Development Co-operation Directorate (DCD-DAC)

Aid for Trade: Maintaining momentum

 

Remarks by Angel Gurría, OECD Secretary-General, for the launch of the second Global review on Aid for Trade


Geneva, 6 July 2009


Ladies and Gentlemen,

It is my great pleasure to present the second joint second joint OECD/WTO monitoring report on Aid for Trade.

The publication is opened by a proverb: “The best time to plant a tree is twenty years ago; the second best time is now”.

This is appropriate, as a tree - especially a fruit bearing one - is a fitting metaphor for the benefits that countries can reap from outward looking growth strategies.

We all know that the relationships between international trade, sustainable economic growth and poverty reduction are complex. Nevertheless, evidence strongly suggests that openness is fundamental to growth and we have a number of examples of countries that have been very successful in integrating into the world economy. In fact, no country has achieved sustainable growth in the long run without the expansion of trade flows.

But this is easier said than done. Low-income countries often lack the basic capacity – be it in terms of policies, institutions or infrastructure – to exploit the opportunities that more open markets present and to trade out of poverty. The goal of the Aid-for-Trade Initiative is to help them develop this capacity.

This is more important than ever in the current context as developing countries have been hit hard by the crisis. Trade volume is declining. Commodity prices have dropped, trade finance dried up and remittances declined. Any effort to bring the world back to shape has to include a major element of transfer to developing countries. Aid for Trade is a clear example of these short term measures with long term impact. It is the classic double dividend that we have been promoting as a good practice to get us out of the crisis.


The Picture Is Positive

The Aid-for-Trade Initiative is a success. Since its inception in 2005, partner countries have increasingly prioritised trade in their development strategies and donors have responded with aid to help them overcome their supply-side constraints.


OECD and WTO have been working together closely to monitor how this is taking shape. Allow me to highlight some of the key findings from this joint monitoring exercise.

 

Aid for trade is growing

Between 2005 and 2007, aid-for-trade flows have grown by more than 20% in real terms. Total new concessional commitments which qualify as aid for trade reached more than USD 25 billion in 2007. Funding for global and regional programmes, which was identified as an area requiring special attention, has more than doubled since 2005. Preliminary data for 2008 shows a continued increase of aid for trade flows. We are updting the data, so it is difficult to say whether flows remain strong in 2009 in the context of the crisis.


On top of that, non-concessional lending from multilateral and regional organisations has added a further USD 27 billion in trade-related financing. Thus, in 2007 more than USD 52 billion was committed to tackle supply-side constrains in developing countries. Even more important is that we have seen surprisingly high disbursement rates on aid-for-trade projects and programmes.


Partner countries are more engaged

Partner countries are increasingly taking ownership of the Aid-for-Trade Initiative; almost 90 participated in this monitoring exercise, compared to only 7 two years ago. A majority of these countries assess that they are mainstreaming trade in their development strategies. These efforts should continue. In the context of the economic crisis, and given the competing claims on limited donor resources, this increased engagement by partner countries will help secure continued funding for their aid-for-trade priorities.


Donors are responding

The mirror image of this engagement by partner countries is that “Aid-for-Trade” is also assuming growing importance in donor programmes. Donors are increasing aid-for-trade resources, bolstering in-house expertise and raising awareness among policy-makers and practitioners at home and in the field. Most have met their 2005 Hong Kong aid-for-trade pledges. And, despite the economic crisis, donors have pledged and delivered on their commitments to sustain aid flows. Indeed, they have noted that the current crisis reinforces the rationale for aid for trade. So far, funding for social programmes, such as health and education, seems to be holding well. This interest of donors is also evidenced by the participation of 57 bilateral and multilateral donors in our survey, compared to 43 the first time.


Aid for Trade is working

In short, the second monitoring exercise has put a spotlight on a number of positive developments. Existing coordination and delivery mechanisms have resulted in more and better aid for trade, i.e. aid that is predictable and sustainable, based on partner priorities, aligned around their systems and with more harmonisation among donors, including those from the South.


Enhanced accountability has been the deciding factor. This validates the WTO Task Force recommendation that the Paris Declaration on Aid Effectiveness should guide the Initiative.
And better still: donors indicate that they expect their aid-for-trade allocations to continue to grow over the medium term. For that to happen, we should continue to build on the progress made. This will depend, critically, on:


I. Linking aid for trade to the wider development agenda, and
II. Broadening and deepening the aid-for-trade dialogue.


The Wider Development Agenda

The world has changed a lot since I last addressed this forum in November 2007. Back then, trade was booming, commodity prices were high, growth was robust and development financing was plentiful. Today, we are in the midst of a global recession which is affecting poorer countries hard. These countries need help. 


In May, members of the OECD Development Assistance Committee – which group the world’s major donor countries - promised to honor aid pledges, to deliver aid effectively and to strengthen accountability. They also committed to ensure that aid complements other forms of development finance.


Their Action Plan links the crisis response to long-term global objectives, making it part of a wider strategy to make the world a stronger, cleaner and fairer place. This includes focusing on issues such as climate change and poverty reduction.


Aid for trade can play a big role in supporting those development goals we all share. It can provide immediate economic stimulus, creating opportunities for local employment. But beyond that, aid for trade can also help developing countries build capacities that in turn can contribute to a healthier environment and to fighting poverty.


The Need for Dialogue

Linking aid for trade to this, more inclusive, global development agenda also requires broadening and deepening the policy dialogue.


We need to engage parliaments, citizens, civil society and the private sector.  

We also need to identify the nature and extent of supply-side constraints on a regional, country and case-by-case basis. Once this is done, we need to show how aid for trade can address these obstacles, working with and adding value to private sector initiatives.

The aid-for-trade country factsheets contained in this joint OECD/WTO publication are a first effort to reinforce – at the country-by-country level - the links between the ‘demand’, the ‘response’, the outcomes and the impact of aid-for-trade projects and programmes. The value of these country factsheets lies in creating incentives - through enhanced transparency and accountability - to improve the synergies between aid for trade and a broader development agenda. This, in turn, we hope, will encourage more and better aid for trade.

Ladies and Gentlemen,

We believe that this initiative can make a real contribution to our common objective of a more inclusive and environmentally sustainable world economy.

The OECD will continue to work closely with the WTO to monitor aid for trade. We will collect and synthesize good practices that will help us focus aid for trade on delivering results. We will also design a common evaluation framework to assess aid-for-trade outcomes and impacts in terms of trade capacities, poverty reduction and environmental sustainability.

Ladies and Gentlemen,


I started my speech by saying that: “The second best time to plant a tree is now!” But let us not forget to pick the low-hanging fruit of the tree we planted in 2001; let us maintain momentum and finish what we started in Doha. Let us wrap up the Development Agenda and, through increased trade, help millions of people get out of poverty.

Thank you .

 

 

 

Countries list

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