We need global policy coherence in trade and investment to boost growth

Investment Forum

Gabriela Ramos, OECD Chief of Staff and Sherpa to the G20 @gabramosp

Mounting fears of another slowdown in the global economy call for bolder policy responses. Trade and investment are a case in point.

The latest WTO forecasts suggest 2015 will be the fourth year running that global trade volumes grow less than 3%, barely at—or below—the rate of GDP growth. Before the crisis, trade was growing faster than GDP. In addition, global flows of foreign direct investment (FDI) remain 40% below pre-crisis levels. If we are to achieve the ambitious Sustainable Development Goals agreed in New York in late-September, and underpin broad-based improvements in living standards, we need to reignite these twin engines of growth and we need to do it for the ultimate goal of improving people’s prospects and wellbeing.

Trade and investment have always been intertwined in business, but they have never quite come together in policymaking. In a world of Global Value Chains (GVCs), characterised by the fragmentation of production processes across countries, the interdependencies between trade and FDI are sharper. Technological improvements, reductions in transport and communications costs, and regulatory developments allow firms to combine multiple channels–- imports, FDI, movement of business personnel, licenses — to optimize their international business strategies. Businesses do not think in terms of trade or investment, but in terms of maximizing expected profitability. On the contrary, policymakers have long addressed trade and investment on separate tracks. In the face of new economic realities, policymakers need to up their game.

The symbiosis between trade and investment is more complex than ever before. Multinational enterprises (MNEs) play a key role in this relationship, with their activities driving a large share of world trade. The decision of a firm to invest in a foreign country is influenced by the ease with which it can sell its products, but also by how easy it is to source inputs from its affiliates (intra-firm trade) or independent suppliers (extra-firm trade) abroad. Hence, trade barriers become indirect barriers to investment. In addition, “world factories” make emerging trade patterns more complex, as not only goods and services cross borders, but capital, people, technology, and data do too. Without a transparent framework, it is also difficult to upgrade and upscale responsible business conduct.

Services are an increasingly critical node in the relationship between trade and investment. The WTO’s General Agreement on Trade in Services (GATS) explicitly recognizes this by defining FDI in services as one of the four ways in which services can be traded (mode 3, or ‘commercial presence’). This reflects how trade and investment interact with one another. Clearly, services will be central in any further efforts to liberalize investment and to improve the business environment. The OECD FDI Regulatory Restrictiveness Index shows that investment barriers are overwhelmingly in the services economy. Reforms in backbone services, notably digital services, transport, and logistics are key to unclogging GVCs. Domestic reforms to allow for more competition in the service sectors is also a source of growth and equality. Moreover, there is untapped potential in services value chains that could be realized if services markets were opened further. The OECD Services Trade Restrictiveness Index (STRI) provides a tool for identifying these barriers and measuring their costs, in order to prioritize and sequence reforms.

There is still no global set of rules governing investment and trade, however. Apart from GATS, two other WTO agreements—TRIMS and SCM–cover aspects of FDI, but they are not comprehensive. The OECD Codes are also a reference on capital flows, but does not address the link with the trade dynamics. The void has been filled with a complex network of nearly 3,000 bilateral investment treaties (BITs) of different quality and with different coverage.. Investors and States need certainty. A uniform regime would help, providing a consistent interpretation of the rules that apply to investment flows, taking into account the interest of all stakeholders. We urgently need a clear, coherent and coordinated approach at multilateral level. Multiplying the number of BITs further muddies the water and moves us further away from the multilateral ideal. A better way forward may be to start consolidating and replacing BITs on the road to a comprehensive multilateral framework. We also need to take a hard look at investment dispute settlement mechanisms, transparently addressing stakeholders’ legitimate concerns.

