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Aid for Trade: Its role in WTO negotiations and in long-term development

Date
Time (GMT +01) 09:00 14:00

Welcome & Introduction

Simon Maxwell (ODI) introduced the workshop by commenting that it is remarkable how quickly Aid for Trade (A4T) has moved up the agenda in the negotiations of the Doha Development Round (DDA). He said that the weight being put on A4T makes it necessary to ask a big question: How do we relate A4T to the big debates taking place about aid more generally, i.e. will it be additional, how will it be managed, etc?

Dirk Willem te Velde (ODI) then stressed that the meeting had two aims - to look at the role of A4T in the WTO negotiations and then to look at long term implications of A4T for development at the national and international level. He also provided an overview of the information on the topic available for participants.

Session 1: Aid for Trade - Role in Current WTO Negotiations

John Hancock (WTO), who chaired the discussion, said that the discussion on A4T should always be preceded by three caveats. First, that this is a new subject for the WTO and remains controversial within the WTO. There was little idea 10 years ago that it would become part of the organisation and therefore it has raised debates about the organisation's core competencies. Secondly, that the WTO has no intention of allowing mission-creep to occur and has no interest in becoming a development or finance organisation. Third, he stressed that while A4T is not directly linked to the DDA, insiders believe that the issue is of great importance.

Mia Horn-af-Rantzien (Ambassador to WTO, Sweden) provided an overview of the progress that the A4T task force has made on the topic. She reviewed how the Task Force came into existence and stressed that to date the task force had been gathering information and brainstorming on gaps in current provision of A4T.

The two major objectives of aid for trade are to enable developing countries to use trade to promote growth and poverty reduction and to facilitate trade liberalisation and provide support for costs arising from implementation. The initiative should reflect the needs that countries identify through a bottom up process. Therefore national level evaluation mechanisms are needed. A list of categories of A4T needs to be generated. One major gap that has been identified is a lack of resources for funding regional A4T. On scope, Ambassador Horn said that the initiative should include adjustment costs, supply side and infrastructure constraints, the costs of implementing WTO negotiations and assistance in generating trade policy. This could include strengthening needs assessment and trade related adjustment. She also highlighted problems in mainstreaming trade into development programmes, including encouraging the participation of the private sector. She said that diagnostic exercises to date (through the Integrated Framework) have not led to new funds.

She specified the following characteristics as critical for any A4T mechanism: simple, user friendly and speedy; true meeting of demand and supply; flexible to deal with differences in national situations; promoting country ownership; well monitored and evaluated; 'trustful' in delivery; ensuring additionality; not creating a burdensome bureaucracy; learning from past experiences (IF) and building on the principles of the Paris Declaration.

Martina Garcia and Frans Lammersen (OECD) presented a paper looking at the challenges to making A4T effective and well monitored. Ms. Garcia stressed that the main need was not to increase available funds, but to make trade related development funds more effective and coherent amongst others through improved monitoring and evaluation.

Without suggesting a specific definition for A4T, three categories could be identified: trade related technical assistance and capacity building (most narrow), trade related infrastructure (which is really economic infrastructure as it only excludes water which is a 'social' infrastructure) and money for meeting supply side constraints to build productive capacity. On the basis of OECD/DAC statistics, they calculate that 20-25% of total ODA at present fits into the three broad categories above, of which 16% goes to infrastructure. Additionally, they modelled two scenarios to examine future A4T ODA. In the first, A4T increases proportionally with new G8 pledges to increase aid to 2010. In that case, A4T reaches a substantial additional $11 billion. In the second scenario, A4T doubles in volume, reaching almost $30 billion. This will create problems of absorption capacity and 'Dutch' disease. The paper consequently argues that the real value added of the task force is not getting more money, but making sure it is better spent.

