AID FOR TRADE ARCHITECTURE-Developing Countries Expectations towards AfT-Statement by Ambassador Gomi Senadhira - 21 March 2006

The successful conclusion of the Negotiations under the Doha Development Agenda would result in significant gains to both developed and developing countries.  However, as in the case of the Uruguay Round, these gains will not be evenly distributed. The trade liberalization would also entail additional costs, to some developing countries. The impact of these will be particularly harsh on  the LDCs and the weak and vulnerable economies.  Furthermore, some developing countries also will not benefit from the multilateral trade liberalization as they do not have the capacity to compete in the global markets with more competitive exporters from developed and more advanced export-oriented developing countries.

To mitigate the adverse impact of the round on the weak and vulnerable members and to assist them to benefit from the opportunities arising from the liberalization, “Aid for Trade” has been promoted as “an essential complement to an ambitious Doha outcome". In the recent past, more particularly during the last year, Aid for Trade (AfT), had evolved rapidly from almost conceptual stage to a paragraph of the Hong Kong Ministerial Declaration.  Though the subject had been discussed widely, so far, no clear understanding has emerged among the members on how to move forward with this mechanism.

Most of the work on the subject has originated from the donor community and the international organizations. These have established an economic or political case in support of AfT and have promoted it as the answer to most of the concerns of the developing countries, particularly the weak and the vulnerable members, have raised in the negotiations. However, the participation of the developing countries in the deliberations on the AfT has remained limited outside the discussions on the Integrated Framework  for Trade Related Assistance (IF), and these discussions too were mainly limited to the donars and the LDCs.

The paragraph 57 of the Hong Kong Ministerial Declaration  lays down broad framework for this new Aid for Trade mechanism and these are;

$1       Need to expand  Aid for Trade, 

$1        Aim to help developing countries

$1       Should…build the supply-side capacity and trade-related infrastructure that they need to assist them to implement and benefit from WTO Agreements and more broadly to expand their trade.

Earlier the Doha Ministerial Declaration had confirmed that "…. technical cooperation and capacity building are core elements of the development dimension of the multilateral trading system" with similar objectives. In response to that, the funding of trade related technical assistance and capacity building has increased by 50% since then. Assistance at present is delivered in the areas of trade policy and regulations, trade development and infrastructure development. 

 Hong Kong Declaration calls for further improvement of this package in quantity and quality.  This requires more active involvement of the beneficiaries and a better coordination, at country, regional and global levels, if we are to ensure the aid effectiveness as this is delivered by more than 40 bilateral donors and multilateral agencies. The number of countries and agencies involved in delivery   makes one wonder whether the aid at present is demand driven, or is just responding to the mandate without much coordination.  It is also necessary make additional funding available for AfT without "rebranding" what is already pledged under the broad TRTA framework or without diverting resources from other priority areas, such as, poverty reduction, health or education. As far as possible, these funds should be in the form of grants and concessional loans and be specifically earmarked for aid for trade projects.

However, it is necessary to point out that the Ministers agreed in Doha that  

"Technical cooperation and capacity building are core elements of the development dimension of the multilateral trading system" In Hong Kong this has become "a valuable complement to the DDA". Have we the traded the increase in the volume of aid to reduce its central position in the DDA? If so, it should not be the case. The AfT should remain a core element of the development agenda to complement and translate the market access benefits negotiated through the DDA, beyond paper, in to real exports.

The Ministerial declaration recognizes the aid for trade should help developing countries and not be limited to LDCs, though there is a need to pay particular attention to the LDCs.   The members of the WTO presently recognize only one sub-group of developing countries, viz: LDCs.  However, the rest of the developing countries are not a homogenous group.  These include low income; lower and upper middle income as well as the high income countries.  Then there are small weak and vulnerable economies, within these groups, that need more focused attention. Therefore, it is essential to identify, very early, the primary target group of AfT.

