The achievements and risks of Aid for Trade

11 October 2011

In a review of the 25 most important multilateral donors, the five regional development banks, and the 24 OECD bilateral donors, UNIDO found that the greater interest in trade and in Aid for Trade (AfT) since the WTO Hong Kong Declaration in 2005 has brought a major increase in the number of donors with trade programmes and in the amount of such aid. (1) This article reviews different types of AfT and argues that some types of trade support are still under-provided and that there are serious risks of conflict of interest in some types of trade support.

Conforming to trade rules

This category includes both bringing national regulations into conformity with international rules and learning to administer and comply with the rules. A number of multilateral and regional organisations are important in this area, and bilateral donors act both directly and through these. But bilateral donors are rarely active where they might be expected to have particular expertise, i.e. in the rules for their own preferences or other trading arrangements, although the US efforts to promote the use of AGOA are a notable exception. (2)

21 bilateral agencies reported projects in agriculture and nine in textiles and clothing. But only six reported projects in new areas including environmentally friendly technology, information technology, and tourism. As non-agricultural trade is now the major part of exports by developing countries and the major growth area, this is an important gap.

Applying trade rules

This includes, on the public policy side, all elements of border management: legal changes, standardisation of customs tariffs and statistical nomenclature, procedural changes to improve efficiency, and promoting trade corridors. The more market-related side of this category deals with improving information on markets and standards, providing trade data, and building the institutions to provide such information.

It is the information side that is less well served.  Only four of the 30 multilateral and regional organisations and 14 of the 24 bilaterals assist on market information.  The international agencies compile data on trade and trade measures and the specialised agencies supply more technical information. Only a few bilateral donors offer specific information and assistance for imports into their own markets, most notably the Netherlands import promotion agency (CBI).  The small number offering direct assistance of this type is an important gap, given that donors are best placed to provide information on their own markets.

Learning how to negotiate

This should be a matter of building institutions, but has too often been treated by donors as an area for providing direct inputs: working alongside developing countries in negotiations. Some of the multilateral organisations provide training, but bilateral donors often assist the countries or regions with which they are negotiating.

Donors have their own interests in what trade policies recipients follow, and they may, whether deliberately or not, mix advice with capacity building.   Even if the capacity building is done by a different department or agency, it is difficult to avoid actual or perceived conflicts of interest. The European Commission, in particular, has often intervened directly in ‘supporting' African Caribbean Pacific group of countries with which it is negotiating, through not only funding, but also through assistance for the negotiations. Aid from the multilateral and regional agencies is less vulnerable to conflicts of interest, but advice on how to negotiate can slide into what to negotiate.

Learning where to negotiate

There is capacity building on international issues, especially the WTO Doha Round.  But the small probability and uncertain effects of a Doha settlement suggest that multilateral trade policy is unlikely to be a major part of most AfT recipients' trade strategies.

The regional organisations have long supported regional negotiations and recently all the international agencies except the WTO have moved into this. But the markets are too small and too much concentrated in primary products to offer significant developmental advantages for African countries.

There is extensive support for North-South negotiations, but this is fraught with conflicts of interest.  In the case of the US and EU negotiations with advanced developing countries, most of the these countries have the capacity both to do their own analysis and to use US or EC assistance without becoming dependent on it.  In the EU Economic Partnership Agreement (EPA) negotiations with African and Pacific countries and perhaps in negotiations with the smaller Latin American countries and regions, it is less certain that all needs were met and conflicts avoided.

The risk that third countries would be affected by the trade policy changes of others was a driving force behind the WTO AfT initiative. Yet there appears to be no initiatives specifically targeted at the potential adjustment problems faced by developing countries following the entry into force of Free Trade Agreements (FTAs) among their trading partners or competitors or following the granting of preferences to third parties.

Finally, there is some donor support for trade-related environmental negotiations, but this is at a more preliminary stage than trade negotiation support.  Trade capacity building will need to assist countries to meet new regulations, to diversify into new less carbon-intensive production, and to adjust to trade restrictions.

Summarizing the gaps and problems in trade capacity building

  • There is too little assistance to understand and to meet donor countries' own trading rules, including preferences, FTAs (both those of which a developing country is itself a member and those of which it is not), and standards.
  • There are too few projects in manufactures and services.
  • There is much support for negotiations whose effects are likely to be small, but too little for new issues or for adapting to negotiations by others.
  • For a foreign government to attempt to influence a developing country government on which negotiations to prioritise or what to negotiate implies that it believes that its status as a donor gives it legitimacy to influence recipient governments' policy processes equivalent to that of national interest groups.  In contrast, it is notable that many developed countries restrict foreign lobbying.

Options for reform

Channelling support through multilateral or regional agencies is one way of reducing the problems of poor choice of priorities and lack of legitimacy. This has not, however, led to a suitable division of responsibilities. Multilateral donors have not  taken over those activities where there is most risk of conflict of interest.

If bilateral aid agencies consider that policy is a legitimate area for them to influence, then they should do this more effectively. If donors sought changes in their own countries' policies, they would produce larger effects and avoid legitimacy problems.  These changes could include:

  • Liberalising rules of origin in FTAs and preferences.
  • Ending neglect of services in preferences and in capacity building.
  • Simplifying and making more transparent countries' own standards.
  • Removing tariffs and other policies constraining trade, e.g. in agriculture.

Multilateral and regional agencies could also focus their advice on their largest, developed, members where policy changes would have the largest effects.

Author: Sheila Page is Senior Research Associate with the Overseas Development Institute (ODI). This article is based on a paper ‘Better Regulations and Better Negotiations as Tools for Trade' presented at an OECD Experts Workshop on Aid for Trade Implementation, 29  March 2011.

1  http://www.unido.org/index.php?id=o86537

2 The US has programmes to offer advice on how to meet the official rules for AGOA  and contacts with potential importers.

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