Evdokia Moïsé, Senior Trade Policy Analyst and Silvia Sorescu, Trade Policy Analyst, Development Division of the OECD Trade and Agriculture Directorate
Good governance and streamlined procedures are essential features of an efficient border process. Cumbersome customs and other border procedures can directly raise trade transaction costs. Weak border governance can lead to hidden costs, resulting in time delays and uncertainties in the delivery of goods across borders. Non-transparent and burdensome procedures can continue to create incentives and opportunities for corruption in the movement of goods from one country to another, thus exacerbating integrity risks and deepening the vicious circle.
Is there a role for trade liberalisation and facilitation in zeroing in on corruption and supporting integrity in trade? Yes – and a greater one than you might think. Trade negotiations have pushed the boundaries of transparency and anti-corruption mechanisms through the inclusion of specific commitments in regional agreements, thus having a dual objective of increasing market integration and reducing market opacity. An OECD review of a wide selection of regional trade agreements (RTAs) showed that these reached new ground both in their scope and their potential for attacking corruption as a barrier to trade. Most of the RTAs signed by OECD countries over the last decade have been with economies outside the OECD area; WTO-plus and WTO-beyond transparency and anti-corruption mechanisms are thus increasingly being advanced in a North-South context.
Countries at all levels of development recognise that corruption distorts resource allocations and undermines the level playing field for businesses. Such provisions have the potential to reduce information asymmetries, enhance the enforceability and accountability of regulations, as well as minimize the opportunities for discretionary behaviour of government officials and institutions. This sets high-standard best practices for future regional integration initiatives.
In addition to pursuing such commitments at regional levels, multilateral and national trade facilitation efforts can create an environment conducive to clean trade and investment by eliminating the high transaction costs related to the complexities of border clearance procedures. The transparency, predictability and simplification of trade procedures have not only the potential to reduce trade costs and promote economic efficiency but also to remove corruption incentives and opportunities.
In December 2013 at the Bali Ministerial Conference, WTO members adopted the Trade Facilitation Agreement (TFA) which contains provisions for expediting the movement, release and clearance of goods. OECD estimates based on its 2015 Trade Facilitation Indicators (TFIs) show that a full implementation of the TFA could reduce worldwide trade costs by between 11.8% and 17.5%. The highest gains would accrue to low and lower-middle income countries. Areas such as the harmonisation and simplification of trade documents and procedures, the availability of trade-related information, or automation are key in reducing trade transaction costs. Implementing elements of good governance and impartiality in border administrations also has the potential to reduce trade costs by between 0.5 and 1.1%, depending on level of development.
One of the building blocks of modern and efficient border administration is integrity, which emphasises the fight against corruption and the enhancement of good governance measures. Trade liberalisation and trade facilitation can provide the best practices to support it.
The OECD is convening the global anti-corruption community to debate on most effective measures to enhance integrity in international trade at the 2016 OECD Integrity Forum “Fighting the Hidden Tariff: Global Trade without Corruption,” on April 19-20, 2016 in Paris, France. The Forum will provide a stocktaking platform for all sectors of society to debate best approaches to prevent, detect, and curb corruption in global supply chains.
Lejárraga, I. (2013), “Multilateralising Regionalism: Strengthening Transparency Disciplines in Trade”, OECD Trade Policy Papers, No. 152, OECD Publishing
OECD (2009), Overcoming Border Bottlenecks: The Costs and Benefits of Trade Facilitation, OECD Trade Policy Studies, OECD Publishing
Following the twin discovery that governments were composed of politicians and that politicians mostly don’t look much beyond the next election, the OECD created the International Futures Programme (IFP) to encourage long-term thinking. A few years later, the UK government decided to set up a foresight unit, and in 2004 I went as IFP representative to a meeting in London where holders of stakes in different industries discussed what strategic thinking meant to them. It was much as you’d expect, with the oil industry explaining that they worked on a 50-year horizon, the pensions industry even longer, the finance industry losing interest after two seconds and going to look for something more exciting… The one surprise was the chief economist of a big mining company. “We don’t bother with strategic planning” he explained. “We get all we need from geological surveys and the market. So if the price of copper, say, is going up, we dig till there’s none left then move elsewhere. If it’s going down, we lean on our shovels until it goes back up again”.
