Magazine article International Trade Forum

Regional Aid for Trade: An Effective Crisis Response

Magazine article International Trade Forum

Regional Aid for Trade: An Effective Crisis Response

Article excerpt

Aid-for-Trade flows have been affected by the recent crisis. But these flows are still significantly higher than they were relative to the 2002-2005 baseline period, and, despite the economic crisis, flows for the most part have been maintained. Resources devoted to building productive capacities have increased, a reflection of greater attention being devoted to private-sector involvement. In addition, Aid-for-Trade flows are increasingly directed toward low-income countries (LICs), rather than to middle-income countries.

Myriad studies show that international trade is essential to sustaining long-term growth and development, and to reducing poverty. Yet developing economies face market failures and binding constraints--from infrastructural shortcomings to bureaucratic impediments--that inhibit their ability to exploit fully the benefits of closer integration with the international marketplace. Recognizing this, member states of the World Trade Organization (WTO) launched the Aid-for-Trade Initiative at the Hong Kong ministerial conference in December 2005. The initiative is a development-assistance programme explicitly designed to improve the trade capacity of developing economies with the goal of improving inclusive growth and development prospects.

As reviewed extensively in Aid for Trade at a Glance 2013: Connecting to Value Chains, a joint publication by WTO and the Organisation for Economic Co-operation and Development (OECD), Aid for Trade has so far made great progress in helping developing countries overcome supply-side constraints and infrastructural bottlenecks and connect to value chains. This is a demand-driven process in which recipient countries increasingly mainstream trade in their development planning and clearly articulate priorities. Donors have responded, and Aid for Trade enjoys strong and enthusiastic support from them.

With regional cooperation and integration becoming a top commercial policy priority for developing economies over the past decade, the potential role for regional and multi-country Aid for Trade has become increasingly prominent as a means of reducing trading costs with partners, facilitating the creation of regional production networks and integration into value chains. While the multi-country nature of regional Aid for Trade complicates its implementation and mainstreaming in national development plans, several studies, including Aid for Trade at a Glance, underscore its promise.

Weak economic growth and fiscal challenges in many OECD economies are putting pressure on government spending, and this again affects development cooperation. Aid for Trade is no exception. While Aid for Trade is a priority for the governments of OECD Member States, the initiative faces the same pressures as do other aspects of development assistance, underscoring the importance of tangible results and improving the effectiveness of Aid for Trade. This has clearly been a priority of the Aid-for-Trade Initiative--but in the current fiscal environment, which is still affected by the global economic crisis, it takes on a new urgency.

Recent trends in Aid for Trade

In 2011, overall official development assistance (ODA), excluding debt relief, fell for the first time since 1997. Hence, after several years of increasing Aid-for-Trade flows--even in the wake of the outbreak of the global economic crisis in autumn 2008--the budgetary pressures stemming from continued economic weakness and debt issues had begun to take their toll. Almost US$ 41 billion was provided in Aid for Trade in 2011, a significant improvement since the start of the initiative, but down by 14% since 2010 (figure 1). In fact, Aid for Trade has increased by 57% since the agreed baseline for assessing progress (i.e. an average of Aid for Trade provided between 2002 and 2005).

Even in the middle of declining aid budgets and reflecting the increasing priority that donors attach to private-sector development, aid for building productive capacities actually increased in 2011 to US$18 billion, up 58% from the 2002-2005 baseline (figure 2). …

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