Policies to promote trade (International cooperation and multilateral mechanisms)

What is Aid for Trade?

The Aid for TradeMeasures aimed at assisting developing countries to increase exports of goods and services, to integrate into the multilateral trading system, and to benefit from liberalized trade and increased market access. It is considered as part of ODA. Effective Aid for Trade will enhance growth prospects and reduce poverty in developing countries, as well as complement multilateral trade reforms and distribute the global benefits more equitably across and within developing countries . It is measured as gross disbursements and commitments of total ODA from all donors for Aid for Trade . initiative was launched at the 2005 WTOWorld Trade Organization Ministerial Conference in China, Hong Kong (SAR) (WTO, 2015). It is aimed at helping developing countries, particularly LDCsLeast developed country, build the supply-side capacity and trade-related infrastructure that they need to assist them to implement and benefit from WTO Agreements and, more broadly, to engage in international trade. The assistance is targeted at enhancing national trade policy and regulations, developing infrastructure and building productive capacity (UNCTAD, 2016, Target 8.a).

The 2019 joint OECD-WTO Aid for Trade monitoring and evaluation exercise highlighted the importance of diversification, with a focus on promoting growth in the manufacturing sector for African countries. Export diversification is an indispensable part of economic growth and structural transformation, and remains an important development objective for many developing countries (OECD and WTO, 2019). Export demand for manufactured products facilitates growth of the manufacturing sector, thus giving an impetus for structural transformation (see Sustainable industrialization and technology). Industrialization is also paramount for LLDCsLandlocked developing country as “a thriving labour-intensive manufacturing base is best at generating productive employment” (Bolesta, 2019).

Academic research and donor evaluation programmes provide evidence of the positive impact of Aid for Trade (OECD and WTO, 2019). Such evaluation can be limited by scarcity of useful data and methodological challenges (Razzaque and te Velde, 2013). According to OECD and WTO (2013), for every dollar of Aid for Trade, on average eight dollars in exports is generated; this reaches up to twenty dollars for the poorest countries. A recent study on the effectiveness of Aid for Trade suggests that a one per cent increase in Aid for Trade for policies and regulations (as a percentage of GDPGross domestic product) induces a 0.15 per cent decline in tariff volatility (Gnangnon, 2019). The latter study supports the finding that Aid for Trade has a more positive impact on countries with higher economic and political stability (OECD and WTO, 2013).

Increase in Aid for Trade levelled off in the last few years

Aid for Trade commitmentsAid for Trade commitment is a firm obligation, expressed in writing and backed by the necessary funds, undertaken by an official donor to provide specified assistance to a recipient country or a multilateral organisation . and Aid for Trade disbursementsAid for Trade disbursements refer to the release of funds to or the purchase of goods or services for a recipient; by extension, the amount thus spent. Disbursements record the actual international transfer of financial resources, or of goods or services valued at the cost to the donor . have increased by 50 and 81 per cent, respectively, during the last ten years. In 2018, Aid for Trade commitments totalled US$57.8 billion and disbursements US$45.4 billion in constant 2018 prices. The corresponding figures in 2008 were US$38.7 billion and US$25.1 billion. While there has been a positive trend in annual Aid for Trade commitments, their volatility has increased somewhat in recent years, mitigating that growth. In 2016, Aid for Trade commitments declined by 7.7 per cent from the previous year and in 2018 by 3.7 per cent, while they grew in 2015 and 2017 by about 12 per cent. Realised disbursements remained more stable (see figure 1).

The disbursements to LDCs almost doubled in ten years from US$7.1 billion in 2008 to US$13.4 billion in 2018 (OECD, 2020b). LDCs’ share of Aid for Trade peaked at just over 30 per cent of the total in 2009, after which it gradually declined to 25 per cent in 2016. In 2017 and 2018, this share ticked back up to 30 per cent (see figure 2).

Asia and Africa remain the primary recipients of Aid for Trade

Asia and Africa received most of the global Aid for Trade disbursements in 2018, US$16.1 billion (36 per cent) and US$17.0 billion (38 per cent), respectively. Figure 3 shows the largest Aid for Trade recipient countries.

The top ten Aid for Trade recipients shared about 35 per cent of total country-specific disbursements in 2018. They comprise five Asian and five African countries (Egypt, Ethiopia, Kenya, Tanzania and Morocco). Of these countries, Bangladesh, Ethiopia and Tanzania are LDCs. To put the 35 per cent in perspective, it should be noted that the total population of these top ten recipients accounts for 37 per cent of the total population of developing economies.