I’d like to say they went bankrupt shortly after, but looking at the company’s performance, this charmingly down to earth approach seems to work well. At least if you already own a big enough share of the things your business depends on and everybody else needs them. That is practically never the case though for any firm, or even for a country. So as a new OECD report on export restrictions points out, since “no country is self-sufficient in every raw material, it follows that virtually all countries are vulnerable to any attempt to restrict the export of at least some commodities.”
And yet, the use of export restrictions seems to have increased over the past decade. The OECD Inventory of Restrictions on Trade in Raw Materials lists over a dozen ways this can be done, but the three most common are making exporters apply for a permit, putting a tax on exports, and restricting the quantity of a product that can be exported. All raw materials sectors are affected, from minerals and metals to forestry and agriculture products.
Emerging and developing countries use export restrictions most, although they’re not the only ones. But their citizens can suffer the most. Oxfam puts it like this: “you might think that governments would take urgent action to address fragility in the food system. But […] Governments often exacerbate volatility through their responses to higher food prices. In 2008 the global food system teetered on the edge of the abyss as, one after the other, more than 30 countries slapped export restrictions on their agricultural sectors in a giddying downward spiral of collapsing confidence”.
So why do they do it? The idea is that by restricting exports, more of the product is available on the home market, making it cheaper than it would be otherwise for local firms, thereby helping them to grow and compete on world markets. (Except for the producer of the restricted commodity). This probably works wonderfully well in countries with large reserves of iron ore whose principal activity is manufacturing lumps of iron in home-made forges for the weightlifting trade. And on the assumption that all its trading partners let it do this and don’t put up the price of anything in retaliation.
Because once you start getting into more sophisticated products, the advantages of export restrictions disappear. These days, final products rely heavily on the so-called “intermediate products” used to make them, sourced from the world’s global value chains. They can be high-tech items such as computer chips or very low tech, like wood planks, but more often than not they’re imported. The new OECD report describes an analysis of the impact in a number of sectors of what would happen if export taxes were simultaneously removed on steel and steelmaking raw materials. It finds that “When regions that apply export taxes remove these in coordination with similar action by trading partners, their downstream industries actually benefit.”
In their report mentioned above, among the solutions Oxfam proposes in relation to food, are “increasing transparency in commodities markets, setting rules on export restrictions” (they also call for “an end to trade-distorting agricultural subsidies”). This sounds very similar to the OECD report’s call for “better control, and more transparent use, of export restrictions”. The OECD report goes further though and looks at what alternatives are available to countries thinking of applying (or lifting) export restrictions. Chile for example, rather than concentrating on downstream processing, promotes a range of less capital-intensive and less energy-intensive intermediate goods and services industries linked to mining operations, as do a number of other successful minerals-rich countries.
Finally, this just in. Since I started writing today’s post, I’ve learned that my intro about the different sectors is sooo 2004 and the miner and the trader can be friends. A bipartisan report is to be presented to the US Senate today and tomorrow on Wall Street bank involvement with physical commodities. I feel like quoting whole pages of it in full, but in essence: “Since 2008, Goldman Sachs, JPMorgan Chase, and Morgan Stanley have engaged in many billions of dollars of risky physical commodity activities, owning or controlling, not only vast inventories of physical commodities … but also related businesses, including power plants, coal mines, natural gas facilities, and oil and gas pipelines.”.
I used the copper example, and so do Senators Levin and McCain and their colleagues: “JPMorgan built a copper inventory that peaked at $2.7 billion, and, at one point, included at least 213,000 metric tons of copper, comprising nearly 60% of the available physical copper on the world’s premier copper trading exchange, the London Metal Exchange (LME).” I quoted the homely image of a man and his shovel, and the Senators quote how even these days, market making isn’t all laser beams to transfer data and fancy algorithms to do high frequency trades: “Goldman approved “merry-go-round” transactions in which warehouse clients were paid cash incentives to load aluminum from one Metro warehouse into another, essentially blocking the warehouse exits”. But where we talk abstractly about risk, our men on the Hill cite “injuries, an international incident, or worse”.
