrastructure by region

US$ million
Africa Oceania South and Central America 1 468

South and Central Asia

Far East Asia Europe 521 2 515

2 388

89

3 703
Source: OECD

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Productive capacity building

US$ million
10000

8000
6000

regional/multicountry UMICs LMICs

4000 OLICs 2000 0 LDCs

2001

2002

2003

2004

2005
Source: OECD

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Productive capacity building by donor

US$ million

United Kingdom 375 Germany 601

Sweden 101

Australia 88

Canada 204 United States 1574

EC 954 Worldbank (IDA) 1467

Source: OECD

Japan 995

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Productive capacity building by region

US$ million Africa Oceania

560
South and Central America

South and Central Asia

Far East Asia 1 327 Europe 786 2 213 108

2 666
Source: OECD

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Structural adjustment
US$ million
7000 6000 5000 4000 3000 2000 1000 0 2001 2002 2003 2004 2005
Source: OECD

regional/multicountry UMICs LMICs OLICs LDCs

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Structural adjustment by donor

US$ million
Sweden 103 Canada 44 Australia 12 Worldbank (IDA) 1758

Japan 213 Netherlands 244 United Kingdom 590

United States 670 EC 921

Source: OECD

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Structural adjustment by region

US$ million
Africa Oceania South and Central America 306 247 21

South and Central Asia

Far East Asia

113
Europe

37

2 371
Source: OECD

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ODA is forecast to increase substantially after 2008 if donors follow through on Gleneagles and Hong Kong commitments

Source: OECD

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This should be reflected in a scaling up of the broad Aid for Trade Agenda
150 150

120

ODA (2004 USD billion)

90

90

60

AFT: Doubling 2004 Volume Broad Aid for Trade (AFT) AFT: Stable Relative Share

60

30

30

0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: OECD

ODA (2004 USD billion)

DAC members net ODA 1994 2005 and DAC Secretariat simulation of net ODA 2006 2010

120

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How should Aid for Trade work?

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On the supply side, donors need to:

Provide additional funding
Aid for Trade should not divert resources away from other development priorities, such as health and education

Scale up trade expertise and capacity

Trade and growth issues need to be better integrated in donors aid programming Trade expertise needs to be strengthened - both in capitals and in-country
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On the demand side, recipient countries need to:

Make trade a priority
Trade needs to be a bigger part of national development strategies. Aid for Trade will only work if countries decide that trade is a priority Countries need to determine their own Aid for Trade plans, involving all stakeholders Aid for Trade is an investment, not just a transfer. The question is not only how much Aid for Trade is available, but whether it is effective and actually benefits developing countries
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Take ownership

Focus on results-oriented business plans

To bridge supply and demand, both donors and recipients need to:
Improve cooperation
The challenge of Aid for Trade is to marshal the efforts of many and to create the right incentives so that recipients and donors work together more effectively

Involve the private sector

It is businesses, not governments, that trade Financial resources flowing from increased private investment and trade easily dwarf government aid
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Improve transparency and accountability

Best way to ensure that pledges are honoured, needs are met, and financial assistance is used effectively, is to shine a brighter spotlight on Aid for Trade

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A role for the WTO: monitoring and evaluation

WTO is not a development agency and should not become one. Its core function is trade opening, rule making, and dispute settlement But the WTO does have a role and a responsibility to ensure that relevant agencies and organizations understand the trade needs of WTO Members and work together more effectively to address them

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A role for the WTO: mobilizing, monitoring and evaluating aid for trade
The WTO is well placed to play this role
Direct interest in ensuring that all its members benefit from trade and WTO agreements Multilateral, consensus-based organization where developing and developed countries have equal weight Institutional experience in reviewing complex policy areas through Trade Policy Review Mechanism

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Monitoring and evaluation in the WTO on three levels:

Global level using data compiled by the OECD-DAC To assess whether additional resources are being delivered, to identify where gaps lie, to highlight where improvements should be made, to increase transparency on pledges and disbursements Donor level based on self evaluations To share best practices across countries, to identify areas for improvement and to increase transparency on pledges and commitments Country and regional level based on self assessments To provide a focused, on-the-ground perspective on whether needs are being met, resources are being provided, and Aid for Trade is effective
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Proposed Architecture of the Monitoring Framework

ANNUAL REVIEW Measuring Aid for Trade 1st tier: Global Monitoring of Trade-related Aid Flows 2nd tier: Donors self-assessment reports 3rd tier: In-country assessments

Monitoring the delivery and effectiveness of Aid for Trade

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Awareness - Information - Incentives

WTO Monitoring & Evaluation

Spotlight Effect

Prioritize trade Take ownership Implement effectively

Prioritize trade Increase resources Improve delivery

Progress

Demand Side
LDCs Developing countries Regional Groups
Feedback

Supply Side
Donors, WB, IMF, OECD, RDBs, UNCTAD, UNDP, UNIDO, ITC

Private Sector
Producers Manufacturers Services Multinationals

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With one objective....

Ensuring that developing countries can harness trade to raise living standard, improve health and education, protect the environment, alleviate poverty, and secure their development

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