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AID FOR TRADE AID FOR TRADE Why, what and how?

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Page 1: AID FOR TRADE Why, what and how?. 2 Why Aid for Trade?

AID FOR TRADEAID FOR TRADE

Why, what and how?

Page 2: AID FOR TRADE Why, what and how?. 2 Why Aid for Trade?

2

Why Aid for Trade?Why Aid for Trade?

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Trade can be an engine for growth that lifts millions of people out of poverty

But many developing countries face barriersbarriers that prevent them from benefiting from the world trading system

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Some of these barriers are in export marketsexport markets which the Doha Round of multilateral trade negotiations aims to reduce or eliminate. These include non-tariff barriers – which are increasing in significance – as well as traditional tariff barriers.

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But internal barriers – lack of knowledge, excessive red tape, inadequate financing, poor infrastructure – can be just as difficult for exporters to overcome

Targetting these “supply-side” constraints is what

Aid for Trade is all about

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Aid for Trade is part of overall development aid, but with the specific objective of helping developing countries, in particular the least developed, to play an active role in the global trading system and to use trade as an instrument for growth and poverty alleviation.

It is not a substitute for trade opening, but a necessary and increasingly important complement

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Increased trade, competitiveness

and growth

Aid for Trade

trade reformentrepreneurship

private investment

trade-relatedcapacity andinfrastructure

catalyst

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There are There are fourfour main areas where main areas where Aid for Trade is needed Aid for Trade is needed

Trade policy and regulationBuilding capacity to formulate trade policy, participate in negotiations and implement agreements

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There are There are fourfour main areas where main areas where Aid for Trade is neededAid for Trade is needed

Economic infrastructure Investing in the infrastructure – roads, ports, telecommunications,

energy networks – needed to link products to global markets In Sub-Saharan Africa, alone, annual infrastructure needs are

$17-22 billion a year, while spending is about $10 billion

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There are There are fourfour main areas where main areas where Aid for Trade is neededAid for Trade is needed

Productive capacity buildingStrengthening economic sectors – from improved testing laboratories to better supply chains – to increase competitiveness in export markets

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There are There are fourfour main areas where main areas where Aid for Trade is neededAid for Trade is needed

Adjustment assistanceHelping with any transition costs from liberalization – preference erosion, loss of fiscal revenue, or declining terms of trade

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Three export stories and how Three export stories and how

Aid for Trade can make a differenceAid for Trade can make a difference

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Dairy products from the Kyrgyz Dairy products from the Kyrgyz RepublicRepublic Facing significant supply-side constraints: Facing significant supply-side constraints:

The Kyrgyz Republic could be a successful exporter of dairy products

But there has been a 14% drop in production in recent years

The most serious supply-side constraints include: Lack of appropriate standards and testing services (i.e.

SPS-control and breed selection) Lack of cold storage and transportation facilities Lack of infrastructure for milk distribution Lack of interstate co-operation

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Cut flowers from KenyaCut flowers from Kenya

Making progress, but problems remain: Making progress, but problems remain: The cut flower sector has seen a growth rate of 35%

annually over the last 15 years, partly because of investments in Aid for Trade, such as:

New cold storage and transportation facilities Improved cargo facilities at Nairobi’s airport More efficient air transportation and increased frequency of

flights Technology transfers

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Cut flowers from KenyaCut flowers from Kenya

But flower exporters still face major obstacles, including Inability to meet certain international standards (e.g.,

maximum pesticide residue) Deteriorating road and rail networks Backsliding on the competitiveness of air freight

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Mangoes from MaliMangoes from Mali Transformation of mango export sector by Transformation of mango export sector by

making key investments in Aid for Trade:making key investments in Aid for Trade: Formed innovative business partnerships Improved testing facilities and met international

standards Increased cold storage facilities (reducing post-

harvest loss) Built a new transport corridor (reducing shipping time

from 25 to 12 days)

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0

500

1000

1500

2000

2500

3000

3500

4000

2000 2001 2002 2003 2004 2005 2006

By Sea

By Air

Total

Metric Tons

0

500

1000

1500

2000

2500

3000

3500

4000

2000 2001 2002 2003 2004 2005 2006

By Sea

By Air

Total

Metric Tons

Average annual growth rate of almost 30% from 2000-2006

Mangoes from MaliMangoes from Mali Total exports of mangoes from Mali are Total exports of mangoes from Mali are steadily increasingsteadily increasing

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Similar challenges exist across many Similar challenges exist across many developing countries and regionsdeveloping countries and regions In the Andean

Community, trucks spend more than half of the total journey time at border crossings

Transport costs for trade within Africa are more than twice as high as those within South East Asia

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Power generation costs in Burkina Faso are more than four times the costs in neighbouring Côte d’Ivoire – and ten times the cost in France

Power outages in Malawi average 30 days per year – causing product damage and delays in production and packaging that add 25% to costs

Similar challenges exist across many Similar challenges exist across many developing countries and regionsdeveloping countries and regions

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116 days to move a container from the factory in Bangui in the Central African Republic to the nearest port

Same transaction takes five days from Copenhagen

Similar challenges exist across many Similar challenges exist across many developing countries and regionsdeveloping countries and regions

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Similar challenges exist across many Similar challenges exist across many developing countries and regionsdeveloping countries and regions

Most direct flight between Chad and Niger is via France – over 4,000 km

Only one flight a week from Bangui in the Central African Republic to Europe

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The result? A huge missed opportunityThe result? A huge missed opportunity

For example, if Africa enjoyed the same share of world exports today as it did in 1980, exports would be $119 billion higher – equivalent to about five times current aid flows

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What is happening?What is happening?

