Aid for Trade: From Hong Kong to Nairobi, and beyond

AFT 10Frans Lammersen, OECD Development Co-operation Directorate

The Tenth WTO Ministerial Conference, taking place this week in Kenya, offers an excellent opportunity to take stock of the achievements of the Aid for Trade Initiative and reflect on how to continue its relevance in the changing trade and development landscape.

Ten years ago when opening the Sixth WTO Ministerial Conference in Hong Kong, Pascal Lamy lamented the absence of a magic wand to conclude the Doha Development Agenda. What proved to be magic in Hong Kong was the agreement on a mandate to operationalise aid for trade. A WTO Task Force recommended using existing mechanisms for identifying and prioritising trade-related capacity constraints in developing countries around which donors should align their support.

So 10 years on, did Aid for Trade deliver on its promise?

The Initiative created strong partnerships between developed and developing countries, between the trade and development communities, between the traditional and non-traditional donors and between the public and the private sector. These partnerships are based on a common agenda with clear objectives and reciprocal commitments.

Successive Global Reviews and Aid for Trade at a Glance reports have shown that the Initiative has raised awareness among developing countries and donors about the positive role that trade can play in promoting economic growth and development. Moreover, developing countries, notably the least developed, are getting better at articulating, mainstreaming and communicating their trade-related objectives and strategies.

As a result, cumulative aid-for-trade disbursements reached USD 245 billion and an additional USD 190 billion in other official flows, since the Initiative started in 2006. Commitments stood at USD 55 billion in 2013, an additional USD 30 billion compared to the 2002-05 baseline average. This has raised the share of aid-for-trade in sector-allocatable aid to 38% in 2013 from an average 32% during the baseline period.

But are these substantive aid-for-trade programmes also effective?

According a broad range of trade and development literature they are indeed; both at the micro and macro level. More specifically, OECD research found that one dollar extra invested in aid-for-trade generates around eight additional dollars of exports from all developing countries – and twenty dollars for the poorest countries. Results, however, may vary considerably depending on the type of aid-for-trade intervention, the sector at which the support is directed, the income level, and the georgraphic location of the recipient country.

These empirical findings are buttressed by the aid-for-trade case stories. The sheer quantity of activities described in these stories suggests that aid for trade is now central to development strategies and has taken root across a wide spectrum of countries and activities. Although it is not always easy to attribute cause and effect, the stories show tangible evidence of how aid-for-trade is helping countries build the human, institutional and infrastructural capacities for turning trade opportunities into trade flow and helping men and women make a decent living.

Despite these significant achievements, the effectiveness of the Initiative could be further enhanced through regional programmes. Deepening economic integration via regional co-operation is a key priority in the reform strategies of most developing economies. It is also actively promoted by donors. The support for and results of these programmes can be strengthened by involving Regional Economic Commissions and Regional Development Commissions to act as honest brokers to help developing countries find common ground, to offer financial incentives, to build human and institutional capacities, and to harmonise regulations.

However, what is now most important is how aid-for-trade can best support the Sustainable Development Goals. The SDGs highlight that “(…) increasing aid‑for‑trade support for developing countries, in particular the least developed (…)” would help to “(…) promote inclusive and sustainable economic growth, full and productive employment and decent work for all.”           Operationalising these objectives could be achieved through focusing the Initiative on improving connectivity, expanding the scope to services and promoting green growth.

A focus on reducing trade costswhich are highest for LDCs, SMEs and agricultural goodsprovides an operational focal point for an action-oriented aid-for-trade agenda among a broad collation of stakeholders, including the providers of South-South cooperation and the private sector. The advantages of such as a focus is also that it is neutral in the sense of benefiting not just exporters, but also importers and households, and trade in goods and services.

Service trade is important for developing countries. Services are not only an important economic sector in their own right, such as for instance tourism, which for 11 LDCs is the biggest source of foreign currencies, but also increasingly as an important input to merchandise trade and linking to global value chains. The emphasis should be on those areas that are central to promoting sustainable development, such as agriculture, energy and transport.

After the successful conclusion of COP21, aid-for-trade should support developing countries in moving to sustainable agriculture, building climate-resilient infrastructure, strengthening the supply chain of low-carbon technologies and environmental goods and services, and more generally helping developing countries with achieving green growth.

In short, to remain relevant after 10 years aid for trade should focus on the fundamental changes that are occurring in the trade and development landscape. The first WTO Ministerial Conference taking place on the African continent should provide the impetus to ensure that the Aid for Trade Initiative becomes an integral part of delivering the Sustainable Development Goals by 2030.

Useful links

OECD work on Aid-for-Trade

Aid-for-trade on the Insights blog

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  1. Thomas Aquino - 15/12/2015 Reply

    Very useful insights from active participation of countries especially by their trade and development policy makers and practitioners. Real lessons on development experience for developing countries among others.

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