Mr. Lammersen then added that it is proving difficult to apply the Paris principles on aid effectiveness to trade related development. Few indicators have been developed to measure results and achieving mutual accountability thus remians elusive. Modelling A4T on the proposals for the enhanced Integrated Framework risks creating a vertical fund. While this does not matter much for the enhanced IF, it would not work for a broadly defined A4T agenda. Improving the effectiveness of A4T and ensuring that donors deliver on their A4T commitment requires two accountability mechanisms. Local: strengthen ownership across all actors and donors locally present in order to better integrate trade into development strategies. In addition, monitor disbursements and assess impact at the local level. This should provide the input for annual implementation reports. Global: Feedback on annual implementation reports would be channelled through a global institution such as the WTO. Other multilateral organisations, donors and recipients would together serve as a 'knowledge hub' to share experience and best practice.

Elizabeth Stuart (Oxfam) injected a note of caution about not overselling the benefits of A4T in terms of outcomes or potential for the WTO negotiations. She highlighted that despite the fact that A4T climbed very high up on the agenda of the Hong Kong meetings, the announcements by major donors such as the US, EU and Japan were really repackaging of previous announced aid increases. She also stressed that some of these donors were making A4T conditional on getting concessions out of members in other areas of the negotiations, implicitly if not explicitly. She also said that there is very little clarity about what A4T actually is, and said that the task force has asked more questions than provided answers. The debate to date had been characterised by agency 'bun fighting' whereby each multilateral agency wanted to control A4T budgets. In conclusion, Oxfam was interested in seeing an A4T initiative which conformed to the characteristics that had been mentioned by others: predictable, additional, coherent, consultative, demand driven, etc.

Sheila Page (ODI) said that Aid for Trade is on the Aid agenda because some believe that trade has not been given enough precedence in ODA. The discussion takes for granted that 1) donors can be constrained to provide money for a particular purpose and that 2) recipients can be constrained to spend aid on donors' objectives.

A problem with past trade-related aid has been predictability. She used the IF as an example of unpredictable funds - the diagnostics were supposed to attract further aid and investment, which has not happened. Members want a new A4T initiative to be more secure than this.

A4T is the WTO negotiations because there are three types of developing countries: those with not much to gain from the DDA, those with something to lose and those with much to gain. The A4T negotiations create money on the table, which makes it possible to ensure that the round will have something for everyone, and therefore that the large gains will happen.

On the legal form of A4T, developing countries would like it to be as binding as any responsibilities arising from the DDA. Politically it is too difficult to build this money into the WTO. That may not be necessary as countries can sign firm commitments with their donor agencies alongside trade commitments. The difficulty will be making sure that these are in step. On the topic of the scope, she thought that lists are important but that things should be defined as 'trade related' in the context of each individual country. In this respect, there are lessons to be learned from the Global Environmental Fund.

There are gaps in current aid for trade. Regional gaps are not easy to fund because of the country based nature of development agencies. Further, there are things that are A4T that do not fit within traditional aid budget lines (e.g. the EU Sugar Action plan). There may have to be budget lines which are akin to 'funding of last resort.' On monitoring and evaluation, the Committee on Trade and Development of the WTO needs to monitor total spending and the direction of the programme on an ongoing basis, not just once. The Trade Policy Review Mechanism could help with M&E but more resources to increase analysis capability and data are needed. A final problem is trying to link two very diverse communities - trade and aid. The two don't work easily together and there is mistrust.

Discussion

Monitoring and Evaluation: There were several questions which sought more detail on the OECD proposal and how it improved the current problems of lack of M&E and whether complex procedures would be a (non-aid) barrier to aid for trade. Garcia and Lammersen suggested that it would improve discussions and that it would not be a barrier but would rather incorporate the principles of the Paris Declaration in the debate.

Legal Framework: Several questions arose as to how A4T could be made legally binding. The consensus in responses was that it was unlikely to be legally binding but instead should be designed to ensure 'trustfulness.'

A4T Role in DDA Negotiations: In connection to the above, several sought clarification about whether the panel believed A4T formed part of the DDA negotiations. Some thought that it implicitly did, if not explicitly. Ambassador Horn-af-Rantzien thought that A4T forms part of the outcome of the DDA, not the negotiations itself. Sheila Page thought that it was reasonable that developing countries seek 'side deals' to ensure that they receive the guarantees they need from donor countries that they will get enough A4T before they sign the DDA.