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Share of Trade Related ODA in Overall Share of Trade Related ODA in Overall Development AidDevelopment Aid

Baseline 2002-2005 average

33%

26%

41%

Trade policy & regulations

Economic infrastructure

Productive capacity

GBS

Non-sector allocable

Debt relief

Multi-sector initiatives

Emergency aid

Administrative cost

Social & Administrative Infrastructure

Education

Health

Governance

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Overall distribution of trade related Overall distribution of trade related ODA by program and project ODA by program and project

0

5

10

15

20

25

30

35

2001 2002 2003 2004 2005

Trade related structural adjustment Productive capacity buildingInfrastructure Trade policy & regulations

Source: OECD

US$ million (2004 constant prices and exchange rates)

Baseline 2002-2005 average

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Total trade related aid by donorTotal trade related aid by donor(baseline 2002-2005 average)

US$ million

0 1000 2000 3000 4000 5000 6000

AustriaPortugal

IrelandFinland

IFADAustraliaBelgium

ItalySwitzerland

IDBNorwayCanada

SwedenSpain

DenmarkAfDBADB

NetherlandsFrance

GermanyUnited Kingdom

ECUnited StatesWorld Bank

Japan

Source: OECD

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Trade related aid as share of donor’s sector Trade related aid as share of donor’s sector allocable ODAallocable ODA

(baseline 2002-2005 average)

Per centSource: OECD

0 10 20 30 40 50 60 70

Australia

Ireland

Austria

Sweden

Portugal

Norway

Canada

Finland

Belgium

United States

Germany

Netherlands

Spain

Switzerland

France

United Kingdom

IFAD

Denmark

Italy

EC

ADB

AfDB

IDB

World Bank

Japan

Global baseline(2002-2005)

Average (39.9%)

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Overall distribution Overall distribution oof f trade related ODA by regiontrade related ODA by region

9 095

2371 551

2 494

4 232

2 205

Africa

Oceania

South and Central America

South and Central Asia

Far East AsiaEurope

Source: OECD

US$ million

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Trade policy and regulationsTrade policy and regulations

0

400

800

1200

1600

2000

2400

2001 2002 2003 2004 2005

European countriesin transition

Regional/multi-country

UMICS

LMICs

OLICs

LDCs

US$ million

Source: OECD

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Trade policy and regulations by donorTrade policy and regulations by donorUS$ million

Sweden10 Australia

10

Wordbank (IDA)

53

United Kingdom

29

Canada26

Japan35

United States

180

EC421

Source: OECD

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Trade policy and regulations by region Trade policy and regulations by region

Africa

Oceania

South and Central America

South and Central Asia

Far East Asia

Europe

US$ million

131

355

156 3284

3

Source: OECD

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Economic infrastructureEconomic infrastructure

Source: OECD

0

3000

6000

9000

12000

15000

2001 2002 2003 2004 2005

European countriesin transition

Regional/multi-country

UMICs

LMICs

OLICs

LDCs

US$ million

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Economic Infrastructure by donorEconomic Infrastructure by donor

Sweden95

Australia47 Canada

34Germany

516

France326

Worldbank (IDA)1725

United States1574

EC1238 Japan

3870

US$ million

Source: OECD

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Economic Infrastructure by regionEconomic Infrastructure by region

Africa

Oceania

South and Central America

South and Central Asia

Far East Asia

Europe

US$ million

521

3 703

1 468

2 515

2 388 89

Source: OECD

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Productive capacity buildingProductive capacity buildingUS$ million

Source: OECD

0

2000

4000

6000

8000

10000

2001 2002 2003 2004 2005

regional/multi-country

UMICs

LMICs

OLICs

LDCs

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Productive capacity building by donorProductive capacity building by donor

Sweden101

Australia88

Canada204

United Kingdom

375

Germany601

Japan995

United States1574

EC954

Worldbank (IDA)1467

US$ million

Source: OECD

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Productive capacity building by regionProductive capacity building by region

Africa

Oceania

South and Central America

South and Central Asia

Far East Asia

Europe

US$ million

786

2 666

1 327

560

2 213

108

Source: OECD

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Structural adjustmentStructural adjustmentUS$ million

Source: OECD

0

1000

2000

3000

4000

5000

6000

7000

2001 2002 2003 2004 2005

regional/multi-country

UMICs

LMICs

OLICs

LDCs

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Structural adjustment by donorStructural adjustment by donor

Canada44

Sweden103

Australia12

Japan213

Netherlands244

United Kingdom

590

United States670

Worldbank (IDA)1758

EC921

US$ million

Source: OECD

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Structural adjustment by regionStructural adjustment by region

