Promoting effective aid for trade

OECD work on aid for trade tracks flows and shares good practice so that developing countries can capitalise on the opportunities of international trade.

What is aid for trade?

OECD’s work in trade supports a strong, rules-based multilateral trading system to maintain the momentum for further trade liberalisation while contributing to sustainable development. It strengthens trade policy dialogue with developing and emerging economies, increases the understanding of the effects of trade liberalisation, and promotes mutually beneficial integration of these economies into the multilateral trading system.

However, simply opening the economy to international trade is not enough. The benefits of a liberalised trade regime will only be realised in an economy with efficient infrastructure linking local producers to domestic, regional and global markets and a regulatory environment that encourages a vibrant private sector. Developing countries, particularly the least developed, require help in building their trade-related capacity – in terms of information, policies, procedures, institutions and infrastructure – to integrate and compete effectively in global markets. Moreover, trade reform and liberalisation has not always delivered the expected benefits in terms of trade expansion, growth and poverty reduction. The impacts of trade reform and expansion on the poor are particularly context-specific, according to consumption patterns of the poor, and to whether trade-induced growth occurs in areas and sectors where poor women and men live and are economically active.

Against this backdrop the international community has agreed to expand and improve aid for trade to help low-income countries overcome the barriers that constrain their ability to benefit from trade expansion, as well as to promote a stronger impact of trade on economic growth and poverty reduction. The global Aid-for-Trade Initiative interlocks aid and trade policies in pursuit of raising living standards and reducing poverty. It seeks to complement trade reforms and promote more equitable distribution of global benefits across and within developing countries. It has been designed to help ensure that the benefits of trade policies do materialise, particularly when trade policy reforms on their own are insufficient to deliver the expected benefits from trade expansion.

Aid for trade – as is the case in any development cooperation programme that cuts across various sectors – involves complex relationships among recipient country governments, bilateral donors, multilateral and regional agencies, the private sector and other non-governmental organisations. The Aid-for-Trade Initiative is not only about how much aid is available, but also whether it is effective and benefiting the recipients by delivering trade and development results. In effect, the Aid-for-Trade Initiative has become an integral part of the broader development agenda.

To assess progress towards the desired objectives of the Aid-for-Trade Initiative, the OECD and WTO have jointly developed a monitoring and evaluation framework that helps create incentives – through greater transparency, strengthened scrutiny and dialogue - for more and better aid for trade. And it has achieved a lot in a short space of time. The Third Global Review of Aid for Trade, held on 18 and 19 July 2011, yielded a strong narrative about the Aid-for-Trade Initiative’s impact on the ground. The 2011 monitoring exercise associated with this review generated a vast amount of unique information through 269 case stories and more than 140 self-assessments submitted by partner countries, bilateral and multilateral donors and providers of South-South co-operation and regional economic communities. Together, these stories provide a rich and varied source of information on the results of aid-for-trade activities on the ground – an indication of the progress the Aid-for-Trade Initiative has achieved.

Nonetheless, the results achieved to date must also be tempered by the scale of the task which still remains, and recognition of the challenges which continue to exist in the way that aid for trade is delivered and its results reported. The world has also changed since the Aid-for-Trade Initiative was launched in 2005. In particular, there have been three sea changes in the global landscape of development assistance. The first, although not new, involves a surge of new actors, including providers of South-South co-operation and the private sector, complementing traditional aid resources for developing countries. The second, a more recent development, is a tightening fiscal environment, possibly resulting in lower ODA levels in OECD countries. The third is the increased desire for responsive, transparent and accountable government among populations in developing countries. These changes have led to a greater focus on transparency and accountability for the use of development resources, and on showing results in terms of building trade capacity and achieving development objectives.

Showing impact and results is central to the Aid-for-Trade Initiative. In a less favourable environment for continued growth of development assistance, this need is particularly pressing. It is imperative to take steps to better measure results so as to show that progress is being made towards the short- and long-term goals of the Initiative. Aid needs to be managed to achieve trade and development results. There is much to gain from working together to develop aligned approaches to measure progress towards partner countries’ trade and development targets. Active knowledge-sharing should also be encouraged through strengthened in-country dialogue among stakeholders. In a nutshell, it is about strengthening accountability in Aid for Trade.