That’s the world some policy makers think they can manipulate with export restrictions.
International trade: free, fair and open? (OECD Insights)
On June 16 we published an article by EU Trade Commissioner Karel De Gucht on the Transatlantic Trade and Investment Protocol (TTIP). Today, Bernadette Ségol, General Secretary, European Trade Union Confederation (ETUC) and Richard Trumka, President, AFL-CIO and of the OECD’s Trade Union Advisory Committee (TUAC) reply.
In 2013, the United States and the European Union began talks on the Trans-Atlantic Trade and Investment Partnership (TTIP). The AFL-CIO and the European Trade Union Confederation (ETUC) believe that increasing trade ties could be beneficial for both American and European workers, but only if TTIP promotes a people-centered approach which considers the interests of the public and not just those of corporations. As with all other economic relationships, the rules of the TTIP will matter because TTIP is about much more than just trade. Its rules will make the difference between a Trans-Atlantic New Deal, which envisions an important role for democratic decision making, and a Trans-Atlantic corporate hegemony that privatizes the gains of trade while socializing the losses. Increasing trade between the U.S. and the E.U. can only help create quality job growth with shared prosperity on both sides of the Atlantic if the project is approached and concluded in an open, democratic, and participatory fashion and with these goals in mind.
Unions believe that TTIP could represent a “gold standard” agreement that improves living and working conditions on both sides of the Atlantic and ensures that standards are not lowered. However, the risk of the current model of trade and economic integration agreements to democratic decision making cannot be overstated. The U.S. has already lost state-to-state challenges to its anti-smoking, meat labelling, and tuna labelling policies, and even now, European multinationals are using the investor-to-state system to challenge decisions to phase out nuclear energy and raise minimum wages. Simply put, these policies are part of a government’s most basic responsibility to promote the general welfare of its people.
Trade and investment rules that not only allow but promote such challenges undermine support for trade even as they reduce the ability of governments to be more responsive to their publics than they are to well-heeled global corporations. This is no accident. Global corporations have long wanted to “overcome regulatory sovereignty,” See, for example Trade on the Forefront: US Chamber President Chats with USTR, and NAFTA Origins: The Architects Of Free Trade Really Did Want A Corporate World Government.
We envision a set of rules that respect democracy, ensure state sovereignty, protect fundamental labour, economic, social and cultural rights and address climate change and other environmental challenges. In a people and planet-centred agreement, the negotiators should consider: how will this decision create jobs, promote decent work, enhance social protection, protect public health, raise wages, improve living standards, ensure good environmental stewardship and enshrine sustainable, inclusive growth? If negotiators are not pursuing these goals, the negotiations should be suspended.
Rules on the protection of workers should not in any way be regarded as trade barriers. The TTIP should not undermine provisions for the protection of workers set down in laws, regulations or collective agreements, nor collective trade union rights such as freedom of association, the right to collective bargaining and the right to take industrial action. The TTIP must ensure that all parties adopt, maintain, and enforce the eight core conventions of the International Labour Organisation for all workers, as well as the Decent Work Agenda, and that those minimum standards set a starting point for regular improvements that are built into the architecture of the agreement. The U.S. and EU should also explore adopting transatlantic mechanisms in line with EU instruments to provide for information, consultation and participation of workers in trans-national corporations; stronger protections for workplace safety and health; and requirements to ensure “temporary” workers receive equal treatment with regard to pay, overtime, breaks, rest periods, night work, holidays and the like. In other words, the TTIP should not just raise standards for those whose standards currently do not measure up, it should create a system for continuous improvement.
This must include advancing democracy in the workplace. Only when workers are free to organize, associate, peacefully assemble, collectively bargain with their employers and strike when necessary can they provide a vital balance to the economic and political influence held by global corporations.
The TTIP must be aligned with—and never work at cross purposes to—international agreements to protect the environment, including commitments to slow catastrophic climate change. As part of its rules, the TTIP must advance a sustainable balance between human activity and the planet. Rules must not encroach or dilute national and subnational efforts to define and enforce environmental rules, measures and policies deemed necessary to fulfil obligations to citizens, the international community and future generations. Rules must respect the right of parties to prohibit corporations from capturing gains through predatory extraction, unsustainable resource utilization, and “dumping” of pollutants and refuse.