Replace BITs with what? Regional Trade Agreements (RTAs) are already providing some closer policy linkages. Over 330 RTAs contain comprehensive investment chapters, reflecting more advanced thinking of how trade and FDI interact in the real economy. These agreements also cover ‘deep integration’ disciplines that are essential to investments, such as movement of capital, business persons, intellectual property rights, competition, state-owned enterprises, and anti-corruption. New generation RTAs are not perfect, but they are taking us several steps forward in addressing the services-trade-investment-technology nexus. Being regional, however, they are not applied uniformly at a global level, and create their own overlaps and incoherence. It would therefore be useful to create clearer rules for co-existence among RTAs and mega-regional blocs. Above all, it is important to foster information-sharing on emerging practices from these negotiations, so that good practices can be diffused more widely and uniformly, and provide a pathway for multilateral convergence. In this way, RTAs and mega-regionals can become the building blocks of an integrated and truly multilateral trade and investment regime.

We are at a critical juncture, both economically and politically. The global economy needs a helping hand for recovery from the global financial crisis and to give people the improvements they expect in their daily lives. At the same time, we have both an opportunity and obligation to upgrade the policy framework to meet the changing reality of how trade and investment are conducted across the world, to enhance policy coordination, and to ensure that both have a positive impact on people’s well-being. Mega-regional agreements like TTIP and TPP are on track to deliver new frameworks over the coming months. These can be stepping stones towards the future of global trade and investment rules. As these mega-regional deals approach the finish line, the 10th WTO Ministerial in Nairobi in December is an opportunity to break the current impasse in the Doha Round. Finally, all of this is taking place as we enter a new “Post-2015” era with the new SDGs, where trade and investment are expected to do more of the heavy-lifting in global development.

Against this backdrop, the G20-OECD Global Forum on International Investment (GFII), being held on 5 October 2015 in Istanbul, back-to-back with the meeting of G20 Trade Ministers, will bring together the trade and investment policy communities—along with the business community–to reflect on the main axes of a pragmatic strategy to enhance the international regime for investment, including through closer links with trade. The agenda cannot be delayed: trade and investment decisions must go hand-in-hand in policy, just as they do in global business.

Useful links

G20-OECD Global Forum on International Investment

OECD work on International Investment Law

OECD work on Regional Trade Agreements

OECD work on Global Value Chains

OECD work on Trade Facilitation

New evidence on Africa’s integration into global value chains

Click to read the Outlook
Click to read the Outlook

Today’s post is by Kjartan Fjeldsted of the OECD Development Centre

This year’s African Economic Outlook shows that Africa’s integration into global value chains (GVCs) is greater than one might have expected—in fact, Africa is the world’s third most GVC-integrated region, ahead of North America and South East Asia.This is calculated by looking at value added—the difference in price between the goods or services an industry produces and the sum of the intermediate inputs of goods and services it needs to produce its own product (intermediate inputs used by a car manufacturer for instance could include steel, software, or seats).

On the other hand, the greater part (about 60%) of the integration is due to Africa’s role as a source of inputs for other countries’ exports—of which a large part is presumed to be raw materials—rather than to its role as a production hub. (In technical terms, its forward integration is greater than its backward integration).

In fact, Africa’s share of global trade in intermediate goodsis only 2.2%. But that percentage is nonetheless higher than Africa’s share of world GDP. What is remarkable, however, is that the increase in backward integration—the extent to which Africa imports goods or services, processes them and re-exports them—has increased at a rate greater than that of China and is second only to India since the mid-1990s. Africa did start from a relatively low base, but the rate of increase is nonetheless noteworthy. As an illustration of this, the average foreign value added (the value of imported goods or services used to make a product)in African exports increased from about 14% in 1996 to about 24% in 2011, which is fairly close to the world average.

Looking closer at the figures, Southern Africa and North Africa are contributing the most to this integration into GVCs. These two regions were responsible for around 75% of the total increase in exports of foreign value added in Africa over the period 1995-2011, with Southern Africa at 48% and North Africa at 27%. South Africa alone accounted for around a quarter of the total increase. Relative to their level of exports, however, the results are mixed. While Southern Africa still performs the best, North Africa actually does relatively poorly and East Africa and the Indian Ocean region much better.

