ORIENTING AID FOR TRADE TOWARD POVERTY REDUCTION

1. ORIENTING AID FOR TRADE TOWARD POVERTY REDUCTION Hugo Cameron International Lawyers and Economists Against Poverty (ILEAP)

2. Outline • Development Prerequisites • Global-level Elements • Domestic-level Elements • Diagnostic Efforts • Prioritization of Aid for Trade: Way Forward

3. Development Prerequisites for Low-income Countries • Favourable Market Access Regimes (Doha, EPAs, regional, etc.) • Development assistance targeted to enhance growth and trade • Improve competitiveness • Improve ability to meet standards • Improve institutional capacity to engage in trade negotiations and implement the outcomes • Address poverty reduction by ensuring that the needs of marginalized producers and groups within countries are taken into account and that impoverished and isolated segments of these economies benefit from expanded trade opportunities.

4. Global Level WTO/OECD Database groups trade-related aid into three broad categories: • Trade Policy and Regulations • Trade Development (i.e. trade promotion strategy design and implementation market analysis and development; and business support services and institutions) • Infrastructure Aid for Trade - Share by WTO/OECD Category (% and US$ 000)

5. Global Level • Low-Middle Income countries and non-LDC low-income countries have received the highest share of trade-related funds over 2001-04. • LDCs received the lowest level of spending in trade-related assistance relative to total aid among the large aid recipients, confirmed by the presence of only one LDC (Bangladesh) in the list of the first ten recipients of Aid for Trade in the period 2001-2004. • Cause for concern since LDCs likely to face the highest relative costs in the trade integration process. • This allocation by income group seems to have been driven by determinants other than trade-related needs, including regional and other foreign policy concerns.

6. Global Level Destination of aid for trade by income group

7. Global Level

8. Global Level THREE MAJOR SHORTCOMINGS TO BE ADDRESSED: • Failure to rationalize and prioritize the kind of activities to be supported, and to mobilize the resources needed for them to be effectively executed. As a result, minimal resources have been spread wafer-thin over countless activities, most with an unverified connection to the ultimate objective. For example, the Integrated Framework, over the last eight years, covering some 30 LDCs, was allocated only $30 million. • A near total lack of bona fide coordination among donors. Virtually every international organization and every OECD country has gotten into the act, apparently with little or no concern for coherence, consistency, efficient management, or cost and development effectiveness. Direct aid to the production and export processes is rarely found. • A lack of concern for measurable results. Recent events point to potential progress in this area: • Enhanced IF • Paris Declaration principles • OECD 2006 methodology for conducting ex-ante poverty impact assessment to maximize the poverty reducing impacts of development interventions

9. Domestic Level • Aid for Trade has concentrated on ‘getting the plumbing right’ on the premise that those employed in small-scale agriculture, in rural areas, and/or in the informal sector will at some point be in a position to take advantage of any trade benefits that do open up. • Challenge with this approach is that, while trade generally constitutes a large proportion of total GDP in low-income countries, the linkages between export-oriented activities and the rest of the economy are not automatic. • Most jobs and livelihoods in these countries are not export-oriented. The danger is that export expansion will not be broad-based.

10. Domestic Level 3 types of enterprises in LDCs: • Stratum A: a few large-scale enterprises, either domestically or foreign-owned, which have commercially viable assets, which provide regular full-time jobs for skilled labour, and which are linked with global markets. • Stratum B: domestically owned enterprises which are medium-sized and may have some degree of involvement in export activities. • Stratum C: a mass of micro and small enterprises in which the majority of the unskilled labour is employed in informal ways, including casual wage labour. These enterprises are generally oriented to the domestic market, providing services or producing goods which are affordable for the poor.

11. Domestic Level • If producers under Stratum C are to take part in more formalized economic activities, they require targeted and sustained support to help households ‘make the switch’ • Extension services, access to credit, and investments in infrastructure (especially roads). OECD report on Promoting Pro-Poor Growth targets private sector development, agriculture and infrastructure as key priorities in pro-poor growth – areas that were neglected by many donors during the 1990s but are currently receiving renewed attention in the international development agenda. • Must be supplemented by wider Aid for Trade improvements in ports, customs, regulatory capacity, access to finance, telecoms and power and business services • Support capacity of CSOs and private sector organizations to articulate and prioritize immediate and longer-term needs clearly to governments and donor groups.

12. Diagnostic Efforts • As policy is manoeuvred through the national political economy environment, it is critical to consult the informal layers of power when designing a coherent trade policy – including delivery of Aid for Trade – in order that it support broad-based development and poverty reduction. • A wide consultation, i.e. PRSP process, can bring new ideas to the table and lend legitimacy. • Research institutions and civil society organizations can be helpful by pointing out gaps and outlining common ground between different interest groups. • They are the ‘connective tissue’ between policy and poverty reduction

13. Diagnostic Efforts Integrated Framework Evaluation World Bank: • Insufficient focus on improved trade outcomes rather than on the process alone, and the shortage of resources to meet the mounting demands for technical assistance in developing countries. • Divergence in expectations between the intended beneficiaries and donors designing programs results in insufficient ownership. • Industrialized countries want to improve the domestic policy and regulatory framework; developing countries want more resources for technical assistance to meet the domestic training, institutional and procedural gaps, and investment resources to address internal supply constraints. • Donor cooperation or awareness of the IF at the country level are weak. The program provides for very few resources to ensure the development of understanding and cooperation at the country level, and it cannot substitute for the lack of developing country ownership.