The TTIP must have at its core state-to-state commitments and modes of conflict resolution; it must reject all provisions that allow corporations, banks, hedge funds and other private investors to circumvent normal legislative, regulatory and judicial processes, including investor-to-state dispute settlement (ISDS). State-to-state commitments and enforcement mechanisms reinforce the notion that the agreement is between sovereign nations, for the benefit of their citizens. It also recognises the right of different states to make different choices about how to best promote the general welfare. A hold-over from the discredited era of market fundamentalism, ISDS is used by private actors to constrain the choices democratic societies can make about how best to protect the public interest. It gives the government’s duty to secure the general welfare the same status as private interest in profit—undermining public trust and placing governments in the position of having to pay a ransom to protect the public interest. At the same time, investors must assume their responsibilities, and it is imperative that respect for instruments such as the OECD Guidelines for Multinational Enterprises be fully be integrated in TTIP. We also ask that Contact Points meet the highest standards and those in EU countries be better coordinated.
Only when American and European workers can meaningfully participate in the development and design of the TTIP will they be confident that it is being created for their benefit, rather than as a secret deal that will amplify the influence of global corporate actors and diminish the voice of the people. Secret trade deals may have been appropriate when they were limited to tariffs and quotas, but given the broad array of issues covered under “trade” agreements – including healthcare, intellectual property, labour, environment, information technology, financial services, public services, agriculture, food safety, anti-trust, privacy, procurement, and supply chains – secrecy can no longer be defended. The proper place to debate and reach agreement on these domestic policy issues is in the public forum—if an idea cannot stand the light of day, it must not be pursued.
The AFL-CIO and the ETUC are united in a commitment to ensure that the TTIP represents a global new deal that would create high quality jobs, protect worker rights and the environment and benefit workers on both sides of the Atlantic. A new trade model that puts people first can create a high standard for not only the US and the EU, but for global trade. Workers deserve a deal that delivers improved living and working conditions on both sides of the Atlantic.
Bernadette Ségol and Richard Trumka talk about the TTIP
Today’s post is from EU Trade Commissioner Karel De Gucht
A year ago, Presidents Barroso and Obama launched negotiations for a Transatlantic Trade and Investment Partnership, or TTIP. A deep and comprehensive free trade deal in generic terms, but much more than that from political, commercial and civil perspectives. We have now held five formal negotiating rounds, and it’s time to re-state the importance of this deal not only to us in Europe and the US, but for people around the world.
The overall figures are impressive. The EU and the US trade goods and services worth around EUR 2bn every day, and together we make up one third of global trade. Independent assessment indicates that both sides could gain significantly in terms of GDP growth over ten years (EUR 120bn in the EU, EUR 90bn in the US) – and equally so does the rest of the world (EUR 100bn). Such opportunity for growth is not something to leave by the wayside in a time of hesitant economic recovery.
But these macro figures don’t tell the whole story. The EU and the US have much more in common than our trade relationship. We share values: on democracy, on human rights and freedoms, and on a global rules-based trading system. Each of us enjoys a vibrant civil society and business sector, and broad political debate over things that matter. TTIP’s potential to deliver results depends very much on our ability as negotiators to meet the interests of all our stakeholders.
That’s why we are looking at three distinct areas: market access, regulatory cooperation and trade rules. Market access is a traditional element of trade negotiations. Tariffs between the European Union and the United States tend to be low in general but are still very high on certain important products, such as dairy and textiles. Even for products that have lower tariffs, such as chemicals, the volume of trade is so large that the tariffs add up to a significant extra tax on business.
Getting results on market access for our services industries is also important. Both the EU and the US have very strong services sectors, ranging from finance and commercial services, via the professions such as doctors and architects, to transport and environmental services. TTIP would help our world-class industries to be able to establish themselves and work in the US without many of the restrictions that they face today. Furthermore, EU firms are highly competitive in many of the things that governments need to buy: for example energy services, rail transport equipment, aircraft, pharmaceuticals and textiles. TTIP could open up more public tendering by the US federal government and US states to EU bids, generating new contracts and jobs for European firms.