The Southern African region also enjoys the greatest share of intra-African value added in its exports. In fact, the AEO 2014 presents new evidence that South Africa is playing the role of a “headquarter economy” in the Southern African region, much like Germany in Europe, the U.S. in North America, and Japan in East Asia—although the effect is somewhat less strong. By contrast, intra-African value added in North African exports is quite low, reflecting the region’s greater integration into the Euro-Mediterranean area.

What’s driving Africa’s integration in global value chains?

The African Economic Outlook 2014 suggests that Africa’s increasing integration into GVCs is due to a number of things. At a basic level, the predominance of dispersion forces (the division of production into ever smaller tasks that can be detached geographically, falling transport costs, etc.) that has been affecting the global economy as a whole seems to have finally reached Africa. Secondly, the growing African consumer market is making it more attractive to locate production facilities on the continent, thereby attracting market-seeking foreign direct investment (FDI). Indeed, the FDI that is flowing to Africa has been rapidly diversifying away from the extractives sector—in 2012, 73.5% of greenfield investment in Africa went to manufacturing and infrastructure-related activities. Thirdly, the pressure on manufacturing wages in other parts of the world, and China in particular, is reducing the cost advantage of Asia vis-à-vis Africa. And fourthly, greater political stability and better governance are making investment in Africa a less risky prospect. Nonetheless, there are still a host of obstacles to overcome—like the business environment, infrastructure and relatively uncompetitive labor costs—for Africa to be able to fully take advantage of GVCs. But the changes that are taking place are encouraging.

Is Africa turning the corner?

Overall, the African economy is clearly undergoing diversification and becoming more integrated into the world economy—not just as a source of inputs but also as a production hub. However, whether the current pace of change is sufficient to achieve lasting structural transformation is another question. Countries that have achieved structural transformation have tended to grow at significantly higher rates for a much longer period of time, so Africa may not be quite there yet.

In order for GVCs to contribute positively to structural change, policy also needs to adapt. Integrating GVCs at low value-added activities can be beneficial for countries—especially low-income ones—in terms of creating employment and spurring growth. But ideally countries will also want to be able to gradually move into higher value-added activities to avoid getting stuck at the bottom of the value chain.

To do so, countries need to adopt value-chain specific policies rather than merely national or sectoral ones. This is because value chains are firm-led and opportunities to grow depend crucially on the power of different actors within the value chain of which a country is a part, which in turn depends very much on the structure of the global market of the product in question. For instance, the global market in chocolate is highly concentrated and dominated by a handful of large firms, so producers of cocoa tend to be very dependent on the lead firms. On the other hand, the global market in apparel is relatively open and easy to access, but also highly competitive.

African governments have largely woken up to the potential of GVCs to affect their development: GVCs are now specifically addressed in the development strategies of a majority of African countries. Hopefully, today’s strategies will in turn translate into tomorrow’s success stories.

Useful links

Compare your country The African Economic Outlook presents key economic indicators for Africa as a whole and for each country

Understanding global value chains

Rock star economy or one hit wonder?

Image: Guy Body / New Zealand Herald, used with permission
Image: Guy Body / New Zealand Herald, used with permission

Today’s post is by Paul Conway, Director of Economics & Research at the New Zealand Productivity Commission. Paul previously spent six happy years in the OECD Economics Department.  

The broken record of recent years, “Global Financial Crisis”, is finally giving way to a classic hit about long term prospects. While it is good to see the gradual strengthening in economic growth, there is still the major challenge of lifting the long-run drivers of growth and living standards, especially given the “grey bump” of population aging in developed countries. Productivity is the most important of these drivers.

A new paper written by the OECD Economics Department and published by the New Zealand Productivity Commission challenges the way we traditionally think about lifting productivity. This paper looks at the case of New Zealand and shows that the conventional explanations of investment in physical capital and years of schooling don’t explain New Zealand’s sizable productivity gap. Yes, these are still key areas with room for improvement. But the paper points to new avenues for increasing productivity, which will have important consequences for policymakers throughout the OECD.

At the start of this year, HSBC described New Zealand as a “rock-star” economy, with growth set to outpace most developed country peers, partly due to ongoing terms of trade increases and the Christchurch rebuild following the 2010 earthquake. Labour productivity has also improved over the last few years and we have a high proportion of the workforce employed overall.

