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IMGXYZ510IMGZYX Remarks by Ambassador Mia Horn
Amb. Horn said the WTO’s Aid for Trade taskforce has thus far met four times and is about to transition from “brainstorming mode” to the drafting of recommendations for an eventual report to the WTO Director-General. A consensus has emerged that recognizes the importance of trade to development as well as the need for market access to be supplemented with funds for capacity building and adjustment assistance, particularly for least developed countries (LDCs). Such aid becomes more urgently necessary as the scope of global integration deepens and as the distribution of benefits from global trading continues to grow increasingly unequal.
The challenge faced by the Task Force is to operationalize the commitments expressed in principle by the international community and to improve the effectiveness of existing aid for trade mechanisms. Following the Hong Kong Ministerial, the WTO Secretariat was charged with two mandates relating to aid for trade: (1) a mandate to consider the financial aspects of existing and additional aid for trade funding, to be carried out by the Director-General; and (2) operationalizing the consensus among members governments on aid for trade, to be carried out by the Task Force.
As part of this process, the Task Force has solicited input from development agencies with competence in trade and development issues, as well as from the WTO membership at large; the contributions of these parties will be made available to the public in the near future. Seminars and conferences have occurred parallel to the Task Force’s deliberations and have been a great benefit to the process. The Task Force has three meetings remaining in which to agree on the language for a final report.
The Task Force is focusing on three basic approaches in its proceedings: (1) finding gaps, missing links, and inefficiencies in current projects, programs, and geographical coverage of aid; (2) adhering to and operationalizing the Paris principles of aid effectiveness; and (3) thinking about how aid for trade can best be utilized as a complement to, and not substitute for, an ambitious Doha Round outcome. The objectives of any aid for trade funding should be to realize the potential of trade for growth and poverty reduction, to facilitate greater trade liberalization, and to support countries during transition periods. Amb. Horn stated that the Task Force was trying to maintain a broad scope for its thinking on the aid for trade problem, one that emphasizes the need to identify problems and priorities from the bottom up through demand-driven mechanisms, the wide-ranging and inclusive spectrum of funding activities that fall under the aid for trade aegis, and the regional nature of many countries’ trade capacity problems.
On the demand side, better mechanisms are required to help countries prioritize trade considerations in their poverty reduction strategy papers (PRSP) while at the same time ensuring that this process is driven by the recipient countries themselves. Currently, there is a lot of regional and international expertise that continues to be underutilized. On the supply side, Amb. Horn singled out for criticism the lack of respect for recipient country priorities, a lack of awareness about the role of trade in development, and insufficient coordination among donors. She highlighted the need to bridge supply and demand effectively. Amb. Horn suggested that existing mechanisms need to be strengthened, simplified, expedited, and made more user-friendly.
In conclusion, Amb. Horn echoed WTO Director-General Pascal Lamy in viewing aid for trade as an opportunity to implement the WTO’s coherence mandate. Trade and development policy must be made to support one another mutually, and concrete steps must be taken to distribute future aid in accordance with the Paris principles.
Remarks by Congressman Jim Kolbe (R-AZ)
IMGXYZ511IMGZYX Congressman Kolbe welcomed the opportunity to explain his recent work on the Foreign Operations Subcommittee of the House Appropriations Committee. He told the audience that trade capacity building has been a major focus of his six-year chairmanship of the Foreign Ops Subcommittee. As specified in the “Monterey Consensus” that emerged during the International Conference on Financing and Development in 2002, aid should complement trade and other domestic reform priorities. The premise of the Doha Round of trade negotiations acknowledges that the transfer of funds by itself is not sufficient to pull people out of poverty. Congressman Kolbe worried about the health of Doha: not the inability of negotiators to find solutions, but the absence of political will to make the concessions necessary to conclude a deal.
Congressman Kolbe said that commitment is required of both developed and least developed countries on aid for trade. On the demand side, we need to insist that strategic trade considerations are a national budget priority in PRSPs. On the supply side, donors need to continue to find creative solutions to the aid for trade dilemma, as President Bush did with the establishment of the Millennium Challenge Corporation.