Market access isn’t everything, however. From a global perspective, the regulatory and rules parts of TTIP are key. In the regulatory part of the negotiations, we are looking at how the EU and the US could cooperate better together in the future on new regulations, for example in breakthrough industries such as medical devices. We are also finding ways to align existing regulations, for example to stop unnecessary, unjustified duplication of tests, or to remove barriers to trade caused by two different ways of achieving the same result. These may seem unimportant by themselves, but taken together, reducing these trade obstacles would give a significant boost to transatlantic trade. If the authorities of both sides work together from the early stages, we could avoid problems for businesses, share our limited resources and probably produce better outcomes.
As I have underlined many times, this is not about lowering regulatory standards. Where we agree with each other we will see what we can achieve together; where we don’t, we will continue with our own approach.
Given the economic heft of the US and EU, any shared standards, policies or practices that we can agree in TTIP would almost certainly have spill-over effects on the rest of world trade. Producers in developing countries would not have to choose between US and EU market requirements – they would be able to start selling to the other side without incurring extra regulatory costs. The influence of strong US and EU standards would make it more worthwhile for other countries to develop their own policies based on the transatlantic model. In areas such as trade in raw materials, high environmental and labour standards, the role of state-owned enterprises and the importance of intellectual property rights, a strong transatlantic statement of intent would help steer the multilateral debate in a positive direction for traders, workers and consumers worldwide.
This, then, is our ambition. A trade partnership that opens our markets wide for goods, services and public procurement, that provides a framework for us to cooperate in the long term on regulatory issues affecting trade, and that sets high standards across a range of globally significant economic issues.
After five rounds, we are making good progress – but it won’t be easy. Many of these things are deeply intertwined and we need to work hard to get the right results for our citizens. This is a complicated choreography to work with: with Member States and US states, EU and US regulators, EU and US legislatures, transatlantic business and civil society. That’s a lot of voices to bring together. So a key element to success is making sure that we listen to the important concerns and interests of our stakeholders. This is what I have in mind when talking about the current EU consultation on investment protection, about the importance of safeguarding the EU’s high standards of consumer and environmental protection, and about what TTIP could deliver for the global economy.
In this electoral year for the EU and the US, I want to highlight that it is Congress and the European Parliament – as well as the heads of 28 EU Member States that form the European Council – that will eventually need to examine, debate and approve the deal. The public debate about TTIP is very welcome in this context, and I look forward to continuing to take full part in it.
Karel De Gucht on how the European Union sees the TTIP negotiations
Today’s post from Gunnar Oom, State Secretary to Sweden’s Minister for Trade Ewa Björling, is the last in a series published to coincide with the 2013 Dialogue on Aid for Trade taking place at the OECD on January 16-17, in collaboration with the Government of Sweden and the Overseas Development Institute, with the support of the European Commission.
Sweden has a vision of an international trading system that embraces all nations of the world, not only those that are already well-off. That is why free trade coupled with trade-related development cooperation is a priority for the Swedish Government. This is also why I, as State Secretary to the Swedish Minister for Trade, am pleased that Sweden is co-arranging this Policy Dialogue on Aid for Trade in Paris on 16–17 January.
Economic growth, including trade and market development assistance, continues to be a priority for Swedish development cooperation. Economic growth is a prerequisite for combating poverty, and so trade, leading to increased growth, can be a powerful tool for reducing poverty.
The overall target of Swedish Aid for Trade is to strengthen the least developed countries’ integration in world trade and their ability to take advantage of the opportunities of the multilateral trading system. Swedish Aid for Trade also aims to support and promote responsible business practices in accordance with the UN Guiding Principles on Business and Human Rights, the principles of UN Global Compact and the OECD Guidelines for Multinational Enterprises. There is a connection between trade and social and environmental concerns. Responsible business practices, with companies that follow international guidelines and the principles of corporate social responsibility, CSR, can increase the impact of Aid for Trade.
This is also why the engagement of the private sector in the Aid for Trade framework is crucial. It is essentially companies, not governments or countries, that trade with each other. It is firms that know what challenges they face when it comes to market access and integration in global production networks. Access to export markets is essential for low- and middle-income countries to develop their trade and make use of the potential for increased growth that trade can offer.
