Interview with WTO Director General Pascal Lamy
TNI: At the Aid for Trade Global Review in July, you mentioned the need to work more on results-based management, improved aid effectiveness, and mainstreaming Aid for Trade into countries' development strategies. Can you elaborate on possible next steps for achieving these goals?
Aid for Trade covers about one-third of all official development assistance (ODA). Unsurprisingly, it faces broadly the same challenges as other areas of development assistance, be it health or social support. The added challenge in the area of Aid for Trade is that progress in, for example, export diversification or trade-related infrastructure can take time and be less tangible short-term than for example building a school or clinic. Nevertheless, I still believe that paying attention to this trade dimension is an essential part of ensuring that developing countries are given the means to stand on their own feet and integrate into the global economy. More than that, I am of the view that this trade integration offers opportunities for economic growth, employment and poverty alleviation which would not otherwise exist.
Advancing the case for results based management and better aid effectiveness is about getting better both at making the case for mainstreaming and demonstrating the impact of public money. Given that it is WTO Members, multilateral development banks, international development organizations, NGOs and the private sector which are primarily engaged in this effort, the implementation of the Paris Principles will primarily fall on them. The WTO's role is that of a monitoring function and our Global Reviews are a focal point for our monitoring - a function which we carry out jointly with the OECD. Members are already meeting to discuss the elements they would like us to focus on in the run-up to the 4th Global Review in 2013.
TNI: You mentioned at the Global Review the connection between finding a positive outcome of the Doha Round and the effectiveness of Aid for Trade. If the Doha Round does notcome to a close in the near future, how can the Aid for Trade Initiative work around it? What limitations does the Doha situation impose on Aid for Trade's potential for continued success?
Since the Initiative was launched in 2005, Members were always keen to highlight that Aid for Trade was not dependent on a successful conclusion of the DDA. Impasse in the DDA has not equated with a blockage in Aid for Trade. Indeed, the volume of Aid for Trade has grown by 60% in real terms since 2005 to reach approximately US$41 billion in 2009.
That said, it is clear that Aid for Trade will be integral to implementing a final DDA agreement. The complexity of the DDA negotiations is one reason for the difficulty we face in bringing them to a conclusion; it is also a reason why Aid-for-Trade support will be an integral part of supporting the implementation of a deal. This is already clear for trade facilitation. In comparison with such capital intensive activities as investing in trade-related infrastructure like new ports, airports or roads, the sums involved are quite small - and depend to a large extent on political will for their achievement. However, these software investments are essential to get these big investments to work to their full potential. Indeed, one of the interesting elements to emerge from the Third Global Review was to see the way that these investments are being bundled up in such approaches as trade corridors, combining hard and soft components. In terms of the question of the limitation that Doha imposes, I would perhaps answer it the other way around. That is how we can catch up with what is being achieved with Aid for Trade. It's clear that many Members are using Aid for Trade financing to implement reforms, e.g. customs modernization, which either implement or go beyond the commitments which are being discussed here in Geneva.
TNI: You also mentioned the need to "make the case" that Aid for Trade can support broader policy objectives, such as social welfare, food security, climate change, and gender empowerment, among others. Could you elaborate on this further, in terms of what steps can be taken in that direction?
I think that United Nations Secretary-General Ban Ki-Moon set out the case eloquently at the Third Global Review. He noted the interdependence of the international policy agenda. For example, one cannot discuss food security without discussing climate change and vice versa. Likewise, given that poverty is overwhelmingly a rural and female phenomenon, one cannot design sustainable food security solutions without taking gender empowerment seriously. In our interconnected world, it is important that we do not consider these issues in silos, but instead consider the interdependence - breaking down what the Secretary-General called the artificial barriers. For me a key part of the new work programme on Aid for Trade should look at "deepening coherence". Research submitted by the OECD for the Third Global Review showed the importance of complementary policies to achieve pro-poor outcomes from Aid for Trade support. The same must also be true in the areas of food security, climate change, gender empowerment, etc. I think we need to positively integrate these areas into our analysis. The central premise of Aid for Trade is the need to mainstream trade into development. To ignore the impact which trade can have in these other areas would hardly be practicing what we preach!
TNI: The call for Aid for Trade case stories was successful, with a total of 274 case stories and 146 self assessments submitted by partner countries. What are the key lessons learned from these stories? Do you think the methodology to get such information could be more systematic?
