Aid for Trade

UNITAR Seminar on International Trade and the

Doha RoundJuly 11, 2008

Mona Haddad Sector Manager

International Trade DepartmentWorld Bank

Content1. Background

2. Why aid for trade?

3. What is aid for trade?

4. What is happening on aid for trade?• Resources

• Coordination

• Enhance Integrated Framework

• WTO Aid for Trade Task Force

5. What is the World Bank doing on A4T?

6. Concluding remarks

Background� The global market has expanded dramatically in the

past three decades

� Falling transport and communications costs have been

a major driver

� Lowering of trade barriers has propelled integration;

major unilateral reforms in developing countries have

slashed tariffs, particularly in industrial goods from

over 30 percent to under 10 percent on average.

� Developing countries’ total share in world exports of

non-oil manufactures increased from 6.7 percent to

15.3 percent in 1990-2005

Their expansion of exports have been on par with MICs

Export Growth in Low income vs. Middle Income Countries

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LIC Export Grow th MIC Export Grow th

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Low income countries have improved their trade performance…

Source: World Bank, WDI

Market Share in Low income vs. Middle Income Countries

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LIC Market Share MIC Market Share

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But LICs still lag behind MICs in improving market share

Source: World Bank, WDI

Challenges for LICs� Many have been unable to take advantage of

market access opportunities and special preferences

� Supply-side constraints and infrastructure bottlenecks hamper their integration into the world economy

• Poor transport infrastructure (roads, ports) mean that producers are not linked to markets

• Inefficient institutions (e.g., customs) and regulation (red tape, poor investment climate) increase cost of trading

• Lack of machinery for trade - inability to meet standards or to prove that meet standards in export markets

Poor trade logistics impede developing

country trade

High income countries aregenerally top performers, but there are big differences between countries at other income levels

In brief, why aid for trade? • Recognition of the need for additional assistance to

– Enable countries to benefit from market access opportunities by overcoming supply side constraints

– Enable countries to address transitional adjustment costs from own and others’ liberalization

– Ensure provision of the global public good of trade reform and related infrastructure investments

Means that aid for trade has come to be seen as an essential complement to – but not a substitute for –liberalization under the Doha Round.

Growth is important for poverty reduction

Av annual % growth, Av annual % growth, Av annual % growth, Av annual % growth, Av annual % growth, Av annual % growth, Av annual % growth, Av annual % growth, 19801980--9999

Higher growth is associated with lower trade restrictivenessHigher growth is associated with lower trade restrictiveness

and trade is important for growth…

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Addressing adjustment from liberalization

1. Own liberalization� assistance to replace tariff revenue with

other taxes, social safety nets or retraining for affected workers

2. Liberalization by trading partners� “Preference erosion” (e.g., EU sugar reform)

Without A4T, there may be reluctance to undertake – or see others undertake –beneficial trade reform

Case study: AFT in Mauritius

• Country hit by three external shocks– the phase out of the textile and clothing agreement,

– reductions in sugar prices in the EU,

– rising oil prices

• Mauritius adopted reform program in 2006– reforms of the incentive system to improve competitiveness,

– reforms of the investment and regulatory regimes,

– programs to empower the poor and broaden their participation in the economy.

• $30M in budget support from WB and $30M France

– Additional AFT resources would have made the adjustment easier w/ less reduction in public investment.

What is aid for trade?

Technical assistance: specialized advice and technical expertise to support effective market access and development e.g. economic diagnostics, support for WTO accession, improving business climate

Capacity and institution building: building the capacity of developing countries and strengthening institutions to manage trade issues, e.g. the training of government officials, customs modernization.

Assistance to enhance domestic productivity: access to finance, banking, agriculture, research and development, industry, trade promotion at national and sectoral levels

Assistance with adjustment costs: fiscal support and policy advice to help countries cope with any transitional adjustment costs from liberalization.

Investments in Infrastructure: improving transport, energy, and communications to link the poor and the goods they produce to markets.

Trade Policy and Regulations

Trade Development

Building of productive capacity

Trade-related adjustment

Trade-related Infrastructure

Instruments Task Force Categories

Where does the AFT agenda end?

• Defining aid for trade

– Which types of economic infrastructure are AFT?

– Hard to assess additionality

• Concessionality

– Terms for financing? Grants or loans?

– OECD counts only concessional lending

• Conditionality

– Financing tied to trade reform?

– Should AFT be results based like IDA?

How should AFT be delivered?

• Earmarked funds for trade vs country ownership

• Should AFT focus on countries for which trade is a priority?

• Implementation of trade agreements vs building capacity to trade

• Preference erosion and supply-side constraints

• LDCs vs LICs

• Regional needs vs. country needs– 10% of aid for trade is channeled through regional and multi-country

programs.

• Important Challenges: – Trade often not mainstreamed in development strategies.