Sweden’s own vision of Aid for Trade has been bold since the adoption of the Aid for Trade recommendations. Between 2010 and 2011, Sweden almost doubled its Aid for Trade disbursements to trade-related assistance, from SEK 592 million to SEK 1.1 billion. We have scaled up and stepped up, and will continue to be an ambitious free trade nation.
The Swedish International Development Cooperation Agency (Sida) is instrumental in transforming our ambitions on Aid for Trade into action. It bases its work on the demands and needs of partner countries and Sweden’s comparative advantages.
The Swedish National Board of Trade is another important Swedish actor in Aid for Trade. As the Swedish expert authority, the National Board of Trade builds capacity in trade-related areas such as rules of origin, trade facilitation, technical barriers to trade and WTO matters. The National Board of Trade hosts Open Trade Gate Sweden, a one-stop information centre for exporters in developing countries.
Looking ahead, it is important to focus on the quality of Aid for Trade in order to ensure that resources are used efficiently. Global efforts on Aid for Trade must be efficiently monitored and evaluated.
The principles of ownership and donor coordination in the Paris Declaration are central. Sweden is increasingly moving towards joint integrated trade programmes, channelling funds through co-funded programmes with other bilateral donors, multilateral organisations, regional development banks, research networks and universities, and Swedish trade support agencies and institutions.
We also need to become better at linking our efforts to reality on the ground – to the possibilities and constraints faced by poor women and men. Understanding the long- and short-term linkages between trade and poverty as well as the gender dynamics behind these linkages will help us address the challenge of making trade a powerful engine for poverty reduction.
A large part of trade today takes part within value chains. This means that the production of goods and services is fragmented and separated in different parts of the world. Value chains underline the need and importance of open markets, not least the importance of imports. Though not a new phenomenon, value chains have become increasingly visible. Reduced costs for trade, transport, international standards and new communication and technology solutions have fostered international production networks and increased specialisation.
Value chains offer opportunities for low- and middle-income countries to access global markets and integrate with the world economy. They have decreased the importance of access to raw materials and a large domestic market. I believe this is how we need to see value chains in the Aid for Trade context: value chains can attract investment in low- and middle-income countries, competitiveness can be highlighted, production can be advanced and specialisation can be promoted.
At the same time, value chains impose increased demands for smooth cross-border trade, so that goods do not get stuck at borders. Integration in the value chain means meeting increased quality-related demands such as certification requirements, as well as requiring well-functioning institutions and infrastructure.
Moreover, value chains highlight the need for services, the glue of the value chain. Services such as research and development, commercial services and marketing, transports, logistics etc. are central. These requirements are likely to have positive effects throughout the economy, leading to increased growth in low- and middle-income countries.
So Aid for Trade should be used to oil the process of integration in the global economy, to address the obstacles to integration in the value chain faced by low- and middle-income countries.
Important challenges lie ahead in ensuring the efficiency of Aid for Trade. May the OECD Policy Dialogue be an inspiration to us to continue to discuss and shed light on how results can best be achieved and evaluated. Input from our partner countries as well as the private sector is crucial. Sweden will continue to make every effort to ensure that Aid for Trade is a driving force for development!
Sweden provides a voluntary contribution to the OECD project on aid for trade, global value chains and trade facilitation, which will published a two-page brief on Trade Policy Implications of Global Value Chains to coincide with the launch of a new Trade in Value Added database later today.
Sweden also supports the following initiatives:
Today’s post from OECD Secretary-General Angel Gurría is published to coincide with the 2013 Dialogue on Aid for Trade taking place at the OECD on January 16-17, in collaboration with the Government of Sweden and the Overseas Development Institute, with the support of the European Commission.
“Aid for Trade” has galvanised broad engagement from the international community to support developing countries to make the most of international trade.
Successive Global Reviews have provided clear evidence that the Initiative has lead to an integration of trade policies in national development strategies, to an inclusion of trade considerations in planning frameworks and consultations with national stakeholders and dialogues with donors. The Initiative is also associated with an increase in commitments ($45 billion in 2010) to tackle bottlenecks that undermine the ability of local producers to access regional and global markets.