14. Diagnostic Efforts Integrated Framework Evaluation Netherlands Ministry of Foreign Affairs: • DTIS processes in Ethiopia and Yemen did not actively involve the private sector or civil society. The IF programs in these countries further lacked high-level political commitment and as a result their impact on informing national trade policy was also severely limited. • Conversely, in Cambodia, close coordination between affected areas of government, the private sector, and civil society organizations under the aegis of the IF allowed that country to develop a well-informed trade strategy based on in-country economic realities.

15. Diagnostic Efforts JITAP • Useful model for addressing government-level aspects of trade policy development and participation in rules making. • Not an appropriate tool to handle an Aid for Trade package in its entirety, particularly in the areas involving infrastructure, private sector support or more complex adjustment-funding mechanisms. • Modest volumes of funds: on average, beneficiary countries have received approximately US$1.5 million over five to eight years. • Training approach of workshops and seminars provides very limited capacity for handling the practical aspects involved in implementation of trade policy. In the long run, TRTA needs to build long-term human and institutional capacity; ensure local ownership; and create a framework for laws and legal regulations. • Dutch assessment found that the JITAP processes in Burkina Faso and Tanzania to be “diverse and included setting up organizing committees, information centres, workshops, reports and studies. However, use of the output was not impressive. The impact of JITAP in contributing to formulation of national trade policy was found to be zero.” • Due to JITAP’s specific focus on trade policy training, in its current form it is not particularly well-suited to designing or delivering Aid for Trade at the private sector level, though participation of producer groups could help to bring more of a wide-reaching development focus to its activities.

16. Prioritization of Aid for Trade • Private Sector Development • Enhanced Integrated Framework • Pro-poor Growth Linked to Trade

17. Prioritization of Aid for Trade: Private Sector Private Sector Development • Crucial stakeholder in trade-related activity due to its role as the primary driver of economic production and diversification. • Producer groups and organizations representing the interests of the rural poor and the informal economy must be included in consultations, with a view to bringing them in more fully to the market economy. • Where lacking, the capacity of these groups to articulate their own concerns will need to be built. • Support should be directed not at the international private sector but at building the ability of domestic companies within low-income countries to produce and export.

18. Prioritization of Aid for Trade: Private Sector Example: ITC’s Export-Led Poverty Reduction Progamme • 2 pillars: (i) development of the entrepreneurial capacity of the poor with regard to exporting; and (ii) linking that capacity to proven export market opportunities. • 5 sectors: • Agricultural products (fresh and processed) • Textiles (fibres and clothing) • Animal skins, leather and leather goods • Light manufacturing • Community-based tourism

19. Prioritization of Aid for Trade: Private Sector Example: ITC’s Export-Led Poverty Reduction Progamme • Producers organized in cooperatives through which they can achieve a sufficient scale to produce, market and distribute their products. • Includes funding for local NGOs to build networks of poor producers, or to ensure increased participation of producers in an existing grouping, in addition to facilitating their training in marketing, production and entrepreneurship. • Ongoing EPRP projects in 15 countries have benefited around 12,300 poor people by creating additional jobs and higher income. Salaries have increased by 20 to up to 200 percent. • EPRP projects have generated approximately US$ 1.3 million for poor communities. 15 recent requests received for EPRP. • EPRP is collaborating with the Integrated Framework process; joint projects have been prepared for IF Window II funding in Burundi, Djibouti, Guinea, Rwanda and Senegal.

20. Prioritization of Aid for Trade: IF Integrated Framework • Implement recommendations from Enhanced IF Task Force: • Raise the current level of funding (US$35 million) to a funding target of US$400 million over a five-year period; • strengthen capacity in recipient countries to manage the IF process; • Create a new Executive Secretariat in Geneva, housed at the WTO Secretariat; and • Establish a monitoring and evaluation framework. • Better involvement of civil society and producer groups would help to resolve many of the identified problems, for instance by lending legitimacy to the process, extending its benefits to the poorer segments of LDC economies, and feeding in new ideas. Specific funding will need to be set aside for consultation and inclusion of domestic civil society and producer groups in the IF or Enhanced IF processes. • Results-oriented approach would help in the design of a more responsive and appropriate program. Monitor results and impacts at the country level in addition to its current practice of monitoring process and outputs, in the form of number of studies completed and reflected in PRSPs at the global program level. • More resources for technical assistance to meet the domestic training, institutional and procedural gaps – areas in which NGOs, think tanks, and countries’ own academic communities are well-positioned to contribute.

21. Prioritization of Aid for Trade: Pro-Poor Growth • Avoid ‘enclave-led’ growth in transition to more market-oriented activities. • Inclusive Growth: • Increases average household incomes substantially through job creation • Facilitated if export expansion is linked to growth in the rest of the economy, i.e. via positive synergies between exporting enterprises and local suppliers of inputs, providers of services, and subcontracting relationships. • Export expansion must help strengthen domestic linkages and development complementarities between agriculture and emerging non-agricultural activities. • Consultation with marginalized producers can help ensure that local suppliers of inputs are made aware of export-oriented opportunities in order to pursue possible emerging synergies. • A value chain approach in Aid for Trade can help marginalized segments of low-income economies – particularly the informal sector – benefit from export-oriented activities. • Shift focus of Aid for Trade from the “last loop” of a national value chain towards more upstream activities. Informal sector is present in the value chains related with foreign trade, especially in the primary production areas of agriculture and mining. Assisting the informal sector in these areas can therefore play a win-win role in improving the competitiveness of related exportables and reducing poverty.