But the bigger picture remains a concern. Labour productivity growth throughout the 2000s and post-Global Financial Crisis has been low in international comparison despite a sizeable gap in productivity levels.

As the paper shows, New Zealand’s broad policy settings should generate GDP per capita 20 per cent above the OECD average, but the actual result is more than 20 per cent below average. We may be punching above our weight, but that’s only because we are in the wrong weight division!

According to the OECD, New Zealand has reasonably good policy settings, and ranks towards the top of the class on product market regulation and other indicators. Our paradox is that this hasn’t been translated into productivity performance. Canada and Denmark are in a similar situation. It seems that some of the conventional reasons for poor productivity, such as a lack of investment in physical capital or low average education, can’t fully explain what is going on.

Instead, the paper points the finger at our weak international connections, which account for over half of New Zealand’s productivity gap relative to the OECD average. New Zealand firms face reduced access to large markets and limited participation in global value chains, where the transfer of advanced technologies now often occurs. Indeed, global value chains – which can require intensive interaction and just-in-time delivery across borders – may have worsened the impact of New Zealand’s geographic isolation on trade in goods.

Most of the rest of the New Zealand’s productivity gap reflects underinvestment in knowledge-based capital. In particular, R&D undertaken by the business sector is among the lowest in the OECD, reducing the capacity for innovation and the ability of firms to absorb new ideas developed elsewhere. The quality of management is also low, with poorly run firms surviving for longer than they would in more competitive economies. This reduces the ability of firms to adjust and extract maximum productivity gains from new ideas and technologies.

These reasons for New Zealand’s poor productivity track record are interrelated – international connections and innovation go hand-in-hand. To overcome the tyranny of distance, we should be harnessing ICT and creating the ideal conditions for knowledge-based companies to grow and participate in global value chains. The cloud-based accounting software provider Xero is a good example of the new business model which can succeed in global markets.

Knowledge-based capital now plays a larger role in production than ever before. But as Alain de Serres, Naomitsu Yashiro and Hervé Boulhol point out in their OECD paper, the challenge in harnessing the increasing returns of knowledge-based capital are considerable and the costs of policy mistakes may be increasing. Adding to that, New Zealand’s small size and great distance from international markets magnify the impact of any policy weakness.

The Commission was set up in 2011 to investigate specific issues relating to New Zealand’s productivity. Three years on, our experience has been that every time we conduct an inquiry – be it on housing affordability, international freight transport, local government regulation, the services sector, or regulatory institutions and practices – we discover considerable room for improvement.

The Commission is working on different aspects of New Zealand’s policy settings to improve productivity and wellbeing. With small domestic markets, New Zealand would benefit from greater integration into global value chains in innovation-intensive industries with fast-moving technological frontiers. That is easier said than done, but our small size means we can be agile and the window of opportunity for global economic integration irrespective of physical distance is slowly opening.

Useful links

An International Perspective on the New Zealand Productivity Paradox, New Zealand Productivity Commission Working Paper 2014/01, by Alain de Serres, Naomitsu Yashiro and Hervé Boulhol, OECD Economics Department.

New Zealand Productivity Commission

OECD Work on New Zealand

Paris police capture Eiffel Tower

Some of this is copyright
Some of this is copyright

We’ve just learned that a special police unit has busted an Eiffel Tower smuggling ring. Well, more of key ring really, since the raid netted 60 tonnes of souvenirs with a street value of, er, 5 for a euro. I’ve no idea how many you need to make up 60 tonnes, but sources say it’s a lot. (If you read this article to the end, I’ll tell you how much the original weighs). A police inspector told Le Figaro that they’re not after the hundreds of sellers you may have seen around various touristy areas of Paris. They’re after the ringleaders who control what is in fact an international business, or a global value chain (GVC) as we would say, importing the merchandise from China into France for sale by mainly African sellers to tourists from the world over.