So, Aid for Trade has contributed to better lives for many people in developing countries. It is particularly encouraging that about a third of the funds went to least developed countries (LDCs) and that the funds provided have been over and above aid flows to other important sectors, such as education and health.
“Aid for Trade” provides us with a number of encouraging success stories. In Zimbabwe, for example, support and commitment at the highest political levels was mobilised for the implementation of the Chirundu One Stop Border. The Cameroon Customs Reform project provides another successful example of stakeholder involvement as it involved local customs inspectors in the design of performance contracts that would be used to evaluate their performance. An aid for trade project in Senegal has helped to support the competitiveness and the sustainability of the agricultural sector, contributing to increasing exports of certain agricultural products by almost 80% between 2005 and 2009 and creating 85 new businesses. In Vietnam an aid for trade programme helped increase the level of exports to the United States from USD 1.1 billion in 2001 to USD 8.6 billion in 2006, and the level of imports from the United States from USD 460 million to USD 1.1 billion.
On top of such best practice examples, an important growth and employment narrative has emerged around Aid for Trade. The impacts of such programmes range from increased export volumes to higher employment, notably of women, faster customs clearance and border transit times, and poverty reduction. Many of these achievements are being made by the LDCs. Enhanced transparency and strengthened accountability provided through OECD and WTO monitoring have helped in making that progress possible.
The Aid for Trade Initiative has been gaining momentum over the past years and its global monitoring mechanisms are improving considerably. But it operates in a rapidly evolving environment. Since the launch of the Initiative in 2005, there have been fundamental changes in trade patterns, including increased south-south cooperation or the emergence of global value chains.
The Global Partnership for Effective Development Co-operation, launched in 2012 as a follow-up to the 2011 Busan Forum on Aid Effectiveness, provides a new framework for strengthening efforts to help developing countries in leveraging and improving the results of diverse forms of development finance and ensuring that all these have a catalytic effect on trade and development.
Certain contextual factors, such as an efficient infrastructure connecting local producers to markets and a good regulatory environment, are key for countries to reap the full benefits of a liberalised trade regime. Aid for Trade can be a catalyst for such an environment and in helping to attract domestic and foreign investment in developing countries, so as to stimulate economic growth and advance poverty alleviation.
Cape Verde for example has successfully managed its economic transformation and become a globally competitive economy. It has made significant progress on the Millennium Development Goals (MDGs) and in 2007 managed to graduate out of the LDC status (only two other countries have managed that transition, Maldives in 2011 and Botswana 1994). Aid for trade policies and the WTO accession of Cape Verde have played a catalytic role in supporting the country’s economic growth strategy.
It is against this backdrop that we are hosting a Policy Dialogue on Aid for Trade on 16 and 17 January 2013 at the OECD in Paris. This dialogue will focus on how the international community can continue to deliver results on aid for trade in today’s quickly evolving global context of trade and development. The discussions among trade and development experts, providers of South-South co-operation, and representatives from the private sector, think tanks, civil society and academia will focus on several issues. They include the delivery and management of aid for trade and development results, options for easing constraints to trade, promotion of regional aid for trade programmes, reduction of the costs of importing and exporting (the so called ‘thickness’ of borders), the link to value chains and engagement of the private sector.
We hope that the outcomes of this dialogue will provide valuable inputs to the Fourth Global Review of Aid for Trade, “Connecting to Value Chains”, to be hosted by the World Trade Organization in July 2013. Now let’s have a meaningful dialogue for better trade policies for better lives!
Today’s post from EU Trade Commissioner Karel De Gucht is the second in a series published to coincide with the 2013 Dialogue on Aid for Trade taking place at the OECD on January 16-17, in collaboration with the Government of Sweden and the Overseas Development Institute, with the support of the European Commission.
One thing is for sure: No country has ever lifted itself out of poverty without international trade. Trade is key to help countries develop. So we need to make sure that people in the world’s poorest countries have access to markets, to create jobs and encourage growth as a result. But trade needs the right conditions to flourish. Bottlenecks and inefficiencies – whether at border crossings, or in the way the economy is regulated, or even within the private sector – get in the way of progress and prosperity.
