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    Priorities and Possibilities


    International Trade Forum - Issue 2/2009

    As the economic crisis evolves, at least one emerging trend tells a positive tale: there is a growing awareness of Aid for Trade and its role in promoting economic growth worldwide.

    In the light of rapidly evolving economic recession, low-income countries are facing new challenges. But the crisis is also presenting these countries with opportunities to refocus their development strategies in this changing world economy.

    The impacts of the crisis on their economic performance will depend on the speed and scale of the international response. The quantity and quality of aid, including Aid for Trade, are now more important than ever for economic growth and human welfare.

    The Organisation for Economic Co-operation and Development (OECD) forecasts that world real gross domestic product growth will fall to 2.75 per cent this year, while the World Trade Organization projects that the volume of world trade will contract by as much as 9 per cent. In this perilous climate, Aid for Trade flows to low-income countries have been growing faster than to any other income group. Most is spent on addressing infrastructure needs, in particular transport and power. Comparatively, flows to middle-income developing countries reflect their priority to build productive capacities, including trade development.

    Overall, the distribution of aid across the different trade-related categories has remained relatively stable over the past year. Economic infrastructure and productive capacity building have both increased and there has been strong support for trade development programmes. Meanwhile, technical assistance has declined for trade policy and regulation. As a consequence of the economic crisis, trade-related structural adjustment programmes, while currently relatively small, are expected to increase over the medium term. Increasingly, OECD partner countries are becoming more actively involved in the Aid for Trade initiative. In general, they assess as posi-tive the impacts of Aid for Trade programmes and projects on trade performance.

    Nearly all OECD partner countries report having national development strategies, with more than half prioritizing trade operations and developing action plans. Although independent surveys raise questions about this positive assessment, it is nevertheless a clear indication of the growing awareness that trade can play a positive role in promoting economic growth and reducing poverty.

    These partner countries tend to identify similar binding constraints. The most common are network infrastructure, competitiveness, export diversification and trade policy analysis, negotiation and implementation. Countries are increasingly discussing their priorities with donors, who note that the success of these discussions depends critically on the extent to which trade-related priorities have been put into practice.

    Without an operational trade-development strategy, it is hard to attract donor support to address specific supply-side constraints. With competing claims on limited resources, especially in times of economic crisis, it will be difficult for donors to sustain increased Aid for Trade flows without an articulated demand from partner countries.

    Common priorities for regional integration include transport infrastructure, trade facilitation, competitiveness and export diversification, as well as capacity for regional trade negotiations. Donors have also recognized the importance of regional integration and report a rising demand for regional Aid for Trade. They note their willingness to provide additional support for corresponding activities.

    Working at the regional level, however, poses particular challenges, such as insufficient regional cooperation and concerns about asymmetric costs and benefits. Priority needs to be given to strengthening regional, human and institutional capacity and improving equitable participation of developing countries in regional initiatives. In this way we can maximize the benefits from these initiatives for regional economic growth and poverty reduction.

    The Aid for Trade initiative has succeeded in mobilizing more and better Aid for Trade. It has initiated a dialogue between government ministries and key national stakeholders and the international aid and trade community. But maintaining momentum, particularly in light of the economic crisis, necessitates a broader dialogue among governments, civil society, private sector and donors.

    There are four priorities outstanding for Aid for Trade:

    1. First, it needs to be shown that Aid for Trade is worthwhile. There is still a need to demonstrate and, more importantly, raise awareness about the potential gains available to developing countries from greater integration into the global economy.
    2. Second, Aid for Trade must demonstrate a real contribution to the wider goals of partner countries. Stakeholders need to recognize that Aid for Trade forms part of a larger picture, which encompasses international cooperation, improved policy coherence and a "whole-government" approach to economic development and poverty reduction.
    3. Third, Aid for Trade needs to have identifiable targets. Partner countries should identify case by case, country by country and region by region the nature and extent of the binding constraints that are presently preventing them from fully realizing the benefits of trade.
    4. Fourth, it needs to be shown that Aid for Trade can hit those targets. There needs to be a clear identification of how Aid for Trade will address these constraints; how it will work with, and add value to, initiatives being taken or envisaged by private firms; and how it will fit into the evolving framework of multilateral and regional cooperation.