The reaction to the call for case stories was particularly encouraging - and I admit somewhat unexpected in its number. One of the key messages to come out of the 274 case stories which were submitted is the sheer volume and scope of the activities being implemented on the ground. The sectoral coverage and the type of projects funded was also rich in its diversity. Given the volume of information generated, it is hard to generalize about the conclusions. In-depth analysis of the case stories by region and by theme has been undertaken by the OECD, WTO and partners (notably UNECA, UNESCAP and the IADB). That said, there are some common threads - such as ownership, alignment, sustained commitment, and political will - which stand out as essential for success. As a collection, the case stories provide convincing evidence that Aid for Trade can and regularly does result in more trade, more employment, poverty alleviation - and often too in gender empowerment. What it also highlights is that we need to get better at systematically measuring and tracking these outcomes over time. But the evidence that we have is already in my mind sufficient for us to be able to say with confidence that Aid for Trade is showing results. That is not of course to say that we cannot do more and do better, particularly in terms of improving the methodology used to report results.
TNI: One of the major recurring themes at the Global Review was the need for increased private sector involvement. What role do you see for the private sector in the future? What challenges does this prospect bring? How could they be addressed?
In addition to the 274 case stories, the World Bank conducted some outreach activities with the private sector. Two events were held in Paris and Washington to publicize a call for case stories from the private sector. In total, the Bank received some 44 replies - replies which were compiled into a publication for the Third Global Review jointly with the WTO.
The message which emerges is that the private sector is moving beyond corporate philanthropy as an add-on to its corporate social responsibility agenda, but is increasingly viewing it as an essential component of its penetration of new markets. Various examples were given at the Third Global Review of companies conducting capacity building efforts as part of their investments in new value chains. Indeed, Walmart invited development agencies to work with it and others to help scale-up the important work in developing new suppliers in new markets. Danone has set up a special "Ecosystem" fund to improve its operations by connecting better with local economic and social fabrics. There are obvious attractions from a development perspective to go down this route. Such multinational enterprises offer the attraction of scale and market. The obvious challenge is, from a competition perspective, to ensure that working with such companies remains pro-competitive i.e. that it's in the public good, not to private advantage. This is as true in dealings with individual companies as it is in looking at which standards to use and support the adoption of in developing countries. The key point here is one of ownership. If the Aid for Trade project or programme is sufficiently owned by the recipient, these issues tend to fade away. Overall, I am keen to see the private sector engaged in all aspects of Aid for Trade; financing and implementation on the ground and cheerleading at the multilateral level for the need to ensure that mainstreaming results in a business-friendly environment for local, regional and international investors.
TNI: Many have been critical of Aid for Trade because of the imbalances in Aid for Trade flows. Many LDCs are claiming that they are not receiving their due share of Aid for Trade funding, while just 20 countries, many of which are emerging economies, are receiving 50% of global Aid for Trade. Why does this imbalance still persist and how does the WTO intend to address it?
One of the strengths of the Aid for Trade Initiative is the monitoring function, i.e. ensuring transparency. Through the Creditor Reporting System, the OECD has been able to establish a baseline against which to measure the progression of Aid for Trade expenditure year-on-year. The question you ask is predicated on the excellent work which the OECD does every year to bring transparency to these flows. And here it should be remembered that the data only currently covers Aid for Trade from OECD reporters. Other South-South partners and corporate philanthropy are important sources of Aid for Trade flows, but are not captured in the flows. It is not just Least-Developed Countries that claim they are not receiving their fair share. It is a view held by many groups, not least the Small Vulnerable Economies. Additionality was, and still remains, an important component of the Aid-for-Trade Initiative. We have been able to show that the additional resources made available have not been at the expense of other sources of aid. And our latest joint report, "Aid for Trade at a Glance 2011: Showing Results", highlights that the distribution is less concentrated - with the top 20 recipients receiving 50% of Aid for Trade. Furthermore, in 2009, low income countries received 49% of Aid-for-Trade resources, as compared with 39% in 2008. Among the middle income countries, the fall in concessional financing was against the backdrop of a more than doubling in the amount of non-concessional financing made available as a result of the crisis - from US$23.8 billion to US$50.5 billion. The next report from the OECD on Aid for Trade flows will be made available in Spring next year and cover the year 2010. It will help confirm if these are short-term, perhaps linked to the crisis, or longer term trends - reflecting the role of the G20. Over and above this joint monitoring work with the OECD, two practical steps which the WTO can play in this regard are through the strengthening of the analysis of Aid for Trade as part of the Trade Policy Review Mechanism, something which began in 2009, and by playing our part in the Enhanced Integrated Framework. One very pleasing conclusion of the Third Global Review is that the EIF is starting to live up to its potential.