With this in mind, the OECD is working to address challenges in the following areas that are particularly pertinent to the effective delivery of aid for trade.

Resource mobilisation must remain at the core of the Aid-for-Trade Initiative and innovative thinking is needed to make the best use of the resources. This implies looking beyond traditional concessional funding and leveraging financing from the private sector.
Trade affects all sectors of the economy. The complexity of trade and its interdependence with a country’s overall development strategy makes mainstreaming trade in development policy essential.
Aid for trade is about generating investment for trade. The Initiative must continue to engage the private sector, both in terms of implementation of Aid for Trade on the ground and as a potential source of financing.
Intersections of trade with development need to be explored in areas such as intellectual property, services, standards and trade finance, as well as links with the broader sustainable development agenda, in particular food security, gender equality, green growth and energy.
The Paris principles on aid effectiveness need to be featured more centrally in aid for trade and they need to be adhered to in designing and implementing effective programmes and projects.

Why is the OECD involved?

The Development Assistance Committee (DAC) and the Trade and Agriculture Directorate are jointly helping to tackle the challenges of how to make poorer countries benefit further from trade through: i) enhancing donor co-ordination and alignment in the design, delivery and evaluation of aid for trade; ii) providing practical guidance to maximise aid effectiveness in that area; and iii) promoting greater coherence between aid and trade in donor and partner countries. In particular, the work covers the following three issues:

How much aid do donors already provide in support for trade?
How effective are these projects/programmes?
How can aid for trade help developing countries, particularly the least developed countries (LDCs), to fully benefit from trade liberalisation and WTO Agreements?

The aim of this work is to make aid for trade more effective by strengthening the integration of trade in development programmes, developing impartial and reliable tools to assess aid-for-trade programmes, and fostering dialogue and knowledge sharing between stakeholders.

Relevant documents

Reports

Strengthening Accountability in Aid for Trade (2011)

OECD/WTO Aid for Trade at a Glance 2011: Showing Results

Trade for Growth and Poverty Reduction: How Aid for Trade Can Help (2010)

Aid for Trade at a Glance 2009: Maintaining Momentum

This report presents the results of the second monitoring exercise of the Aid-for-Trade Initiative and documents its success so far. It examines trends and developments, and presents a comprehensive analysis of donor and partner country engagement. In addition, it addresses the regional dimension of aid for trade, showcasing three cross-border infrastructure projects, and provides country factsheets that help assess the outcomes and impacts of aid for trade.

Launching of the first joint OECD/WTO Aid for Trade at a Glance 2007

This report takes stock of the trends and developments in aid-for-trade flows between 2002 and 2005. It also sets out the OECD/WTO monitoring framework and provides an overview of a survey sent to donor and partner countries to collectinformation on their aid-for-trade strategies, pledges and delivery.

This report draws on the key findings and recommendations from available donor evaluation reports, assesses factors that have contributed to the success (or failure) of programmes, and provides guidance for enhancing the effectiveness and impact of future trade-related assistance as a complement to the Doha Development Agenda.

Aid for Trade: Making it Effective (2006)

This report contains the OECD's contribution to WTO consultations with international organisations on appropriate mechanisms to ensure additional financial resources for aid for trade. It addresses 3 main questions: i) How much aid do DAC donors already provide in support of trade? ii) How affective are these assistance programmes? and iii) How can aid for trade work as an effective tool for helping developing countries fully benefit from trade liberalisation and the WTO Agreements?

Papers

Estimating the Constraints to Trade of Developing Countries (2011)

Increasing the Impact of Trade Expansion on Growth: Lessons from Trade Reforms for the Design of Aid for Trade (2010)

Binding Constraints to Trade Expansion: Aid for Trade Objectives and Diagnostics Tools (2009)

Trading Out of Poverty - How Aid for Trade Can Help (2009)

Key Element of Best Practice in Aid for Trade (2008)

Binding Constraints to Trade and the Role of of Aid for Trade (2008)

Monitoring of Aid for Trade: A Background Note (2008)

Events

Aid for Trade Global Review 2011, 18-19 July 2011

Aid for trade

Aid for Trade Global Review 2009, 06-07 July 2009