Bridges Weekly Trade News Digest • Volume 9 • Number 4 • 9th February 2005
G7 Inch Forward On Debt Relief, Aid And Trade For Africa
Finance ministers from Canada, France, Germany, Italy, Japan, the UK, and the US — the Group of Seven (G7) — met in London from 4-6 February to discuss plans for more aid, debt relief and fairer trade for Africa. British treasury sources reported an emerging consensus on the need for debt relief as well as extra development assistance and better access to western markets for developing countries. However, differences among the seven richest nations on support for full debt relief meant that the language in the finance ministers’ closing statement was watered down from a declared willingness to provide "100 percent debt relief" to "as much as" 100 percent. Furthermore, the statement specified that it would operate on a "case by case analysis" of Highly Indebted Poor Countries (HIPC). Trade commentators have noted that the reference to HIPC countries would limit the number of eligible countries under any debt deal.
US says it will not support the International Finance Facility
UK Chancellor of the Exchequer Gordon Brown’s proposal of an International Finance Facility (IFF) for dramatically increasing current aid flows met with a mixed reaction from other G7 leaders. The IFF would essentially borrow money immediately using future aid flows as collateral, with borrowing to be repaid out of aid budgets years from now. Proponents of the idea say that it could be used to double aid for the world’s poorest countries from $50 billion a year today to $100 billion annually up to 2015, money that could be specifically directed to achieving the internationally agreed Millennium Development Goals (MDGs). Critics counter that it is simply spending tomorrow’s aid money today, or "robbing Peter to pay Paul."
European G7 members were generally supportive of the plan, although they recognised that raising money to pay off borrowing could pose a problem. Germany and France mooted a solely European tax on airline fuel to refinance the IFF.
Canada, Japan, and the US opposed the IFF. Although the US expressed its commitment to poverty reduction and the provision of funds to meet this goal, US Treasury Under-Secretary John Taylor said that "this particular mechanism does not work for the United States." He explained that the IFF would violate rules governing how the US Congress can allocate funding (for further information on this process see: http://www.senate.gov/reference/resources/pdf/97-684.pdf). Canada supports increased aid budgets, but thought that borrowing against future money would give rise to financing and accounting problems.
The eradication of poverty in Africa is a key focus of the UK, which currently holds the 2005 presidency of the Group of Eight (G8), made up of the G7 and Russia. A G8 summit to be held in July in Scotland is expected to finalise a deal on debt relief, aid and trade.
Mandelson calls for complementary actions on trade
During a speech at the London School of Economics during the G7 summit, EU Trade Commissioner Peter Mandelson said that poor countries need financial assistance in order to build up their capacity to benefit from export opportunities. Increased aid would also help them ease the social costs of trade liberalisation-related adjustment. He pointed to the need for policy coherence among the pillars of the "development triad" of trade, aid, and debt, saying that actions on the three "need to complement each other." Mandelson called on the non-European G7 countries — Canada, Japan and the US — to offer least developed countries the same tariff- and quota-free market access they currently enjoy under the EU’s "Everything But Arms" (EBA) initiative.
Trade, aid and debt at the WTO
The link between aid and trade has also been the subject of renewed attention, both in the WTO and elsewhere. The recent report of the UN Millennium Project said that Africa’s supply side constraints to export opportunities must be addressed in tandem with market access negotiations (see BRIDGES Weekly, 19 January 2005, http://www.ictsd.org/weekly/05-01-19/story3.htm). Mandelson echoed this in his speech, saying that Africa needs aid to build trade infrastructure if it is to effectively increase its share in global trade. Finally, the new WTO negotiations on trade facilitation aim to streamline complex domestic customs systems and procedures that often act as barriers to trade. African countries have called for development aid and technical assistance in implementing any trade facilitation rules.
Background
Trade liberalisation — specifically, market access and disciplines on rich-country agricultural subsidies — is not the only way in which the ‘development triad’ is being addressed in the WTO. At the Doha Ministerial Conference in November 2001, trade ministers agreed to work with international financial institutions such as the International Monetary Fund and the World Bank "for greater coherence in global economic policy-making." The Doha mandate for the ongoing trade negotiations requires Members to examine the relationship between trade, debt and finance, and come up with recommendations on steps that could be taken to address problems identified. The WTO’s Working Group on Trade, Debt and Finance (WGTDF), which focuses on these issues, looks at the relationship between trade and finance; that between trade and debt; and greater policy coherence among the international finance institutions and the WTO.
ICTSD reporting; "Debt write-off deal close, says G7," Mail and Guardian online, 8 February 2005; "Cancel Africa’s debt, Mandela tells G7," iAfrica.com, 8 February 2005; G7 still divided on debt relief for Africa," Financial Times, 6 February 2005; "G7 backs Africa debt relief plan," 5 February 2005. "G7 meeting US opposes Brown, Chirac debt financing proposals," Yahoo Finance, 5 February 2005; "Making poverty history," Economist.com, 16 December 2004.