Official Development Assistance targets trade more often

The share of Aid for Trade in ODAOfficial Development Assistance (ODA) are resource flows to countries and territories which are: (a) undertaken by the official sector; (b) with promotion of economic development and welfare as the main objective; (c) at concessional financial terms (implying a minimum grant element depending on the recipient country and the type of loan). In addition to financial flows, technical co-operation is also included . has increased from 20.5 per cent in 2008 to 27.3 per cent in 2018. The share peaked in 2012 at 27.8 per cent but has plateaued since then (see figure 4). Aid for Trade is particularly important for countries whose trade depends on a narrow export basket. For example, in 2018, LDCs depend, on average, on only two¹ products for almost 70 per cent of their exports (UNCTAD, 2020).

Transport, energy and agriculture receive the majority of Aid for Trade

Aid for Trade provides support to economic infrastructure (56 per cent in 2018), productive capacity buildingStrengthening economic sectors – from improved testing laboratories to better supply chains – to increase competitiveness in export markets . (41 per cent) and trade policies (3 per cent). Economic infrastructure (transport, communication and energy) has consistently received over 50 per cent of Aid for Trade since 2010 (see figure 5). From 2008 to 2018, the share dedicated to transport and storage has remained rather constant at around 29 per cent of all Aid for Trade, whereas the share targeting energy has increased from 21 to 25 per cent.

Aid for productive capacity targets economic activities that produce goods and services for trade. Agriculture, forestry and fishing together account for almost half of the support for productive capacity, while aid targeting banking and financial services constitute about 27 per cent. Aid for banking increased between 2008 and 2018 from US$3.4 billion to US$4.2 billion.

Energy and transport overtake agriculture as a target of Aid for Trade in Africa

The sectors receiving Aid for Trade disbursements vary across regions. About 41 per cent of the Aid for Trade disbursements to Asia and Oceania go to transport, and together with energy these account for over 71 per cent of Aid for Trade to this region. At nearly 25 per cent, energy, and transport at 24 per cent, overtook agriculture, forestry and fishing (23.6 per cent) as the largest recipient sector of Aid for Trade in Africa. In Europe, on the other hand, banking and financial services receive the second largest share of Aid for Trade disbursements (26 per cent) after transport (32 per cent), while in America the largest sectors are transport (30 per cent) and energy (27 per cent).

The COVID-19 related disruptions to global value chains - a major risk to LDCs

As noted earlier, LDCs often rely on a small set of export goods and, depending on the product mix, risk losing a significant portion of export revenues due to a sharp fall in demand caused by the COVID-19Infectious disease caused by the strain of coronavirus SARS-CoV-2 discovered in December 2019. Coronaviruses are a large family of viruses which may cause illness in animals or humans. In humans, several coronaviruses are known to cause respiratory infections ranging from the common cold to more severe diseases such as Middle East Respiratory Syndrome (MERS) and Severe Acute Respiratory Syndrome (SARS). The most recently discovered coronavirus causes coronavirus disease COVID-19 . pandemicCommonly described by the WHO as ‘the worldwide spread of a new disease’, no strict definition is provided. In 2009, they set out the basic requirements for a pandemic: • New virus emerges in humans
• Minimal or no population immunity
• Causes serious illness; high morbidity/mortality
• Spreads easily from person to person
• Global outbreak of disease.
The US Centre for Disease Control uses a similar approach, but with a reduced set of criteria. It is very difficult to gauge whether the spread of a disease should be termed an outbreak, epidemic or pandemic. In other words, when to declare a pandemic isn’t a black and white decision . and falls in prices (for commodity exporters). Global markets are severely impacted by the pandemic, which significantly increases the need for Aid for Trade to LDCs and other vulnerable countries. The disruptions to trade in LDCs relate to shortages of raw materials from China and other large economies, for example in the garment industry, and to widespread business closures in many countries affecting LDCs in sectors where they are involved as sub-contractors. Many LDCs also depend on services, which contribute a large share to their export revenue, GDP and employment, especially tourism and transport, which are badly hit by the pandemic.

According to WTO (2020), 80 countries and customs territories have introduced mostly temporary export prohibitions or restrictions as a result of the COVID-19 pandemic as of 23 April 2020. Most of these focus on medical supplies (e.g. facemasks and shields), pharmaceuticals and medical equipment (e.g. ventilators), but also additional products, such as foodstuffs and toilet paper.