– Lack of country and sometimes donor capacity to implement TA

AFT Flows: A look at the Top 25

25 Highest Recipients of AFT

AFT flows: Asia & Africa are the focus

Average AFT flows per country by region

AFT flows: Other Low income

countries received the mostAverage AFT flows per country by income group

What is happening on aid for trade?Between 2002-05 total AFT commitments rose 22% to 21.7 bn.

Aid for trade (bilateral and multilateral) by category (2002-05)

Commitments, USD billion (2005 constant prices)

What is happening on aid for trade?

• New funding is also increasing….

– The European Commission will increase trade-related assistance by €300 million a year to a total of €1 billion a year• EU members states will match this by 2010.

– Japan has promised $10 billion on aid for trade over three years2006-2008.

– United States has promised a doubling of aid for trade to $2.7 billion a year by 2010.

– Some have made new commitments (Australia) and others foresee an increase in demand driven spending (World Bank)

What is happening on aid for trade?

These increased resources call for increased efforts at international coordination of aid for trade to help ensure aid effectiveness

– Integrated Framework of Technical Assistance for LDCs– Enhanced Integrated Framework– WTO Aid for Trade Task Force

AFT should delivered in accordance with the Paris Principles on Aid Effectiveness

– Ownership: Partner countries exercise effective leadership over their development policies, and strategies and co-ordinate development actions

– Alignment: Donors base their overall support on partner countries' national development strategies, institutions and procedures

– Harmonisation: Donors' actions are more harmonized, transparent and collectively effective

– Managing for Results: Managing resources and improving decision-making for results

– Mutual Accountability: Donors and partners are accountable for development results

Integrated Framework• Trade-related assistance for LDCs

– Donors + 6 agencies (UNCTAD, UNDP, ITC, IMF, WB, WTO)

– Country ownership

– 28 LDCs in IF and 7 more in the process of joining• Objectives

– Integrate trade into national development strategies

– Donor coordination • Two stages

�Diagnostics (DTIS)

�Follow up TA/CB projects • IF does not directly fund infrastructure but should mobilize donors to provide necessary resources

Enhanced Integrated Framework• The EIF was established in May 2007

• Main enhancements

– Increased, additional and predictable funding on a multi-year basis

• Target of $400m over initial 5 year period, $100m pledged

– Strengthened in-country machinery for increased ownership and effectiveness at country level

– Dedicated funding of US$300,000 per year for 5 years to support in country implementation

– Streamlined governance at the global level

• New independent Secretariat in Geneva

• Monitoring and evaluation framework

• Trust fund manager was selected and new funding is expected to be operational by end 2008

WTO Aid for Trade Task Force • Established in February 2006 with a mandate to provide recommendations for how A4T "might contribute most effectively to the development dimension of the Doha Development Agenda."

Main recommendations

• Uniform definition aid for trade

• Strengthening needs identification at the country level and donor response– Explore possibility of an IF-type structure for non-LDC low income countries

– Country ownership and better integration of trade into donor programming

• Addressing regional aid for trade needs

• Global cooperation to improve data collection

• Monitoring within WTO of aid for trade (TPRs)– Global Aid for Trade Review

What is the WB doing on AFT? • Lending

– Concessional lending increased 4x in recent years to reach $569 million in FY07. Rising trend expected to continue in FY08.

– Trade Facilitation/Market Access activities and Regional Integration are main areas.

– Focus is on AFR particularly cross country trade facilitation projects. e.g. Abidjan-Lagos Transportation and Transit Project

• Advisory Work and Technical Assistance– 37 TA projects involving trade (e.g. tools to analyze impact of

liberalization, capacity building in ICT services) – 66 pieces of trade-related analytical work covering 41 countries and 9

sub-regions. Focused on AFR, followed by ECA and EAP

• Trust fund resources are also expanding. – In 2007, Multi-Donor Trust Fund for Trade and Development was

launched– Provides 30 million, 2007-2010, for analytical work and TCB – AFR and low income countries will be the priority.

Total World Bank lending for trade is also increasing….

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Monitoring and Evaluation• 1st Global review took place in November 2007

• Monitoring is a work in progress

• Goal is to develop indicators that monitor the contribution of trade to human development and poverty reduction.

• DG Lamy: proposal to hold national and sub-regional AFT Reviews in Africa, LAC, Asia and Pacific in 2008– to assess or "road-test" Aid-for-Trade plans

– identify priorities

– agreeing on how these plans and priorities should be implemented.

• Experts Symposium on Aid-for-Trade Evaluation and indicators in September 2008

• Next Global Review of AFT – first half 2009

Concluding thoughts• Work in progress…much remains to be done to operationalize this agenda– Aid for trade will continue despite (lack of) progress in Doha negotiations, but may lose some political momentum

– Broader growth agenda in aid will remain important and be a focus for aid for trade

• Important that aid for trade be – Consistent with the Paris Principles on Aid Effectiveness (harmonization, alignment, country ownership, and management for results), and

– Implemented through existing systems and development institutions with proven comparative advantage

– Focused on bringing practical solutions to developing countries’trade needs

Thank you