Opening remarks by Angel Gurría, OECD Secretary-General, delivered at the Policy Dialogue on Aid for Trade 2013.
Paris, 16 January 2013
Honourable Ministers, Excellencies, dear Karl, dear Pascal, distinguished participants:
It is my great pleasure to welcome you to the OECD Policy Dialogue on Aid for Trade, organised in co-operation with Sweden and the Overseas Development Institute, and with the support of the European Commission.
During the past few years both the global economy and world trade growth have slowed considerably; unemployment has remained stubbornly high, inequalities have continued to rise almost everywhere, and government debts have reached unsustainable levels in many countries. It is hard to resist creeping protectionism in this gloomy context, yet it is more important than ever to avoid it.
The WTO Doha Development Agenda is at an impasse, and many governments are shifting attention from the multilateral trading system to regional trade arrangements. This is a signal that we need to generate a new momentum for the promotion of trade as a source of employment and growth.
Pursuing an inclusive globalisation — one that can combine economic dynamism with social equity in a sustainable way for the populations of both the advanced and the developing world — should remain our main objective.
This is in a nutshell what the Aid for Trade Initiative is trying to achieve: to help least developing countries build their supply-side capacity and trade-related infrastructure so that they can further reap the benefits of trade.
Exporting and importing brings prosperity for all countries. However, whilst history has demonstrated that trade can be a powerful engine for economic growth in many developing countries, we have to recognise that harnessing the power of trade has been particularly challenging for the least developed economies.
This is why initiatives like Aid for Trade are so important!
Aid for Trade has helped many developing countries make the most of trade’s benefits. It has become an integral part of the development agenda: it now includes countries such as Brazil, China, and India that are active providers of South-South co-operation. The private sector is also a jumping in, by helping low-income countries’ comply with health and safety standards. The Aid for Trade Initiative is an excellent example of what we are trying to achieve more broadly with the Global Partnership for Effective Development Co-operation.
The results of the OECD and the WTO’s comprehensive monitoring framework for Aid for Trade highlights the renewed recognition among the development community of the importance of trade in promoting economic growth and poverty reduction.
1. Since launching the Initiative in 2005, Aid for Trade resources have grown by more than 80% and reached approximately $45 billion in 2010, with a third of that share going to Least Developed Countries (LDCs). These funds are an additional contribution: they do not come at the expense of other sectors, such as health or education.
2. These funds are making a difference: - Aid for Trade initiative is delivering tangible results. Together with the WTO, we have analysed 275 case studies that were provided in the context of the last global review. The benefits reported range from increased trade, closer regional integration, mobilised foreign and domestic investment, to expanded employment, and gender empowerment. For instance:
This comprehensive monitoring provides full transparency and mutual accountability, and is facilitating a meaningful dialogue to share knowledge about successes and failures. It is also allowing us to develop best practice. This is very much in line with the objectives of the OECD Strategy on Development.
Despite these undeniable achievements, more remains to be done to help low-income countries maximise the development benefits from trade opportunities. For instance, we need to better prioritise regional Aid for Trade projects in national strategies. Although regional Aid-for-Trade commitments have tripled since the start of the Initiative to USD 6.5 billion, an even larger share should be devoted to regional priorities. Regional programmes often have a much larger impact in overcoming the constraints of small domestic markets, especially of those in land-locked countries.
Perhaps more fundamental, we have to acknowledge that the Initiative is now operating in a changing landscape of international trade and investment. Regional and global value chains – we call them GVCs - have become a dominant feature of the world economy. From raw materials to finished products, the production of goods is increasingly carried out where the necessary skills and materials are available at competitive cost and quality. This growing fragmentation of the production process across borders and the resulting growth in trade of intermediate goods highlight that success in international trade today depends as much on the capacity to import quickly and cheaply as on the capacity to export.
This emergence of GVCs has important implications for developing countries.
On the one hand, it presents new opportunities for those developing countries that can reduce the “thickness” of their borders. By reducing the costs of importing as well as exporting, and by deepening connectivity with the global market, developing countries can tap into GVCs to accelerate their trade and income growth. In Africa, for instance, reducing inland transit time by one day would increase exports by 7%. On the other hand, the emergence of GVCs poses some risks. Countries without adequate infrastructure or with trade related policy barriers to integration may be left behind.
Of course, we know that these policies are necessary, but they are not enough to help low income countries link to value chains. So how can Aid for Trade put its best foot forward?
Aid for Trade investments cannot realise their full economic and social rates of return unless surrounding policies are put in place to ensure efficient delivery and use. Modern ports cannot realise their potential for lowering costs without efficient customs officials. Investments in advance training of a workforce cannot pay dividends without access to needed technology. And an otherwise open foreign investment regime will not attract private capital without reliable public institutions and well defined property rights. Aid funding, national expenditures and public policies, as well as private investment, increasingly need to be examined in an integrated way.
While infrastructure often attracts the largest amounts of Aid for Trade, significant trade expansion could be achieved by easing constraints to governance and other complementary policies, like education, training and innovation. In agriculture, for instance, which is known to have a disproportionate effect on poverty, we found out that a 10% improvement in secondary education enrolment would generate a 7.2% increase in agricultural trade value.
Honourable Ministers, Excellencies, distinguished participants,
In the current environment of anaemic growth, we need to reinvigorate efforts to keep markets open. We are in particularly dire need for vigorous and concerted efforts to reach a multilateral trade agreement. We also need to rethink the role of trade, the tools of trade policies and their interactions with aid.
Making faster progress towards the implementation of the Paris Declaration Principles is part of this process. Our last OECD Development Co-operation Report highlighted that the share of untied aid in total ODA has stopped falling: after reaching a peak at 87% in 2008, it has declined to 84% in 2010. Evidence has shown that offering aid on the condition that it be used to procure goods or services from a specific country or region can increase the costs of a development project by as much as 15-30%. In the same vein, urging developing country farmers to export to world markets while limiting their access to these markets clearly makes no sense. This issue figures prominently in the OECD’s agenda on Policy Coherence for Development (PCD).
Our key concern should be to ensure that all countries capture the benefits from globalisation and that Aid for Trade can continue to contribute to “better policies for better lives for people in developing countries”. Aid for Trade is not just about building roads and bridges, it is about connecting local firms to value chains, fostering innovation, especially in SMEs, ensuring an attractive and transparent regulatory environment, and upgrading the skills of workers.
I am looking forward to the outcome of your dialogue which should help to ensure that Pascal’s Aid for Trade legacy will continue as a decisive force for a more inclusive trade system when he leaves office later this year.
Thank you very much