Participation of the Private Sector: There were several questions about how the private sector should be included in A4T. There was little consensus about how they could best be included, but some capacity building to ensure that countries where business communities were poorly organised is necessary. The panellists also suggested there were some countries in which the primary 'stakeholders' were not the private sector but aid donors and in such countries, motivating the private sector to participate would be difficult.

Completion of A4T architecture: There were also several questions about whether there would be more time after the end July deadline to hammer out the scope of A4T mechanisms. Ambassador Horn-af-Rantzien reinforced that this issue was not going off the agenda and therefore that discussions would be ongoing in the coming years, not just months.

Session 2: Aid for Trade - Possible long-term implications for developing countries

Susan Prowse (DFID), who chaired the second session, outlined the questions for discussion: will the new prominence of trade in aid lead to more support for productive capacity in development programmes? Will it lead to helping labour markets to adjust to trade liberalisation? What would national or regional Aid for Trade programmes look like?

Bernard Hoekman (World Bank) dealt with the gaps he identified in the A4T agenda and the implications in the long-term for developing countries. He began by stating that there is a gap in capacity which means countries are not able to work satisfactorily on assessing needs for aid for trade or dedicate enough people to work on trade. He said trade related priorities need to be identified at country level.

He went on to say that, assuming in the future that countries have increased capacity to define trade needs, the question then becomes what the response will be from multilateral bodies. He identified issues such as responsiveness in terms of making funds available to address identified trade priorities, aid effectiveness and partnership and signalled a need for processes to be country led.

On the question of regional level A4T programmes he said regional trade agreements are increasingly an important arena in which the trade policy agenda is discussed and defined by many developing countries. One implication was that more needed to be done to ensure that this was recognized in the allocation of A4T.

He identified a gap in capacity around negotiations on services. He stressed the importance of the services sector to competitiveness and the economy and argued that services were likely to be where money could best be directed to support the trade agenda. He identified the problem of sequencing in liberalisation. Governments are concerned about deregulating services before regulatory bodies are in place. Thus, bolstering regulation is one potential high payoff use of A4T funds.

On the evaluation of A4T programme impact, Hoekman stated that the effectiveness of money being spent on capacity building and other A4T projects needed to be better monitored and its impacts assessed.

He went on to identify a gap in knowledge about trade policy in countries. He said there are inadequate information systems, especially on non-tariff policies, and that some of the additional A4T funds could usefully be allocated to improving the collection of such information and making this publicly available.

He concluded with a vision of how the situation would be in an ideal world. The features he identified were: clear country trade policies and priorities; the creation of dedicated bodies with higher levels of expertise in countries; consistency between what happens at regional, national and multilateral level; and A4T encompassing low and middle income countries, not just LDCs.

Miguel Rodriguez Mendoza (ICTSD), began by stressing that A4T is an important initiative and that the WTO has the ability to work on it. He pointed out that even the best Doha agreement will mean little to some WTO members. He reiterated the sentiment of the first session that a few years ago the WTO would not have been involved in development issues.

He said A4T should be part of a concerted effort to help LDCs participate better in international trade. He described it as a win-win situation but emphasised that it does require a high level of coherence between multilateral organisations as well as between ministries at national level. On the relationship between A4T and the DDA he gave the opinion that A4T strengthens the development dimension of negotiations.

He went on to say that LDCs should not be the only beneficiaries. A4T should be open to all developing countries (although some will benefit more than others and some countries will have to exclude themselves).

The scope of A4T should also go beyond current provisions and declarations. He welcomed the focus on capacity building, technical cooperation and work on supply side issues but stressed a need for resources to go towards adjustment, especially to short term adjustment to the effects of trade liberalisation.

He concluded by identifying a role for regional banks and financial institutions and a monitoring role for the WTO and the OECD.

Bede Lyimo (Ministry of Industry and Trade, Tanzania), focused on the need to address poverty and on how to bring the poor into the A4T agenda. He said there is a need to use the rules to help developing countries develop.

He specified that the DDA should allow developing countries time to get into a position where they can compete with major exporters. He gave the example of when tariffs are suddenly cut leaving developing countries vulnerable and unable to compete with major industrial countries.

