1. AID FOR TRADE
Why, what and how?

2. Why Aid for Trade?

3. Trade can be an engine for growth that lifts millions of people out of poverty
But many developing countries face barriers that prevent them from benefiting from the world trading system

4. Some of these barriers are in export markets which the Doha Round of multilateral trade negotiations aims to reduce or eliminate. These include non-tariff barriers – which are increasing in significance – as well as traditional tariff barriers.

5. But internal barriers – lack of knowledge, excessive red tape, inadequate financing, poor infrastructure – can be just as difficult for exporters to overcome
Targetting these “supply-side” constraints is what Aid for Trade is all about

6. Aid for Trade is part of overall development aid, but with the specific objective of helping developing countries, in particular the least developed, to play an active role in the global trading system and to use trade as an instrument for growth and poverty alleviation.
It is not a substitute for trade opening, but a necessary and increasingly important complement

7. Increased trade, competitiveness
and growth
Aid for Trade
trade reform
entrepreneurship
private
investment
catalyst
trade-related
capacity and
infrastructure

8. There are four main areas where Aid for Trade is needed
Trade policy and regulation
Building capacity to formulate trade policy, participate in negotiations and implement agreements

9. There are four main areas where Aid for Trade is needed
Economic infrastructure
Investing in the infrastructure – roads, ports, telecommunications, energy networks – needed to link products to global markets
In Sub-Saharan Africa, alone, annual infrastructure needs are $17-22 billion a year, while spending is about $10 billion

10. There are four main areas where Aid for Trade is needed
Productive capacity building
Strengthening economic sectors – from improved testing laboratories to better supply chains – to increase competitiveness in export markets

11. There are four main areas where Aid for Trade is needed
Adjustment assistance
Helping with any transition costs from liberalization – preference erosion, loss of fiscal revenue, or declining terms of trade

12. Three export stories and how Aid for Trade can make a difference

13. Dairy products from the Kyrgyz Republic
Facing significant supply-side constraints:
The Kyrgyz Republic could be a successful exporter of dairy products
But there has been a 14% drop in production in recent years
The most serious supply-side constraints include:
Lack of appropriate standards and testing services (i.e. SPS-control and breed selection)
Lack of cold storage and transportation facilities
Lack of infrastructure for milk distribution
Lack of interstate co-operation

14. Cut flowers from Kenya Making progress, but problems remain:
The cut flower sector has seen a growth rate of 35% annually over the last 15 years, partly because of investments in Aid for Trade, such as:
New cold storage and transportation facilities
Improved cargo facilities at Nairobi’s airport
More efficient air transportation and increased frequency of flights
Technology transfers

15. Cut flowers from Kenya
But flower exporters still face major obstacles, including
Inability to meet certain international standards (e.g., maximum pesticide residue)
Deteriorating road and rail networks
Backsliding on the competitiveness of air freight

16. Mangoes from Mali
Transformation of mango export sector by making key investments in Aid for Trade:
Formed innovative business partnerships
Improved testing facilities and met international standards
Increased cold storage facilities (reducing post-harvest loss)
Built a new transport corridor (reducing shipping time from 25 to 12 days)

17. Mangoes from Mali
Total exports of mangoes from Mali are steadily increasing
Average annual growth rate of almost 30% from

18. Similar challenges exist across many developing countries and regions
In the Andean Community, trucks spend more than half of the total journey time at border crossings
Transport costs for trade within Africa are more than twice as high as those within South East Asia

19. Similar challenges exist across many developing countries and regions
Power generation costs in Burkina Faso are more than four times the costs in neighbouring Côte d’Ivoire – and ten times the cost in France
Power outages in Malawi average 30 days per year – causing product damage and delays in production and packaging that add 25% to costs

20. Similar challenges exist across many developing countries and regions
116 days to move a container from the factory in Bangui in the Central African Republic to the nearest port
Same transaction takes five days from Copenhagen

21. Similar challenges exist across many developing countries and regions
Most direct flight between Chad and Niger is via France – over 4,000 km
Only one flight a week from Bangui in the Central African Republic to Europe

22. The result? A huge missed opportunity
For example, if Africa enjoyed the same share of world exports today as it did in 1980, exports would be $119 billion higher – equivalent to about five times current aid flows

23. What is happening?

24. Share of Trade Related ODA in Overall Development Aid Baseline 2002-2005 average
Trade policy & regulations
Economic infrastructure
Productive capacity
GBS
Non-sector allocable
Debt relief
Multi-sector initiatives
Emergency aid
Administrative cost
Social & Administrative Infrastructure
Education
Health
Governance

25. Overall distribution of trade related ODA by program and project
US$ million (2004 constant prices and exchange rates)
Baseline average
Source: OECD

26. Total trade related aid by donor
(baseline average)
US$ million
Source: OECD

27. Trade related aid as share of donor’s sector allocable ODA
(baseline average)
Global baseline
( )
Average (39.9%)
Per cent
Source: OECD

28. Overall distribution of trade related ODA by region
US$ million
Africa
Oceania
2 205
South and Central America
South and Central Asia
2 494
Far East Asia
Europe
4 232
1 551
237
9 095
Source: OECD

29. Trade policy and regulations
US$ million
400
800
1200
1600
2000
2400
2001
2002
2003
2004
2005
European countries
in transition
Regional/multi-
country
UMICS
LMICs
OLICs
LDCs
Source: OECD

