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    The Way Forward


    International Trade Forum - Issue 2/2009

    Photo courtesy of Mark Assaf, UNCTAD

    Aid for Trade has long been recognized as a sure path to employment, investment and sustainable development. Now more than ever, says UNCTAD, developing countries depend on its guidance.

    Outside the port of Dar es Salaam in the United Republic of Tanzania, trucks queue up to load and unload goods. The port faces congestion in customs and control proced-ures, as well as deficiencies in infrastructure that increase waiting times and ultimately trade costs. Globally, some 77 per cent of all goods by volume transit seaports, and in Tanzania the figure is probably even higher.

    Yet Tanzania is not unique by any means. The picture for developing countries globally is not much better: in Latin America, it currently takes on average 36 days to move goods from the pre-arrival stage through to the warehouse; in East Asia 28 days. It takes just half that time in member countries of the Organisation for Economic Co-operation for Development (OECD).

    Targeting aid at trade capacities in developing countries is therefore a sensible way of boosting export potential. But the benefits go further, also facilitating their imports of consumer goods and inputs to domestic industries that can contribute to the building of vital productive capacities. Additionally, in the context of the current economic crisis, providing support to infrastructure development and trade capacity is one way to stimulate employment and attract investment in the medium to long term.

    Progress so far

    The World Trade Organization and OECD report that Aid for Trade, as a component of overall aid budgets, has increased by about 10 per cent per year since 2005. In 2008 that aid amounted to about $25 billion in total new commitments, plus about $27 billion in non-concessional trade-related financing. However, donor countries are now facing a period of belt-tightening. One must hope they resist the temptation to freeze or reduce official development assistance or to commit support in one area at the expense of another. Indeed, one note of caution raised in this regard is the lack of transparency surrounding what commitments donor countries have made in the name of "Aid for Trade".

    Trade finance is one of the elements of the Aid for Trade initiative, and the urgent need for it was unambiguously addressed by the G-20 nations earlier this year. They agreed to commit $250 billion to underpin the desperately needed short-term credit typical of trade transactions. It remains to be seen whether this additional finance alone will kick-start global trade, but it is a necessary element to fill the hole left by the generalized credit crunch and also to boost confidence in the global economy.

    For many developing countries, where exports represent between 40 and 100 per cent of gross domestic product (GDP), the current downturn in world trade as a result of the crisis is having an acutely pernicious effect on their economies. By contrast, United States exports are worth only 12 per cent of GDP. With small internal markets and a dependence on exports, targeted Aid for Trade is a lifeline. In addition to trade finance, support for infrastructure and productive capacities are other important areas, which represent by far the majority of Aid for Trade commitments.

    The UNCTAD perspective

    For beneficiary countries to fully gain from Aid for Trade, it must target their ability to produce goods not just for export but also for domestic consumption. This is a point consistently emphasized by the United Nations Conference on Trade and Development (UNCTAD). By developing their productive capacities, countries can more effectively take advantage of the other elements of the Aid for Trade initiative, which may help them facilitate inputs to domestic industry and diversify their export markets.

    UNCTAD has also constantly highlighted the role of regional cooperation to develop markets and as a building block to international competitiveness. Particularly in Africa and the least developed countries, some institutions, transport and trade links are traditionally oriented to service trade with the North. South-South trade has been growing by around 13 per cent a year (based on figures from 1995 to 2007). It should, therefore, be a key priority to target Aid for Trade at developing regional infrastructure and also regional negotiation capacity.

    Towards this end, UNCTAD has recommended that countries set up or strengthen institutional mechanisms that clearly articulate their needs and priorities. This process should include all key stakeholders, particularly the private sector, which can help to better define Aid for Trade projects. A systematic effort by international organizations is required to assist beneficiary countries to do this and also to link these efforts to regional initiatives.

    For many years, UNCTAD has provided advisory services to developing countries in trade negotiations, as well as capacity building to assist them in the design and implementation of better trade policies in the long term. UNCTAD has also provided other forms of technical assistance to help countries adapt to the demands of a globalized trade regime, for example, through the modernization of their customs procedures. The targeting of aid at trade capacities - either bilaterally or increasingly through multilat-eral channels - is essential to help countries overcome not only the current crisis but also to develop their productive capacities in the long term and adjust to a future international trading environment.

    Image caption: Workshop participants during UNCTAD's course on modern port management in Dar es Salaam.