The OECD is usually all in favour of GVCs and often asks governments to do more to open up international trade. The OECD Trade Facilitation Indicators for example estimate that comprehensive implementation of all measures currently being negotiated in the World Trade Organization’s Doha Development Round would reduce total trade costs by 10% in advanced economies and by 13-15.5% in developing countries.  Reducing global trade costs by 1% would increase worldwide income by more than $40 billion according to the OECD, and most of this would go to developing countries, where the people selling Eiffel Towers come from.

Those gains from the Doha Round may or may not be realised. Progress in the negotiations is slow to non-existent, and in the meantime, selling key rings and other cheap souvenirs allows those who do it to make a living and to help their families. It’s a very precarious living and they can’t send much money home, but at least whatever they send goes directly to those who need it, and those little sums soon add up. According to the 2013 African Economic Outlook, remittances from workers abroad overtook foreign direct investment and aid as the main financial flow into Africa in 2010 (and that’s only for remittances that are recorded).

But the situation of the workers sending the remittances can be terrible. According to a Malian I spoke to, many of the young men selling souvenirs and employed in other dead-end jobs are trapped in France. They expected to do great things here, based on the stories they’d heard and the fact that usually they’re the brightest, most dynamic members of their community.  They don’t dare tell their families what it’s really like, and that the money they spent to help them emigrate could have been put to a better use. So they perpetuate the myth with stories of the good life, and live in utter poverty to be able to keep up appearances and send money back. That encourages their younger siblings and friends to try their luck too, and although satellite TV and the amount of information available on Internet are changing perceptions, many still think that the grass is greener on this side.

It’s not just in France that immigrants have a harder time than the others. The 2013 edition of the International Migration Outlook says that “on average in OECD countries, immigrants’ labour market outcomes are below those of the native-born of similar age and education levels. Immigrants also find themselves more often living in sub-standard housing conditions.” You could argue that language difficulties and different work experiences or types of qualification explain the fact that immigrants have a harder time finding a job and keeping it. But that wouldn’t explain why their children face the same problems.

For the Outlook, “Discrimination is a key obstacle to the full integration of immigrants and their offspring into the labour market and the society as a whole” adding that “it is not uncommon for immigrants and their offspring to have to send more than twice as many applications to get invited to a job interview than persons without a migration background who have an otherwise equivalent CV.”

That discrimination is often fuelled by stories of immigrants abusing the welfare system or health services. According to the OECD’s figures however, the effect on public finances “is around zero on average across the OECD countries considered […] It is highest in Switzerland and Luxembourg, where immigrants provide an estimated benefit of about 2% of GDP to the public purse.”

I wonder if the Swiss and Luxembourg papers are full of stories about immigrants coming over here, boosting our economy, reducing our borrowing requirements and helping keep taxes down. Probably not.

And since you’ve read, or skipped, to the end, the Eiffel Tower weighs 10,100 tonnes, 7300 tonnes of which is the metal structure. And it’s not illegal to make souvenirs featuring it since it’s in the public domain. The lighting however isn’t, so you should pay to film or photograph it at night. But we’ll talk about knowledge-based capital another time.

Useful links

International Migration: The Human Face of Globalisation an OECD Insights book by Brian Keeley

Aid for Trade: Connecting to Value Chains

Click to see the report
Click to see the report

Today’s post is from OECD Secretary-General Angel Gurría

Since the Aid-for-Trade Initiative was launched in 2005, much has changed in the trade and development landscape. The Initiative continues to mobilise a range of actors, adapt to new realities, and succeed in building trade capacities for shared prosperity.

Increasingly, the global economy is characterised by geographically fragmented production. This creates networks of interlocking value chains where different stages of production take place in different regions, countries or even continents.  The emergence of these value chains creates an enormous growth opportunity for developed and developing countries alike. They allow countries to maximise competitive advantages and optimise resources. They also allow firms and economies to use intermediate goods and services to focus on, and be competitive in, one “link” of the value chain without having to develop a whole industry.

