Magazine article International Trade Forum

Aid for Trade: We Can Do Better

Magazine article International Trade Forum

Aid for Trade: We Can Do Better

Article excerpt

Turning aid recipients into consumers, and enabling them to take charge of the process, will help to make aid for trade more effective.

"We in the developing countries must own the development agenda, and our partners have to align their support to our agenda, our priorities and the sequencing we have set for ourselves. Development cannot be imposed, it can only be facilitated."

President Benjamin Mkapa of Tanzania, 2004

"Aid for Trade" is the new frontier of development assistance, whether it means an increment in official development assistance ("additionally") or a significant diversion. The new amounts cited at WTO's 2005 ministerial meeting in Hong Kong - up to $10 billion per year from Japan, USA and Europe - would represent a tripling of trade-related aid and be close to 10% of total ODA.

Aid for trade used to be a very straightforward concept. Most of the rich countries provided a significant portion of their ODA as trade credits, enabling developing countries to purchase goods from the donor on the never-never. It was classic tied aid, from which some unpaid debts are only now being forgiven.

Today, aid for trade has a broader definition, although it is not quite clear how broad. Aid has helped to increase domestic export supply capacity and enhance enterprise competitivity. That is clearly aid for trade. But supporting "facilitation" and "infrastructure" is arguably part of more general development assistance.

In any case, aid for trade now has the characteristics of other kinds of aid, and we should apply the familiar criteria of aid effectiveness. In a recent report on traderelated assistance (What do recent evaluations tell us?), the Development Assistance Committee of the Organisation for Economic Co-operation and Development (OECD/ DAC) finds many familiar problems of aid as it is frequently administered.

The Paris Declaration of 2005 was an attempt to establish some important ground rules for aid giving and receiving. It was a kind of compact of behaviour between North and South, attempting to improve on the past aid record.

It is important, however, to recall the structural, rather than merely behavioural, circumstances which have detracted from the effectiveness of aid in the past, and particularly technical assistance. For example:

* Most aid is administered by a large number of public bureaucracies - more than 80 multilateral and bilaterals - each with complex procedures of their own.

* Many of these organizations offer similar services leading to frequent duplication.

* The choice of countries which receive aid is governed by the instincts of Northern politicians and donor interest - resulting in a rather poor correlation between needy countries and assisted countries.

* The content and terms of aid are influenced by the needs and interests of the suppliers rather than the recipients.

* The rules of engagement are stacked in favour of the providers of aid, whether in terms of global governance, creditor-debtor relations or trade practices.

Aid is still donor-driven. A certain amount of exhortation can bring more objectivity, but it is also necessary to tackle the structural roots of the problem. Some analysts have compared the current aid system to the "central planning" syndrome of former socialist countries. Currently, aid (supply) is allocated by bureaucrats and is not well matched to demand because there are not enough market signals. The suppliers pay but the consumers often don't get what they want, because they didn't ask for it. Under pure market conditions, developing countries would start paying for what they need, if necessary with the help of new untied funds. …

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