The Aid for Trade Agenda The Aid for Trade Agenda

Ivan MbirimiIvan Mbirimi

Economic AdviserEconomic Adviser

Commonwealth SecretariatCommonwealth Secretariat

Commonwealth Secretariat/TRALACCommonwealth Secretariat/TRALAC

Meeting on Post-Hong Kong IssuesMeeting on Post-Hong Kong Issues

Cape Town, South AfricaCape Town, South Africa

10-11 April 200610-11 April 2006

OUTLINE OF PRESENTATIONOUTLINE OF PRESENTATIONBackgroundBackground““Aid for Trade” ExperiencesAid for Trade” ExperiencesWhat is on the Agenda?What is on the Agenda?Scoping the AgendaScoping the AgendaWhat Are Supply Side What Are Supply Side Constraints?Constraints?Adjustment CostsAdjustment CostsProposals on the TableProposals on the TableSome Principles on Aid for TradeSome Principles on Aid for TradeConcluding ObservationsConcluding Observations

BackgroundBackground1995 - UR concluded – with provisions on trade-related technical 1995 - UR concluded – with provisions on trade-related technical assistance (TRTA) to improve participation of DCs in the multilateral assistance (TRTA) to improve participation of DCs in the multilateral trading system.trading system.1996 – Singapore Ministerial Meeting – IF for LDCs; focus – diagnostic 1996 – Singapore Ministerial Meeting – IF for LDCs; focus – diagnostic studies of trade and capacity constraints; identification of needs on trade studies of trade and capacity constraints; identification of needs on trade policy, capacity building, trade regulations, and policy coordination.policy, capacity building, trade regulations, and policy coordination.2001 – DDA – “well targeted, sustainably financed TA”.2001 – DDA – “well targeted, sustainably financed TA”.2004 – July Framework – DCs, in particular LDCS, low income countries 2004 – July Framework – DCs, in particular LDCS, low income countries to be provided with enhanced TRTA & CB to increase effective to be provided with enhanced TRTA & CB to increase effective participation and enable adjustment and diversification of economies.participation and enable adjustment and diversification of economies.2005 – HK Ministerial – 2005 – HK Ministerial – In between Gleneagles and IMF/WB Development CommitteeIn between Gleneagles and IMF/WB Development Committee

Note progression from (a) participation in MTS → (b) Capacity Note progression from (a) participation in MTS → (b) Capacity building→c) Supply side constraints → (d) A4Trade (which includes all building→c) Supply side constraints → (d) A4Trade (which includes all previous categories but adds enhancing the export competitiveness of the previous categories but adds enhancing the export competitiveness of the productive sector in DCsproductive sector in DCs

““Aid for Trade” ExperiencesAid for Trade” Experiencesin Figuresin Figures

19941994 19951995 19961996 19971997 19981998 19991999 20002000 20012001 20022002 20032003 20042004

TRTA/CBTRTA/CB 268268 9595 8080 7979 202202 241241 152152 2 1662 166 2 0902 090 27702770 25612561

InfrstructuInfrstructurere

1003100311

10 10 411411

11 11 028028

10 10 529529

10 10 123123

9 2339 233 7 9517 951 9 0169 016 8 6388 638 8 8948 894 12 12 911911

Productive Productive CapacityCapacity

7 3717 371 6 1916 191 7 8967 896 6 5906 590 7 4197 419 7 4417 441 7 5297 529 6 8486 848 5 4835 483 6 8016 801 7 3017 301

TotalTotal 17 17 670670

16 16 697697

19 19 004004

17 17 199199

17 17 744744

16 16 915915

15 15 632632

18 18 030030

16 16 211211

18 18 465465

22 22 773773

Broad Aid Broad Aid for Trade for Trade as % of as % of ODAODA

22.922.9 21.821.8 25.825.8 25.525.5 24.824.8 22.222.2 20.020.0 23.523.5 21.221.2 20.420.4 24.424.4

““Aid for Trade” ExperiencesAid for Trade” Experiencesin Factin Fact

Integrated FrameworkIntegrated Framework – – inadequate resources inadequate resources – – goals of local ownership and comprehensive integrated goals of local ownership and comprehensive integrated

approaches far from being met - need to reflect priorities approaches far from being met - need to reflect priorities & actions in national development plans& actions in national development plans

Bilateral Aid Bilateral Aid – – poor coordination among donors – need to recognise the poor coordination among donors – need to recognise the

importance of long term, flexible, coherent and co-importance of long term, flexible, coherent and co-ordinated donor support, in continuous consultation with ordinated donor support, in continuous consultation with recipient countriesrecipient countries

What is on The Agenda?What is on The Agenda?