He raised the harmfulness of political conditions attached to reforms, stating that they may prolong an unsatisfactory situation and that more resources are needed to enable developing countries to compete. He welcomed the idea that the logic of A4T means that countries could be given periods of, say 10 years, during which to develop their ability to compete.

He concluded with the points that it is necessary to make conditions for countries to access EDF less complex; that A4T should have a broader and longer term focus that just getting a deal at the WTO negotiations in December 2006; and that more resources could be spent on A4T.

Discussion

Definition of trade related: The point was raised that developing and developed countries differ in their ideas of what should be included in the definition of trade-related aid. It was said that political will is lacking and that developing countries sideline trade in their development plans. One of the speakers challenged the assertion that political will was lacking, saying that in his experience decisions on policy that come from the Cabinet may take longer to agree but should have fewer problems at the implementation stage.

Dedicated resources for A4T: Questions were raised on whether dedicated resources are needed for A4T and whether these would be more effective if disbursed through a dedicated fund. Dedicated resources for trade were identified as necessary because donors do not currently focus on trade as part of the broader picture. The proposed US fund for trade capacity building was mentioned. There was disagreement on whether dedicated resources would actually increase or decrease the likelihood of donors focusing on trade. Tensions between increased aid, bringing an appreciated exchange rate, and increased exports were identified. It was argued that aid directed at helping countries to export would increase a country's absorptive capacity to deal with increased aid flows and be less damaging to competitiveness than other aid precisely because AfT would go a county's supply capacity.

Regional initiatives: Questions on regional initiatives focused on whether there were any A4T funds directed at regional level, such as joint infrastructure plans.

Instruments / mechanisms: There was a question on mechanisms for countries to be able to assess their own gaps in capacity and identify how to improve capacity for trade negotiations. The point was raised that there are too many reporting mechanisms which place a heavy burden on developing countries. The Global Trade Facility, proposed by Stiglitz, was also raised. This type of vertical fund does not fit in to with the idea of a 'bottom up' approach or to the Paris Declaration on Aid Effectiveness.

Exports and the economy: The point was made that A4T should take account of the infrastructure needed to build up services in the economy. To aid export diversification, it was suggested that A4T could be focused on air cargo improvements so countries can access foreign markets (although there are environmental tradeoffs). It was pointed out, however, that investment in railroads and roads is still pressing.

Long-term implications: The point was raised that A4T should go beyond assisting only LDCs. It was pointed out that seeing bigger developing countries as a block in the development of LDCs could be harmful. A problem still to be addressed is the need to build better capacity from the use of consultants rather than lose knowledge and skills when they leave.

The chair closed by remarking that the A4T issue has emerged in the last 18 months, although the trade debate has been going on for around 40 years. The focus on market access and trade liberalisation is not enough - it is necessary to look at support for developing countries and how to operationalise it.

Description

A series of research seminars funded by the ESRC has addressed the implications of increasing trade for labour markets, including employment, wage inequality and conditions of work. One recurring theme is that labour market flexibility is required to adjust the economy to trade liberalisation or to use opportunities created by trade negotiations. Current WTO negotiations introduced the concept of ‘Aid for Trade’, to help countries address adjustment and trading costs. Aid for Trade also may mark a shift in aid priorities towards support to production.

The WTO Task Force on Aid for Trade must report in July. The aim of this seminar was to bring together policy makers, development agencies, NGO representatives, academics and other experts to discuss:

Aid for Trade in the WTO

  • How has the Aid for Trade Task Force defined it, what progress has been achieved so far and what issues are still outstanding?
  • What are the possible institutional and financial characteristics?
  • Should Aid for Trade be focused on adjustment, e.g. addressing preferences, or should it also address supply-side constraints such as infrastructure and skills development?
  • Should it have a regional or a national focus?

Possible Long-Term Implications of Aid for Trade for Developing Countries

  • Will the new prominence of trade in aid lead to more support for productive capacity in development programmes?
  • Will it lead to helping labour markets to adjust to trade liberalisation?
  • What would national or regional Aid for Trade programmes look like?