The Aid for Trade Agenda

1. The Aid for Trade Agenda Ivan Mbirimi Economic Adviser Commonwealth Secretariat Commonwealth Secretariat/TRALAC Meeting on Post-Hong Kong Issues Cape Town, South Africa 10-11 April 2006

2. OUTLINE OF PRESENTATION Background “Aid for Trade” Experiences What is on the Agenda? Scoping the Agenda What Are Supply Side Constraints? Adjustment Costs Proposals on the Table Some Principles on Aid for Trade Concluding Observations

3. Background • 1995 - UR concluded – with provisions on trade-related technical assistance (TRTA) to improve participation of DCs in the multilateral trading system. • 1996 – Singapore Ministerial Meeting – IF for LDCs; focus – diagnostic studies of trade and capacity constraints; identification of needs on trade policy, capacity building, trade regulations, and policy coordination. • 2001 – DDA – “well targeted, sustainably financed TA”. • 2004 – July Framework – DCs, in particular LDCS, low income countries to be provided with enhanced TRTA & CB to increase effective participation and enable adjustment and diversification of economies. • 2005 – HK Ministerial – • In between Gleneagles and IMF/WB Development Committee Note progression from (a) participation in MTS → (b) Capacity building→c) Supply side constraints → (d) A4Trade (which includes all previous categories but adds enhancing the export competitiveness of the productive sector in DCs

4. “Aid for Trade” Experiencesin Figures

5. “Aid for Trade” Experiencesin Fact • Integrated Framework – inadequate resources – goals of local ownership and comprehensive integrated approaches far from being met - need to reflect priorities & actions in national development plans • Bilateral Aid – poor coordination among donors – need to recognise the importance of long term, flexible, coherent and co-ordinated donor support, in continuous consultation with recipient countries

6. What is on The Agenda? • Hong Kong MD identifies three things: (i) help for DCs, particularly LDCs to build their supply side capacity; (ii) assistance to implement and benefit from WTO Agreements; (iii) more broadly, expansion of DCs’ trade; BUT • Current debate goes beyond this to include: - Traditional agenda of trade policy and regulations - Trade-related infrastructure • All of the above and support for expanding productive capacity and competitiveness • Adjustment Costs

7. Scoping the Agenda • Some convergence on inclusion of TRTA/CB and trade-related infrastructure • Less agreement on expansion of infrastructure to include productive capacity • Less agreement on what to do about adjustment costs In a nutshell, how do you differentiate between the Aid for Trade agenda and the broad developmentagenda? Also should adjustment costs be included?

8. What are Supply side constraints? • No agreed definition, but generally considered to be constraints on capacity to produce goods and services competitively and ability to move them to markets at reasonable cost. Some examples are: infrastructure bottlenecks; narrow range of exports, low technological content of exports, weak institutions; BUT • Key is export competitiveness, which depends on production costs, trade costs and effective market access.

9. Adjustment Costs • Preference Erosion • Adjusting to mfn liberalisation – e.g. textiles and clothing, higher prices for food imports, loss of tariff revenue • Compliance with international standards and regulations • Implementation of WTO Agreements Key question: Can compensation for losses due to change in trade rules be defined as aid?

10. Proposals on the Table Broadly three categories: • Create new trade specific facility – e.g. Stiglitz’s Global Trade Facility housed in the World Bank • Strengthen existing facilities such as IF or MDBs • Continue with existing mechanisms Key Points • Real choice is between 1 & 2 because 3 is not considered an option • While a global facility recognises the importance of the problem, there is likely to be resistance to a dedicated fund • IF has suffered from inadequate resources • Much of the agenda for A4T is regional

11. Some Principles on Aid for Trade Stiglitz has suggested six: • Additionality A4T should complement rather than replace existing efforts. Also a “maintanance of effort commitment suggested • Predictability – A4T must be quantified and committed to within the Doha Round – however commitment and enforceability in the WTO is problematic • Country ownership – i.e. determined by local priorities and integrated into local development plans, but conditionality? • Coherence, in part captured by proposal of Global Trade Fund • Private Sector development, essentially focus on productive capacity • Both grants and loans could be used in different circumstances. Key point: “the devil is in the detail”

12. Concluding Observations A4T is not new, question is what is the most effective way to use aid to enhance trade? In answering this question consider: • Trade policies should reflect national economic priorities – in practice this means working backward from development priorities to national economic policies, then trade instruments required to support those priorities and policies and the arenas and partners involving those instruments • Development is best undertaken in as neutral a setting as is feasible, so be wary of taking additional burdens – a very real risk in the WTO arena, which is essentially a negotiating body • Challenges of expanding business in DCs go beyond finance – they extend to development of market linkages & production networks • The bulk of A4T agenda is regional • Additionality of resources – share going to trade versus than the global amounts? Money is fungible.