Hong Kong MD identifies three things: (i) help for Hong Kong MD identifies three things: (i) help for DCs, particularly LDCs to build their supply side DCs, particularly LDCs to build their supply side capacity; (ii) assistance to implement and benefit capacity; (ii) assistance to implement and benefit from WTO Agreements; (iii) more broadly, from WTO Agreements; (iii) more broadly, expansion of DCs’ trade; BUTexpansion of DCs’ trade; BUTCurrent debate goes beyond this to include:Current debate goes beyond this to include:

-- Traditional agenda of trade policy and regulationsTraditional agenda of trade policy and regulations-- Trade-related infrastructureTrade-related infrastructure- All of the above and support for expanding All of the above and support for expanding

productive capacity and competitivenessproductive capacity and competitiveness- Adjustment CostsAdjustment Costs

Scoping the AgendaScoping the Agenda

Some convergence on inclusion of Some convergence on inclusion of TRTA/CB and trade-related infrastructureTRTA/CB and trade-related infrastructureLess agreement on expansion of Less agreement on expansion of infrastructure to include productive infrastructure to include productive capacitycapacityLess agreement on what to do about Less agreement on what to do about adjustment costsadjustment costs

In a nutshell, how do you differentiate In a nutshell, how do you differentiate between the Aid for Trade agenda between the Aid for Trade agenda and the broad developmentand the broad development agenda? agenda? Also should adjustment costs be Also should adjustment costs be included?included?

What are Supply side constraints?What are Supply side constraints?

No agreed definition, but generally considered to No agreed definition, but generally considered to be constraints on be constraints on capacity to producecapacity to produce goods and goods and services competitively and services competitively and ability to move themability to move them to markets at reasonable cost. Some examples to markets at reasonable cost. Some examples are: infrastructure bottlenecks; narrow range of are: infrastructure bottlenecks; narrow range of exports, low technological content of exports, exports, low technological content of exports, weak institutions; weak institutions; BUTBUT

Key is export competitiveness, which depends on Key is export competitiveness, which depends on production costs, trade costs and effective production costs, trade costs and effective market access.market access.

Adjustment CostsAdjustment CostsPreference ErosionPreference Erosion

Adjusting to mfn liberalisation – e.g. textiles and Adjusting to mfn liberalisation – e.g. textiles and clothing, higher prices for food imports, loss of clothing, higher prices for food imports, loss of tariff revenuetariff revenue

Compliance with international standards and Compliance with international standards and regulationsregulations

Implementation of WTO AgreementsImplementation of WTO Agreements

Key question:Key question:

Can compensation for losses due to change in Can compensation for losses due to change in trade rules be defined as aid?trade rules be defined as aid?

Proposals on the TableProposals on the TableBroadly three categories:Broadly three categories:1.1. Create new trade specific facility – e.g. Stiglitz’s Create new trade specific facility – e.g. Stiglitz’s

Global Trade Facility housed in the World BankGlobal Trade Facility housed in the World Bank2.2. Strengthen existing facilities such as IF or MDBsStrengthen existing facilities such as IF or MDBs3.3. Continue with existing mechanismsContinue with existing mechanismsKey PointsKey Points Real choice is between 1 & 2 because 3 is not Real choice is between 1 & 2 because 3 is not

considered an optionconsidered an option While a global facility recognises the While a global facility recognises the

importance of the problem, there is likely to be importance of the problem, there is likely to be resistance to a dedicated fundresistance to a dedicated fund

IF has suffered from inadequate resourcesIF has suffered from inadequate resources Much of the agenda for A4T is regionalMuch of the agenda for A4T is regional

Some Principles on Aid for TradeSome Principles on Aid for TradeStiglitz has suggested six:Stiglitz has suggested six:

Additionality A4T should complement rather than replace Additionality A4T should complement rather than replace existing efforts. Also a “maintanance of effort commitment existing efforts. Also a “maintanance of effort commitment suggestedsuggestedPredictability – A4T must be quantified and committed to Predictability – A4T must be quantified and committed to within the Doha Round – however commitment and within the Doha Round – however commitment and enforceability in the WTO is problematicenforceability in the WTO is problematicCountry ownership – i.e. determined by local priorities and Country ownership – i.e. determined by local priorities and integrated into local development plans, but conditionality?integrated into local development plans, but conditionality?Coherence, in part captured by proposal of Global Trade Coherence, in part captured by proposal of Global Trade FundFundPrivate Sector development, essentially focus on productive Private Sector development, essentially focus on productive capacitycapacityBoth grants and loans could be used in different Both grants and loans could be used in different circumstances.circumstances.

Key point:Key point: “the devil is in the detail” “the devil is in the detail”

Concluding ObservationsConcluding ObservationsA4T is not new, question is what is the most effective way to use A4T is not new, question is what is the most effective way to use aid to enhance trade?aid to enhance trade?

In answering this question consider:In answering this question consider:Trade policies should reflect national economic priorities – in Trade policies should reflect national economic priorities – in practice this means working backward from development priorities practice this means working backward from development priorities to national economic policies, then trade instruments required to to national economic policies, then trade instruments required to support those priorities and policies and the arenas and partners support those priorities and policies and the arenas and partners involving those instrumentsinvolving those instrumentsDevelopment is best undertaken in as neutral a setting as is Development is best undertaken in as neutral a setting as is feasible, so be wary of taking additional burdens – a very real risk feasible, so be wary of taking additional burdens – a very real risk in the WTO arena, which is essentially a negotiating bodyin the WTO arena, which is essentially a negotiating bodyChallenges of expanding business in DCs go beyond finance – they Challenges of expanding business in DCs go beyond finance – they extend to development of market linkages & production networksextend to development of market linkages & production networksThe bulk of A4T agenda is regionalThe bulk of A4T agenda is regionalAdditionality of resources – share going to trade versus than the Additionality of resources – share going to trade versus than the global amounts? Money is fungible.global amounts? Money is fungible.