To do so, it is necessary to look at the objectives of this aid package which is of two folds;

$1(1)                  Help to implement the result of the negotiations and to cope with any economic adjustment cost that is  incurred as a result of negotiations

$1(2)                  Help to benefit from opportunities arising from multilateral trade liberalizations by improving the trade competitiveness of the countries with inefficient trade related capacity

To ensure the effective use of AfT resources, it should be targeted to the countries which have most acute need for such assistance, responding first to the demands originating from most vulnerable members. Disbursement should be prioritized, for LDCs, Low income and Lower Middle Income countries. Within these groups weaker and vulnerable members, particularly those who are already marginalized from the benefits from the Multilateral Trading System, should get the priority. Though it is necessary to have strong demand driven approach to deliver the AfT it is also necessary to ensure that the weak are not further marginalized  in the process. Therefore, needs assessments has to be undertaken by the appropriate external agencies, in the countries which do not have the capacity to undertake such work.

In the area of multilateral trade some smaller developing countries are at position of a competitive disadvantage vis-à-vis LDCs. The export of Clothing from the Asian countries, the main industrial export for poorer countries in the region, to some of the developed country markets, in the post ATC period, illustrates this position very clearly.  In the United States, where the Asian countries do not get duty free treatment, for their apparel exports, export oriented LDCs have shown that they are more competitive than some developing countries.  In the European Union, due to the duty free quota free access under EBA, the LDCs not only rapidly expanded their market share, during the last few years, but also demonstrated higher level of preference utilization than some developing countries.  

While it necessary to assist LDCs by providing additional flexibilities and aid, it should be done in a manner that does not have an adverse implications on other developing countries, slightly above the LDC level. The lower level of preference utilization by some of these countries, as against  some LDCs, illustrate that the need to increase the export competitiveness of these countries, is as important as the need to improve the export competitiveness of  the LDCs. This is particularly important as these countries, while have substantial needs, do not have the access to the IF,

To implement agreements such the one on Trade Facilitation some developing countries will require targeted assistance. These are presently being addressed in the negotiations. In addition to this, the implementation of the agreements would result in significant adjustment costs to some developing countries.  These would include adverse impact of the loss of tariff revenue, on the countries where import tariff make up a substantial proportion of government income, and the higher cost of imports on NFIDCs (Net Food Importing Developing Countries).  The cost of preference erosion, due to MFN liberalization will have significant impact on some countries. .However, it is also necessary to recognize that the value of preferences as an instrument of trade development has been reduced, since these were originally introduced, due to tariff reduction on MFN basis or through the FTAs.  Furthermore, in the recent years, the non reciprocal preferences have been extended in discriminatory manner. Some low income, weak and vulnerable economies, who need such assistance, have been left out of some of these arrangements. It is essential ensure that these countries are  not further marginalized in the allocation of AfT.

Substantially large amount of new funds are required by the most vulnerable members of WTO, if they are to benefit from the market access opportunities created through the DDA, to improve the trade related infrastructure which is necessary to get goods to the markets. There are similar needs regard to institutional building. However, development of the institutions and infrastructure alone will be of little help with out an efficient pool of private sector exporters and appropriate agencies to develop and promote exports.   

The main objective of the entire AfT package is to expand the trade, more specifically the exports, from developing countries, particularly the weak and vulnerable countries. In order to achieve this objective  it  necessary develop   targeted  export promotional programmes/ institutions  in the beneficiary  countries This has to be done in close partnership with the private sector importers in the donor countries and the private sector exporters in the recipient countries. The improvement of the private sector capacity for export promotion, by providing them with the means to benefit from new market opportunities and effectively face the challenges, is the key to the success of AfT.

It has been proposed earlier that AfT could be delivered effectively through the enhancement of the existing mechanisms, such as IF which is a programme specifically targeted at the LDCs.  However, the Hong Kong Ministerial decision clearly differentiates between the need for enhancement of the IF and the AfT.  There is also preference among the LDCs to preserve the IF, as a mechanism exclusively working for the LDCs. With the Task Force is presently looking at the ways and means of further strengthening IF, to make it “more effective and timely in addressing the trade related development needs in LDCs”, perhaps the additional resources generated under AfT for the LDCs could be channelled through the enhanced IF.   

 However, it is necessary to establish an additional arrangement to coordinate and monitor the effective delivery of the AfT, to other developing countries, particularly due to the involvement of large number of donors. Even though the narrow time frame may not permit the establishment of new institutional arrangement, a small unit based in Geneva and at the country level, is critical for the effective delivery of the AfT.  Such a unit could draw from the experiences of IF, JITAP and the international organizations involved, and the more recent evaluations on these activities, which have highlighted positive and negative aspects of the delivery of the TRTA. 

 

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