Bridges Weekly Trade News Digest • Volume 13 • Number 25 • 8th July 2009

Aid for Trade Review Urges Trade Opening to Combat Global Recession, Draws Donor Support

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Volume 13 Number 25 PDF • 0.18 MB

Developing countries should open their borders to trade in order to stimulate economic growth, according to participants at the Second Global Review of Aid for Trade, which was held at WTO headquarters in Geneva this week. The two-day meeting, which brought together the heads of regional and global financial institutions, international development agencies, as well as the Membership of the WTO, considered strategies for improving trade capacities for developing countries amid the ongoing global economic slowdown.

“If Aid for Trade was urgent in 2007, it is essential today,” said WTO Director-General Pascal Lamy in his opening address on Monday. “It is the investment that will allow many developing countries prepare to exit the crisis by enhancing their trade capacity.”

Donors make new commitments

The meeting drew substantial pledges from several donors, which Lamy acknowledged in his closing remarks on Tuesday. Japan pledged US$ 12 billion for 2009-2011 to support Aid for Trade, the United Kingdom promised US$ 1.6 billion per year, France committed to giving nearly US$ 1.2 per year, and the Netherlands promised to contribute US$ 764 million per year.

In addition, the Global Trade Liquidity Programme, or GTLP - a new partnership among an odd mix of players that includes the African Development Bank, the governments of Canada and the Netherlands, the OPEC Fund for International Development, and Citigroup - pledged on Monday to raise US$ 50 billion to finance trade. Funds from the GTLP will ultimately be disbursed through a network of more than 500 banks in over 70 developing countries around the world.

A4T: Four years on

The Aid for Trade initiative was launched four years ago with the aim of helping developing countries integrate into the global economy and take advantage of export markets. The WTO held its first review of the initiative in 2007.

Building on the success of the first review, the second review was designed around four objectives: moving from commitment to implementation; integrating trade in national and regional development strategies; sustaining aid flows during the global economic downturn; and assessing the effectiveness of Aid for Trade.

Countries must avoid protectionism to benefit from Aid for Trade, urged World Bank President Robert Zoellick. “Protectionism is particularly damaging to developing countries, especially to those with weak fiscal positions and those that depend heavily on exports of a small number of products,” he warned during a session Monday. “So even when global growth recovers, protectionist actions that prevent developing countries from benefiting from the pick-up will protract the suffering.”

The need to avoid trade barriers applies to developed and developing countries alike, Zoellick added. He advocated for the conclusion of the WTO’s Doha round of trade negotiations as an avenue for opening markets worldwide.

Asian Development Bank President Haruhiko Kuroda stressed that “regional approaches that support national development strategies are best for multiplying the benefits of Aid for Trade.” Addressing a session Monday morning, he described the Greater Mekong Subregion corridor linking Thailand and China as an example of a successful regional Aid for Trade project. The corridor, funded in part by the ADB, has cut the transport time for regional goods from three days to four hours.

Kuroda added that “strong partnerships between governments, the private sector, and the donor community” are needed to ensure that the benefits of Aid for Trade are sustainable. Co-operation with the private sector was the topic of a Monday afternoon session, where panels addressed how the business community can be involved in national and regional development strategies.

The review also assessed how the global economic recession has affected aid flows. According to a report released Tuesday by the WTO and the Organisation for Economic Co-operation and Development, global real GDP growth is projected to fall by 2.75 percent this year, the first fall in 60 years. Developing countries that rely heavily on worker remittances and tourism will be particularly hard hit, since both are also expect to decline this year.

“The worst of the crisis in social terms is still to come, which means that the worst of the crisis in political terms is still to come,” Lamy told reporters Tuesday. As a result, “the stress test for the WTO system as a system that prevents high intensity protectionism is still to come.”

In this light, participants discussed the role of South-South assistance in facilitating Aid for Trade. At a session Tuesday afternoon, speakers from Argentina, Brazil, Chile, China, and India spoke of the need for recipient countries to advocate their priorities and donor countries to respond to those needs. Panelists also discussed triangular aid strategies, in which industrialised and emerging economies pair up as donors.

The WTO-OECD report also highlighted four steps that can help maintain the momentum of Aid for Trade. First, there is a need for broad-based dissemination of information about the initiative’s potential benefits. Second, stakeholders must realise that Aid for Trade is part of a larger economic development and poverty-reduction scheme. Third, there should be a country-by-country assessment of current impediments to trade. And fourth, this assessment should suggest how countries can overcome these impediments.

At an evening event on Monday, the World Economic Forum previewed their “Global Enabling Trade Report 2009,” which analyses factors that facilitate cross-border commerce in national economies. The report used four metrics - market access, border administration, transport and communications infrastructure, and the business environment - to rank 121 countries on trade facilitation. Singapore and Hong Kong took the top spots, with seven European countries and Canada rounding out the top ten.

Reaching out to a wider audience, Lamy pushed the Aid for Trade agenda in an op-ed in the Wall Street Journal on Monday. “Aid for Trade is all about enhancing growth prospects by helping countries overcome their supply-side constraints and increase their competitiveness and their effective participation in world trade,” Lamy wrote. Countries must “ensure that producers are trained in meeting global product quality and safety standards demanded by the world’s consumers.” Countries need adequate infrastructure, Lamy added, to ensure a reliable flow of goods.

This advice resonated with Executive Secretary of the Economic Community of West African States (ECOWAS) Mohamed Ibn Chambas, who told Voice of America that Africa must encourage Aid for Trade. “We are very pleased that one of the outcomes from this conference is not only that each of the major developed countries has pledged to maintain their commitment that indeed they have even pledged new funding so that we can use trade as a means of overcoming the current slowdown,” Chambas said.

Additional information

For more information on the Aid for Trade meeting, please visit http://www.wto.org/english/tratop_e/devel_e/a4t_e/global_review09_e.htm

To access the WTO-OECD report on global aid flows, please visit http://www.wto.org/english/res_e/booksp_e/aid4trade09_e.pdf.

ICTSD reporting; “Africa Said Pleased with Aid for Trade Conference Outcome,” VOICE OF AMERICA, 8 July 2009; “Worst of social, political crisis ahead: WTO chief,” AGENCE FRANCE PRESSE, 7 July 2009. “Developing Countries Need Trade,” THE WALL STREET JOURNAL, 6 July 2009.