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What is aid-for-trade under the World Trade Organisation?
Ever since the Uruguay Round negotiations adopted the single undertaking on obligations and commitments, developing countries were presented with the enormous challenge of putting in place the necessary administrative, legal and institutional machinery to implement these commitments. The declaration in Marrakesh in 1994 acknowledged the need to provide trade-related technical assistance to Least Developed Countries (LDCs) to help them overcome implementation difficulties and associated adjustment costs. The main concern for developing countries was the loss of preference in light of the multilateral trading system, loss of tariff revenue on account of commitments from MFN (Most Favoured Nation) concessions, and lack of capacity to capture gains from the emerging market access opportunities. The Doha Round Agenda highlighted the trade-related institutional, human resource and supply capacity needs as an integral part of the WTO negotiations.
The Hong Kong WTO Ministerial Declaration (HKMD) finally endorsed the aid-for-trade mandate to help developing countries, particularly least developed countries, to build the supply capacity and trade-related infrastructure that would help them benefit from the WTO agreement and further expand trade.
What developments have there been at the WTO on aid-for-trade?
After the HKMD, a taskforce was constituted by the Director General of the WTO Pascal Lamy to operationalise the aid-for-trade programme. The taskforce submitted its first set of recommendations on July 27, 2006, covering two broad heads:
- Covering the traditional form of technical assistance and capacity-building, like trade policy and regulations, providing training to trade officials, helping government implement agreements and comply with rules and standards.
- Expanding the general aid-for-trade agenda, like building infrastructure, production capacity and financial assistance to meet adjustment costs.
The taskforce recommended that this aid should build on existing trade-related assistance mechanisms like the Integrated Framework (IF) and the Joint Integrated Technical Assistance Programme (JITAP) and on the guidelines of aid delivery in the Paris Declaration on Aid Effectiveness. It even recommended strengthening country ownership of aid programmes, donor response to needs and priorities (country, regional and global level), and reviews through monitoring and evaluation.
Though the taskforce highlighted some of the pressing needs regarding aid-for-trade and development, it has been widely criticised for not coming up with a definite recommendation on the quantum of money that would be needed for this assistance, and how it should be prioritised and implemented.
How is aid-for-trade different from normal aid for development?
Aid in the normal sense accounts for any humanitarian assistance given to people in distress, and development aid most often refers to assistance provided to people to remove poverty or reduce adverse conditions on account of vulnerability from natural or unforeseen calamities. Aid-for-trade is a similar form of assistance emerging from the implementation experiences of countries that have participated in the process of trade. Aid-for-trade comprises all forms of assistance provided to countries to take care of their development interests and equip them to participate in the trade process.
Aid-for-trade encompasses five main activities:
- Technical assistance: In the form of providing technical assistance, advice and expertise to assist countries confronted with the complexities of modern trade.
- Capacity-building : Building the capacity of developing countries to deal with trade issues, for example through the training of government officials.
- Institutional reform : Helping create a framework of sound and well-functioning institutions for trade -- in customs, quality assurance and other areas.
- Infrastructure support : Improving roads and ports to link the poor and the goods they produce to markets, through investments in infrastructure, and helping overcome supply constraints.
- Assistance with adjustment costs : Fiscal support and policy advice to help countries cope with any transitional adjustment costs from liberalisation.
All these activities seek to bring about primary changes in social indicators and the presumption that trade openness is a powerful driver of growth and indispensable for reducing hunger, poverty and unemployment. But, on account of asymmetries in development from trade there has been evidence of unsuccessful stories from trade outcomes and aid to address these issues would serve a better purpose.
Aid is often criticised for having a specific ownership conflict wherein conditionalities quite often have stringent constraints in effective implementation of development objectives.
It is generally agreed that aid-for-trade should, in fact, complement and not supplement the existing resources available for development aid. Aid-for-trade should be able to channelise resources to help low-income countries engage in more effective participation in trade along with economic growth, thereby bringing about a reduction in poverty and promoting general development.
What is the Paris Declaration and how is it related to aid-for-trade?
A high-level forum was organised at the international level to increase the effectiveness of aid in the way that it is disbursed in the present context, and how it can be aligned and harmonised such that the results are perceived through development impacts on social indicators. The meeting hosted by the French government, from February 28 to March 2, 2005, was attended by development officials and ministers from 91 countries, 26 donor organisations and partner countries, representatives from civil society organisations and the private sector. It highlighted several indicators like ownership, alignment, harmonisation, managing of results, and mutual accountability. The Declaration suggested the broad guidelines through which aid can serve the intended purpose and the recipient country can improve institutional capacity. The aid-for-trade WTO report also endorsed the mechanism and all the guidelines. It is yet to be seen how these principles will be adopted in the aid disbursed for building the capacity of countries to make trade work in the lives of people.
What is integrated framework in aid-for-trade?
Integrated framework is an approach in trade-related technical assistance for LDCs, which was inaugurated in October 1997 by six multilateral institutions: the IMF, ITC, UNCTAD, UNDP, the World Bank and the WTO. Its original purpose was to help least developed countries identify their needs for trade-related assistance and bring governments and potential donors together to develop a programme of support. It has since been modified to include support to help LDCs “mainstream” trade into national development plans such as the Poverty Reduction Strategy Papers (PRSPs).
One of its major instruments is the preparation of Diagnostic Trade Integration Studies (DTIS). The main idea of the integrated framework is to generate a broad-based policy agenda for trade and growth consistent with the country's development strategy, and to prioritise capacity-building exercises, combining multilateral, bilateral as well as unilateral donors.
The integrated approach has been criticised on account of the conditionalities that can possibly be a pre-condition for aid. It is understood that the involvement of many international institutions would bring in greater transparency, but it could push the aid mechanism with procedural delays and risk the diversion of already existing development aid.
Can aid-for-trade usher in development?
Aid-for-trade is a specific fund to help build the technical capacity of developing countries to overcome implementation difficulties and associated costs arising from trade. It could also push countries to further liberalise, besides setting other stringent conditions that, in many ways, provoke a feeling of loss of sovereignty.
There is ambiguity wherein the practice of paying compensation (transfers) that's called for often does not occur domestically, and barely occurs at all internationally as reflected in low Official Development Assistance (ODA) levels -- $ 69 billion in 2003 -- relative to the estimates of net income gains associated with past multilateral rounds (in the $ 200-$ 500 billion range). There is also ambiguity about the magnitude of total support to farmers in OECD countries (currently, some $ 350 billion), and about the potential gains from further global liberalisation (upward of $ 500 billion, especially if services trade is included). Under the present circumstances, the amount of pledged support adds up to close to $ 4 billion, which seems fairly inadequate in terms of the quantum of gain countries are set to make in the coming years.
There seems to be lack of alignment wherein most countries pledging support prefer traditional trade-related assistance and there are few takers on adjustment costs. Thus, many issues in trade and development seem to get sidelined in the process. Although the WTO has come up with a report empowering the director-general to take proactive steps on further extending the aid-for-trade package, there is criticism that the WTO may not be the forum to handle a development-driven agenda, as it is represented by trade ministers and the focus would shift to a trade-driven approach.
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