That’s where Aid for Trade comes in: as financial assistance to build new infrastructure, improve ports or customs facilities in developing countries – in short: we want to help developing countries “trade” their way out of poverty.
Today, the EU and its Member States provide more trade-related development assistance than the rest of the world put together. We contributed a third of world-wide Aid for Trade assistance, or €10.7 bn, in 2010 – that’s a quarter of our own total official development assistance (ODA) budget. And the results speak for themselves: a 10% increase in Aid for Trade spending on infrastructure has been shown to lead to a 6.5% increase in goods exports.
However, what really counts in the current crisis, with ODA shrinking, is that we continue to support developing countries’ integration into the global economy – and make the most of our aid budgets for this purpose.
How do we do this?
The starting point is of course that we use the resources available effectively. This means we need to target Aid for Trade right and prioritise especially Least Developed Countries (LDCs).
Also, the most effective Aid for Trade projects involve multiple countries – like those focused on key regional trade corridors, for example. So we need to count on cross-border and regional programmes.
That is why I believe Economic Partnership Agreements (EPAs) can make an important contribution to the development of ACP countries. World tariffs have never been this low and the EU already offers very favourable market access to poor countries. So where EPAs can make a real difference are non-tariff issues or so-called ‘behind the border issues’ – standards, services, intellectual property rights, public procurement, technical, social and environmental rules, infrastructure and packaging facilities. We have already gone this far with developing countries in Latin America and aim to do the same with partners in South-East Asia.
Today’s modern trading environment is dominated by the way manufacturers build up, assemble or even improve a product at different stages in the production chain. With two-thirds of world trade now involving intermediary inputs, it is vital to address these ‘behind the border issues’ so that developing countries can really be part of this process and integrate into global value chains.
Eventually, we need to involve the private sector better. If companies are not integrated in the design of Aid for Trade projects – by identifying the constraints that most need to be tackled for example – then they are unlikely to make use of the results. Aid for Trade can empower companies in developing countries to boost their trade to the EU, making the best of the EU’s generous tariff preferences.
At the same time, the success of Aid for Trade of course depends on requests from our partner countries, as we always encourage them to take the lead. Aid for Trade works best when governments are aware of the role that openness to trade plays in development. They need to include trade policy in their national development strategies to create a business-friendly environment to attract foreign direct investment.
There are some who say that these arguments are all very well for developed countries but that infant industries in developing countries need protection. I disagree entirely with this: if there is one thing that is not lacking in developing countries, it is entrepreneurship and the will to compete. What entrepreneurs need are opportunities – opportunities that trade can provide. Just look at the practice – in China, India, Brazil, South Africa and all across the emerging world. The economies that have opened up have reaped the rewards.
Finally, a WTO deal on trade facilitation will be an important factor to make trade work for developing countries. Improving custom procedures by computerisation, cutting red tape, and simplifying rules and documents makes doing business more predictable and helps goods move faster across borders. Studies suggest that the cost of doing so would not be more than €10 million per country. But in Sub-Saharan Africa alone, an average 5% reduction in time spent at the border could achieve a 10% increase in intra-regional exports. In some African countries, revenue losses from inefficient border procedures even exceed 5% of GDP. If an exporter cannot say for certain when his products are going to get to customers then he is going to lose business. Lack of transparency – especially with respect to fees – creates high transaction costs.
With this in mind, the EU is actively working with other partners to secure a WTO Trade Facilitation Agreement for the WTO Ministerial meeting in Bali in December this year. We need everyone to get behind such a deal. Because Aid for Trade will work so much better if all WTO Members commit to making the necessary policy reforms. At the same time, any deal on trade facilitation will be impossible to implement on the ground without the right financial support – so this is also an opportunity to make the case for continuing support to Aid for Trade.
But we know that the story doesn’t end there. If we want to see further results we need to be there as partners for development over the long haul. It is only through a collective effort to deliver a well-funded, effective policy that we will achieve our objective: to see developing countries, particularly the poorest amongst them, make the most of globalisation. As far as the European Union is concerned, that means at both Member State and European level we must therefore do our very best to maintain these levels of commitment. I certainly am ready to do so.