30. Trade policy and regulations by donor
US$ million
Source: OECD

31. Trade policy and regulations by region
US$ million
Africa
Oceania
South and Central America 32
South and Central Asia
156 84
Far East Asia 3
Europe
131
355
Source: OECD

32. Economic infrastructure
US$ million
3000
6000
9000
12000
15000
2001
2002
2003
2004
2005
European countries
in transition
Regional/multi-
country
UMICs
LMICs
OLICs
LDCs
Source: OECD

33. Economic Infrastructure by donor
US$ million
Source: OECD

34. Economic Infrastructure by region
US$ million
Africa
Oceania
1 468
South and Central America
South and Central Asia
Far East Asia
2 388 89
521
2 515
Europe
3 703
Source: OECD

35. Productive capacity building
US$ million
2000
4000
6000
8000
10000
2001
2002
2003
2004
2005
regional/multi-
country
UMICs
LMICs
OLICs
LDCs
Source: OECD

36. Productive capacity building by donor
US$ million
Source: OECD

37. Productive capacity building by region
US$ million
Africa
Oceania
560
South and Central America
South and Central Asia
Far East Asia
1 327
108
Europe
2 213
786
2 666
Source: OECD

38. Structural adjustment
US$ million
1000
2000
3000
4000
5000
6000
7000
2001
2002
2003
2004
2005
regional/multi-
country
UMICs
LMICs
OLICs
LDCs
Source: OECD

39. Structural adjustment by donor
US$ million
Source: OECD

40. Structural adjustment by region
US$ million
Africa
Oceania 21
South and Central America
306
247
South and Central Asia
Far East Asia 37
113
Europe
2 371
Source: OECD

41. ODA is forecast to increase substantially after 2008 – if donors follow through on Gleneagles and Hong Kong commitments
Source: OECD

42. This should be reflected in a scaling up of the broad Aid for Trade Agenda
Source: OECD

43. How should Aid for Trade work?

44. On the “supply side”, donors need to:
Provide additional funding
Aid for Trade should not divert resources away from other development priorities, such as health and education
Scale up trade expertise and capacity
Trade and growth issues need to be better integrated in donors’ aid programming
Trade expertise needs to be strengthened - both in capitals and in-country

45. On the “demand side”, recipient countries need to:
Make trade a priority
Trade needs to be a bigger part of national development strategies. Aid for Trade will only work if countries decide that trade is a priority
Take ownership
Countries need to determine their own Aid for Trade plans, involving all stakeholders
Focus on results-oriented “business plans”
Aid for Trade is an investment, not just a transfer. The question is not only how much Aid for Trade is available, but whether it is effective and actually benefits developing countries

46. To bridge “supply” and “demand”, both donors and recipients need to:
Improve cooperation
The challenge of Aid for Trade is to marshal the efforts of many – and to create the right incentives so that recipients and donors work together more effectively
Involve the private sector
It is businesses, not governments, that trade
Financial resources flowing from increased private investment and trade easily dwarf government aid

47. Improve transparency and accountability
Best way to ensure that pledges are honoured, needs are met, and financial assistance is used effectively, is to shine a brighter spotlight on Aid for Trade

48. A role for the WTO: monitoring and evaluation
WTO is not a development agency – and should not become one. Its core function is trade opening, rule making, and dispute settlement
But the WTO does have a role – and a responsibility – to ensure that relevant agencies and organizations understand the trade needs of WTO Members and work together more effectively to address them

49. A role for the WTO: mobilizing, monitoring and evaluating aid for trade
The WTO is well placed to play this role
Direct interest in ensuring that all its members benefit from trade and WTO agreements
Multilateral, consensus-based organization where developing and developed countries have equal weight
Institutional experience in reviewing complex policy areas through Trade Policy Review Mechanism

50. Monitoring and evaluation in the WTO on three levels:
Global level – using data compiled by the OECD-DAC
To assess whether additional resources are being delivered, to identify where gaps lie, to highlight where improvements should be made, to increase transparency on pledges and disbursements
Donor level – based on self evaluations
To share best practices across countries, to identify areas for improvement and to increase transparency on pledges and commitments
Country and regional level – based on self assessments
To provide a focused, on-the-ground perspective on whether needs are being met, resources are being provided, and Aid for Trade is effective

51. Proposed Architecture of the Monitoring Framework
Measuring Aid for Trade
Monitoring the delivery and effectiveness of Aid for Trade
1st tier: Global Monitoring of Trade-related Aid Flows
2nd tier: Donors’ self-assessment reports
3rd tier: In-country assessments
ANNUAL REVIEW

52. Awareness - Information - Incentives
Spotlight Effect
Awareness - Information - Incentives
WTO
Monitoring
&
Evaluation
Prioritize trade
Take ownership
Implement effectively
Prioritize trade
Increase resources
Improve delivery
Progress
Progress
Progress
Feedback
Feedback
Demand Side
LDCs
Developing countries
Regional Groups
Supply Side
Donors, WB, IMF, OECD,
RDBs, UNCTAD,
UNDP, UNIDO, ITC
Feedback
Private Sector
Producers
Manufacturers
Services
Multinationals

53. With one objective....
Ensuring that developing countries can harness trade to raise living standard, improve health and education, protect the environment, alleviate poverty, and secure their development