TNI: In this rapidly evolving world, concluding WTO negotiating rounds has taken longer and longer. What kind of institutional reforms would be required to allow the multilateral system be more responsive to new realities, such as climate change and other "21st century issues"?
Your question correctly implies that there are constraints which have made agreement in the Doha round elusive. First there is the complexity of the negotiations. There are roughly 20 topics bundled together. Then there is the consensus principle which means that none of our 153 members can object. And finally a deal needs to be supported by 153 members. It is therefore not surprising that governance in the WTO takes longer than at national or even regional level. I do not believe, nevertheless, that the WTO is in need of an institutional reform of the type that we have seen at the WB or IMF recently. Addressing issues in the WTO does not require in my view institutional changes. What it requires is first to make the case for the issue, to look at how that particular issue interfaces with the trading system. Once this has been explored, the question before Members is whether or not the existing multilateral rules need to be modified or upgraded, if at all. But again, the first step is a better understanding of the intersection between the particular issue and the trading system, which unsurprisingly raises domestic constituency interests.
TNI: Continued failure to complete the WTO's Doha Round trade talks could have strong negative impacts on the multilateral trading system. What concrete steps could be taken to instill new momentum in the negotiations?
WTO members are conscious that the way we have been doing things until now has not delivered the expected results. We are at an impasse. This is why new approaches need to be explored. Members have tried to conclude a big package and it has not worked. They have also tried to do a small package and it has not worked either. Maybe it is time to test the possibility of moving the negotiations forward in areas where consensus exists among Members while working to deliver on the entire agenda at a later stage. In a way it is to move into a pragmatic way to delivering the results that the stakeholders of the system expect. One things is for sure, I do not believe we can stand still. The bicycle needs to keep moving forward. If it cannot be done in big steps, let's try in smaller steps.
TNI: In the context of the current economic crises in the US and the EU, and increasing competition from emerging economies, developed countries might be tempted to adopt a protectionist stance. Do you fear these circumstances might have an impact on the already drawn-out Doha negotiations? How can the multilateral system best respond to these challenges?
What is impressive is that WTO members, developed and developing, have largely resisted strong pressure to adopt protectionist measures. Our regular monitoring reports have so far shown that trade restrictive measures have affected a limited part of world trade. But, over the past six months, we have spotted some worrying developments. To turn to protectionist trade measures in the current circumstances would be a huge mistake. Because protectionism does not protect. But it can trigger a spiral of tit for tat measures in which every Member would lose. But while members agree that the trading system has worked during the crisis, many have also asked, so why fix it? In a way the system is being the victim of its own success.
TNI: With the increase in active Preferential Trading Arrangements over the years and their deepened coverage over time beyond traditional tariff cuts, what can the WTO concretely do to prevent tensions developing between PTAs and the multilateral trading system?
It is true that PTAs have increased four-fold over the past 20 years or so to the roughly 300 that are active today. But what is interesting about this proliferation is that the more such agreements we have in place, the less each of them provides for the countries involved in terms of preferences. If you give preferences to everyone, you are actually extending this preferential treatment to no one. Moreover, only about one-third of really high tariffs - those over 15% - are brought down through PTAs. Which means that such agreements largely cover tariffs which are already low and where a preference may not provide much of an advantage. Our economists estimate that the preferences generated by these agreements are truly meaningful only for about 13% of world trade flows. What is clear as well is that these PTAs are not always being used. Studies have shown that in Asia only about a quarter of firms surveyed took advantage of these preferences while in Latin America the figure was smaller still, about 20%. Where we do see a risk of divergences is on the regulatory side of the equation. Many PTAs today go beyond WTO rules in terms of the regulatory commitments they introduce. Whether we are talking about competition policy, technical barriers to trade, services, intellectual property or investment measures, these rules are, in many cases, deeper and wider than what we see in the WTO. And these rules and commitments vary with every agreement creating additional complexity for business. The first step is therefore to better understand the content of these PTAs, the elements of convergence and of divergence, with a view to equipping Members with a tool to then be able to address it effectively.