Motivated by the success of a number of emerging-market economies, developing countries are aiming to become more integrated into international production networks, or what we call Global Value Chains (GVCs). But despite their advantages in terms of competitive labour costs and abundance in natural resources, developing countries are disadvantaged in other aspects. High trade and transport costs, excessive red tape, poor infrastructure, credit constraints, skills shortages and challeneging business environments all serve to undermine competitiveness. Firms in developing countries require support and governments need assistance to overcome these supply-side constraints.

Judging by their national development strategies, many developing countries recognise the potential promised by emerging value chains. But they require assistance to train trade negotiators, build trade-related infrastructure, and improve the business environment to take full advantage. Increasingly, this is being recognised, leading partner countries to mainstream trade in their development strategies and give a higher priority to trade-capacity building in their dialogues with donors.

In Aid for Trade at a Glance 2013, the OECD and WTO demonstrate how aid for trade can play an important role in connecting developing countries to value chains. Three quarters of the 700 firms which contributed to the 2013 OECD-WTO monitoring survey were from developing countries. Their responses give us a good picture of the constraints facing companies and are presented in sector studies for agrifood, textiles, transport and logistics, information and communication technology and tourism.. These studies found that development assistance plays a crucial role in facilitating new trading opportunities by helping firms and producers raise the quality of their products to international standards and access market information. Development assistance can also improve firms’ competitiveness by reducing tariff and non-tariff barriers and bringing down the cost of essential services required to export, such as credit, insurance and transport.

Data from the OECD-DAC Creditor Reporting System tells us that $174 billion in aid for trade has been disbursed since 2006, while annual commitments reached $41.5 billion in 2011, 57% above the 2002-05 average baseline. Complementing these efforts, providers of South-South co-operation such as India and China have scaled up their own contributions.  Furthermore, aid for private sector development programmes has continued to grow and amounted to $18 billion in 2011.

Through successive rounds of monitoring aid for trade, the OECD and WTO have collected abundant evidence that these sums are well spent and result in lower trade costs and improved trade performance. For instance, our analysis found that $1 in aid-for-trade increases exports from the poorest countries by $20 and $8 for richer developing countries. These findings are even higher for exports of parts and components, underscoring the benefits that value chains offer to developing countries.

These results are substantiated by the 269 aid-for-trade case stories published in Aid for Trade in Action that were submitted in the context of the last Global Review. The stories probe more deeply into the objectives, challenges and processes of trade-related assistance to better understand what works in the provision of aid for trade, what the key ingredients of success were, and what governments and practitioners could learn from experience.

Success was reported for programmes in trade expansion, improved infrastructure, new linkages to value chains, employment creation, mobilisation of foreign and domestic investment, gender empowerment, and poverty reduction. The analysis concludes that aid for trade works best when it is focused on improving infrastructure, facilitating trade, and supporting the private sector. Such programmes are especially effective when developing countries have a supportive business environment, including stable macroeconomic policies and an investment climate that encourages private investments.

While these findings are encouraging, there remains a need to strengthen the management of limited aid resources to ensure that trade objectives are being met. The OECD has produced Aid for Trade and Development Results – A Management Framework based on national monitoring frameworks in Bangladesh, Colombia, Ghana, Rwanda, the Solomon Islands and Vietnam. The Framework provides a tool to help design frameworks for results-based management of aid for trade and is based on a menu of trade-related targets, as well as indicators to measure their performance. This provides a powerful system to ensure that aid for trade contributes to meeting ambitious development objectives, where links between inputs, outputs, outcomes and impacts depend on many factors beyond programme reach.

Aid for trade works. It is making a difference, has mobilised regional and national efforts and has proved to be a good investment. We must maintain momentum, continue to show results, and demonstrate that aid for trade helps to connect developing countries to value chains.

OECD’s Frans Lammersen discusses Aid for Trade with journalist Larry Speer

Useful Links

Interconnected Economies: Benefiting from Global Value Chains

Aid for Trade: Integrating global value chains

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!

Useful links

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:

Trade Facilitation Implementation Guide

World Bank Trade Facilitation

Trade Policy Training Centre in Africa (Trapca)

Trade Law Centre for Southern Africa (Tralac)

WTO Doha Development Agenda Global Trust Fund (DDAGTF)

UN Global Compact Trust Fund