Although it is too early to predict the impact of COVID-19 on Aid for Trade flows, they will be critical for the most vulnerable countries, such as LDCs and LLDCs, in helping a swift recovery from the economic impacts of the pandemic. There could be a temporary decline in Aid for Trade due to resources being channeled toward COVID-19 response efforts in donor countries (figure 7). Since Aid for Trade, as part of ODA (see Official support for sustainable development), is linked to the GNIGross national income of each donor country, a reduction in global economic activity will generally mean decreased Aid for Trade flows unless special efforts are undertaken.

Several developed and some developing countries have announced stimulus packages, such as additional funding to businesses or fiscal policy measures to support their economies, which may not be feasible for LDCs. Global collaboration is needed to pool financial support – including a recent Call to Action (IMF, 2020) to suspend debt payments for IDAInternational Development Association countries. Analyses by the World Bank warns that COVID-19 could push up to an additional 60 million people into extreme poverty (the share of the world’s population living on less than $1.90 per day) (CCSA, 2020).

Notes

1. These two products refers to product ”Live animals other than animals of division 03” and product ”Meat of bovine animals, fresh, chilled or frozen”.

References

• AidFlows (2020). Glossary of AidFlows terms. Available at https://www.aidflows.org/about/ (accessed 30 June 2020).
• Bolesta A (2019). Structural transformation in Asia’s landlocked developing countries. MPDD Policy Brief No. PB98.
• Committee for the Coordination of Statistical Activities (CCSA) (2020). How COVID-19 is changing the world: A statistical perspective. Available at https://unstats.un.org/unsd/ccsa/documents/covid19-report-ccsa.pdf (accessed 8 June 2020).
• Development Initiatives (2020). Coronavirus and aid data: What the latest DAC data tells us. Briefing. April. Available at https://devinit.org/resources/coronavirus-and-aid-data-what-latest-dac-data-tells-us/ (accessed 24 June 2020).
• Gnangnon SK (2019). Effect of Aid for Trade Policy and Regulations on Tariff Policy Volatility: Does Institutional and Governance Quality Matter? Economies. 7(1):6.
• IMF (2020). Joint Statement World Bank Group and IMF Call to Action on Debt of IDA Countries. Available at https://www.imf.org/en/News/Articles/2020/03/25/pr20103-joint-statement-world-bank-group-and-imf-call-to-action-on-debt-of-ida-countries (accessed 28 May 2020).
• Negin J (2014). Understanding Aid for Trade part one. Available at https://www.devpolicy.org/understanding-aid-for-trade-part-one-a-dummys-guide-20140228/ (accessed 19 June 2019).
• OECD (2019). Aid-for-trade statistical queries. See https://www.oecd.org/dac/aft/aid-for-tradestatisticalqueries.htm (accessed 19 June 2019).
• OECD (2020a). DAC glossary of key terms and concepts. Available at https://www.oecd.org/dac/dac-glossary.htm (accessed 20 April 2020).
• OECD (2020b). Aid-for-trade statistical queries. See https://www.oecd.org/dac/aft/aid-for-tradestatisticalqueries.htm (accessed 5 June 2020).
• OECD and WTO (2013). Aid for Trade at a Glance 2013: Connecting to Value Chains. Aid for Trade at a Glance. WTO and OECD Publishing. Geneva and Paris.
• OECD and WTO (2019). Aid for Trade at a Glance 2019: Economic Diversification and Empowerment. Aid for Trade at a Glance. WTO and OECD Publishing. Geneva and Paris.
• Razzaque MA, te Velde DW and te Velde DW, eds. (2013). Assessing Aid for Trade: Effectiveness, Current Issues and Future Directions. Commonwealth Secretariat. London.
• UNCTAD (2016). Development and globalization: Facts and figures 2016. Available at https://stats.unctad.org/Dgff2016/ (accessed 6 April 2020).
• UNCTAD (2020). UNCTADStat. See https://unctadstat.unctad.org/ (accessed 20 April 2020).
• United Nations (2020). SDG indicators: Metadata repository. Available at https://unstats.un.org/sdgs/metadata/ (accessed 20 April 2020).
• WTO (2006). Aid for Trade Task Force - Recommendations of the Task Force on Aid for Trade. WT/AFT/1.
• WTO (2015). Ministerial declaration. WT/MIN(05)/DEC. Hong Kong. 22 December. Available at https://www.wto.org/english/thewto_e/minist_e/min05_e/final_text_e.htm (accessed 14 June 2019).
• WTO report finds growing number of export restrictions in response to COVID-19 crisis. Available at https://www.wto.org/english/news_e/news20_e/rese_23apr20_e.htm (accessed 8 June 2020).