Africa

Oceania

South and Central America

South and Central Asia

Far East Asia

Europe

US$ million

113

2 371

306

21

247

37

Source: OECD

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ODA is forecast to increase substantially ODA is forecast to increase substantially after 2008 – if donors follow through on after 2008 – if donors follow through on

Gleneagles and Hong Kong commitmentsGleneagles and Hong Kong commitments

Source: OECD

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0

30

60

90

120

150

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

OD

A (

2004

US

D b

illio

n)

0

30

60

90

120

150

OD

A (

2004

US

D b

illio

n)

0

30

60

90

120

150

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

OD

A (

2004

US

D b

illio

n)

0

30

60

90

120

150

OD

A (

2004

US

D b

illio

n)

DAC members’ net ODA 1994 – 2005 and DAC Secretariat simulation of net

ODA 2006 – 2010

AFT: Doubling 2004 Volume

AFT: Stable Relative Share

Broad Aid for Trade (AFT)

Source: OECD

This should be reflected in a scaling This should be reflected in a scaling up of the broad Aid for Trade Agendaup of the broad Aid for Trade Agenda

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How should Aid for Trade How should Aid for Trade work? work?

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On the On the “supply side”“supply side”, donors need to:, donors need to:

Provide additional funding Aid for Trade should not divert resources away

from other development priorities, such as health and education

Scale up trade expertise and capacity Trade and growth issues need to be better

integrated in donors’ aid programming Trade expertise needs to be strengthened - both

in capitals and in-country

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On theOn the “demand side” “demand side”,, recipient recipient countriescountries need to:need to:

Make trade a priority Trade needs to be a bigger part of national

development strategies. Aid for Trade will only work if countries decide that trade is a priority

Take ownership Countries need to determine their own Aid for

Trade plans, involving all stakeholders Focus on results-oriented “business plans”

Aid for Trade is an investment, not just a transfer. The question is not only how much Aid for Trade is available, but whether it is effective and actually benefits developing countries

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ToTo bridge “supply” and “demand” bridge “supply” and “demand”,, both both donors and recipients need to:donors and recipients need to:

Improve cooperation The challenge of Aid for Trade is to marshal the

efforts of many – and to create the right incentives so that recipients and donors work together more effectively

Involve the private sector It is businesses, not governments, that trade Financial resources flowing from increased private

investment and trade easily dwarf government aid

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Improve transparency and accountability Best way to ensure that pledges are honoured,

needs are met, and financial assistance is used effectively, is to shine a brighter spotlight on Aid for shine a brighter spotlight on Aid for TradeTrade

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WTO is not a development agency – and should not become one. Its core function is trade opening, rule making, and dispute settlement

But the WTO does have a role – and a responsibility – to ensure that relevant agencies and organizations understand the trade needs of WTO Members and work together more effectively to address them

A role for the WTO: A role for the WTO: monitoring and evaluationmonitoring and evaluation

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A role for the WTO: mobilizing, A role for the WTO: mobilizing, monitoring and evaluating aid for trademonitoring and evaluating aid for trade The WTO is well placed to play this role

Direct interest in ensuring that all its members benefit from trade and WTO agreements

Multilateral, consensus-based organization where developing and developed countries have equal weight

Institutional experience in reviewing complex policy areas through Trade Policy Review Mechanism

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Monitoring and evaluation Monitoring and evaluation in the WTO on three levels:in the WTO on three levels:

Global level Global level – using data compiled by the OECD-DACTo assess whether additional resources are being delivered, to identify where gaps lie, to highlight where improvements should be made, to increase transparency on pledges and disbursements

Donor level Donor level – based on self evaluations– based on self evaluations To share best practices across countries, to identify areas for improvement and to increase transparency on pledges and commitments

Country and regional levelCountry and regional level – based on self assessments – based on self assessmentsTo provide a focused, on-the-ground perspective on whether needs are being met, resources are being provided, and Aid for Trade is effective

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Proposed Architecture of the Monitoring Proposed Architecture of the Monitoring FrameworkFramework

Measuring Aid for Trade

Monitoring the delivery and effectiveness of Aid for Trade

1st tier: Global Monitoring of 1st tier: Global Monitoring of Trade-related Aid FlowsTrade-related Aid Flows

22ndnd tier: Donors’ self-assessment tier: Donors’ self-assessment reports reports

3rd tier: In-country assessments3rd tier: In-country assessments

ANNUAL REVIEWANNUAL REVIEW

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Spotlight EffectSpotlight EffectAwareness - Information - Incentives

WTO Monitoring

& Evaluation

Demand SideLDCs

Developing countriesRegional Groups

Supply SideDonors, WB, IMF, OECD,

RDBs, UNCTAD,UNDP, UNIDO, ITC

Private SectorProducers

ManufacturersServices

Multinationals

Prioritize trade

Increase resources

Improve delivery

Prioritize trade

Take ownership

Implement effectively

Progress

Feedback

Progr

ess

Feed

back

Feedback

Progress

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With one objective....With one objective....

Ensuring that developing countries can harness trade to raise living standard, improve health and education, protect the environment, alleviate poverty, and secure their development