5. Aid for Trade Review: New Donor Pledges and Grey Areas

7 September 2009

At the Second Global Review of Aid for Trade, held in July in Geneva, WTO Director-General Pascal Lamy stressed that "if Aid for Trade was urgent in 2007, it is essential today." Indeed, the current global economic crisis is further constricting the development prospects of low-income countries.

The OECD forecasts that world real GDP growth will fall by 2.75 percent this year. Moreover, the WTO projects that the volume of world trade will decrease by as much as 9 percent given the collapse in global demand and shortages of trade finance.

New Pledges

In this context, the Aid for Trade Review was set to ‘maintain momentum'. The OECD/WTO Aid-for-Trade at a Glance 2009 report states that "total new commitments from bilateral and multilateral donors in 2007 stood at US$25.4 billion, while non-concessional lending provided an extra US$273 billion in trade-related financing." According to these institutions, "the increase of US$4.3 billion in aid for trade was not at the cost of social sector programmes such as health and education."

Moreover, during the review several donors made public a number of new pledges. For instance, the United Kingdom promised US$1.6 billion over the next three years, Japan pledged US$12 billion for the period 2009-2011, France committed to giving nearly US$1.2 million per year, and the Netherlands promised an annual contribution of US$764 million. Additionally, the Global Trade Liquidity Programme (GTLP) - a new partnership among an eclectic group of actors including the African Development Bank, the governments of Canada and the Netherlands, the OPEC Fund for International Development and Citigroup - pledged to raise US$50 billion. GTLP funds are to be disbursed through a network of more than 500 banks in over 70 developing countries. Likewise, representatives from Argentina, Brazil, Chile, China and India discussed the types of Aid for Trade assistance they provide and highlighted possible triangular strategies, in which emerging and developed economies could team up as donors.

Asia is the main recipient of Aid for Trade (US$10.7 billion) with India, Vietnam, Afghanistan and Iraq receiving large sums. Africa is the second recipient (US$9.5 billion), followed by Latin America (US$2 billion) and Oceania (0.3 billion).

Stronger Focus on Regional Infrastructure

Up to now, Aid for Trade funds have been mainly directed towards infrastructure development. According to the OECD and the WTO, "reliable and efficient infrastructure is essential for economic growth." In light of this, three major infrastructure projects are taking place at the regional level, including the joint COMESA-EAC-SADC North-South Corridor Pilot Project, which will link the copperbelt region to South African ports. The two other large-scale projects are the Mesoamerican Integration Corridor, which includes the rehabilitation of roads, energy projects, etc. from Southern Mexico to Colombia, and the Phnom Penh-Ho Chi Minh City Highway, which will link Thailand, Cambodia, and Vietnam.

However, questions have arisen regarding the ‘novelty' of regional infrastructure programmes - the spearhead pilot projects of Aid for Trade. Some argue that these programmes have in fact been on the agenda of regional development banks for many years, but due to lack of donor interest and commitment had taken the ‘back seat'. In light of Aid for Trade discussions, however, the projects have re-emerged under different names. The Mesoamerican Integration Corridor was originally launched in 2001 by Former Mexican President, Vicente Fox, under the name of the Plan Puebla Panamá (PPP). The PPP also sought to facilitate trade and foster regional integration between Southern Mexico and Central America through road construction, energy, and trade facilitation projects.

The Aid for Trade at a Glance report recognises that implementing regional Aid for Trade can be a challenge. Donors complain of a lack of clearly articulated demands, as well as a lack of coherence between regional and national priorities, and insufficient co-ordination at the regional level - both within regions and between donors and partner countries. It has been suggested that the situation could be improved through strengthening regional economic commissions. This would not solve problems related to overlapping organisations, however. In Sub-Saharan Africa, for instance, just seven countries belong to only one regional integration arrangement. The other 40 states are party to two or three commissions, while the Democratic Republic of Congo belongs to four.

Re-labelling Old Aid as Aid for Trade?

Critics stress there are still a number of grey areas in the conceptualisation, implementation and monitoring of Aid for Trade, which need to be discussed and clarified, including how much of the assistance offered is just a repackaging of old commitments. They also note that new pledges and commitments are not enough since many are never disbursed. Requirements for the release of some donor contributions can be burdensome, resulting in very low disbursement of Aid for Trade funds.

Moreover, according to Aldo Caliari, Director of Rethinking the Bretton Woods Project at the Center of Concern, the vast scope of possible Aid for Trade activities makes monitoring the accounting practices of OECD donors extremely difficult: "What is to be counted as Aid for Trade? For example, infrastructure for updating hospital standards that can also be used for exporting health services as a trade-related expense? What about funding for building a road that will be used for domestic purposes as well as for facilitating trade? And education that improves the skills of population and makes for a more investment-competitive workforce? There is a risk that aid already committed for several purposes, or that was to be provided anyway, might easily be repackaged as Aid for Trade. Achieving more specificity on the scope of Aid for Trade could help resolve this."

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