The United States has committed to double aid for trade funding to $2.7 billion by 2010. Similarly, the G7 group of nations has committed to devote $4 billion to aid for trade within this same timeframe. Rep. Kolbe’s amendment to the Foreign Operations Appropriations Bill, which was approved by the full Appropriations Committee, would consolidate existing U.S. aid for trade funding, currently spread out among many different agencies, into a single line in the Appropriations Bill. In practice, this consolidated “Trade Capacity Enhancement Fund” (TCEF) of $522 million would force mission directors in each recipient country to make aid for trade a part of their operational thinking. A new “Aid for Trade” director would be created within USAID answerable directly to the Coordinator for Foreign Assistance in the State Department. The establishment of this fund would elevate the profile of aid for trade and, hopefully, fit nicely with the efforts of Amb. Horn’s Task Force.
Remarks by Dr. Bernhard Hoekman, Research Manager of the International Trade Development Research Group, World Bank
Dr. Hoekman framed the aid for trade debate within the larger context of the multilateral trade agenda. The great push for increased trade liberalization imposes many adjustment costs on the countries that can afford to bear them least. Recent experience with the proliferation of free trade agreements has shown that using trade as an instrument for aid can lead to preference erosion and harmful trade diversion. The international community needs to move away from using trade as an instrument of aid to a different model in which aid helps countries use trade as an instrument for growth on their own. Aid for trade can advance the objectives of the international trading system and benefit developing countries.
Aid for trade is not a new problem: rather it has a long history in the World Bank and on the bilateral level. In the last ten years, there has been a shift to other priorities (social development, health issues, etc.), while the trade agenda has received less attention than it did in the 1980s. The aid for trade debate was renewed at the Singapore Ministerial with the revitalization of the Integrated Framework (IF), a program designed to help a select group of least developed countries integrate trade capacity building into their poverty reduction strategies, but much more needs to be done. The IF, while not a total success, has brought to the forefront the importance of countries taking ownership over the definition of their own trade priorities. As a mechanism, the IF gives trade constituencies, including trade ministers, a louder voice on the country level; at the same time, a better system of prioritizing among all of a country’s objectives is still needed.
Dr. Hoekman proceeded to detail some gaps and inefficiencies within the current aid for trade regime. First is the question of prioritization, described above. Second is coordination between multilateral trade commitments and national priorities. A substantial amount of money that is currently available is not being dispersed, and rectifying this could be the simplest way to operationalize aid for trade in the short term. Third, mechanisms need to be developed that extend funds for capacity building to non-LDCs as well as LDCs. Fourth is the issue of services, which is being largely neglected in the Doha talks. Countries are hesitant to go further on services because of the complexity of national regulatory regimes and the lack of agreement on the precise steps necessary to move forward.
Dr. Hoekman pointed out, however, that many supply-side constraints on trade are related to services and that efficient services define competitiveness. Thus, more focus should be placed on the multilateral services agenda. Fifth is the challenge of monitoring and evaluation. For all the money that has been devoted to capacity building projects, the international community has learned remarkably little about good practices. We now understand the economic impact of tariff and agricultural liberalization, but still know little about non-tariff barriers, sanitary and phytosanitary barriers, and technical barriers to trade. To this end, more money needs to be invested in collecting and making publicly available accurate data on aid for trade projects.
Discussion Session
First, Sherman Katz asked the panel to elaborate on trade adjustment assistance, which has not received as much attention as technical assistance and capacity building. He also asked Dr. Hoekman which services are most important to trade capacity building, and how greater services liberalization might be achieved in the WTO context. In answer to the first point, Amb. Horn replied that an assessment of adjustment needs and strengthened coordination for a package response are agreed areas of the aid for trade agenda. The Task Force has received submissions on this subject from member countries (particularly the African, Caribbean, and Pacific [ACP] group), the IMF, the World Bank, the regional development banks, and several UN agencies. These submissions were recently made available to the public in preparation for the next meeting with Director-General Lamy.
On the second point, Dr. Hoekman admitted it is difficult to say which services are most important, since trade capacity is highly context dependent. The keys for trade are: (1) transportation services, distribution services, and trade-related infrastructure, including effective competition policies and a strong regulatory environment; and (2) wider access to services, particularly for poor households and those at disadvantaged locations. Dr. Hoekman suggested that LDCs heed the example of successful middle income countries, such as Chile, which auctioned licenses to provide services to poor and disadvantaged households.
Ambassador Chowdhury of the Embassy of Bangladesh raised a point about the ability of LDCs to have market access in the context of fair trade generally. He noted that the United States does not give duty-free, quota-free access to all LDCs, in contrast to the European Union’s Everything But Arms program and the trade policies of Japan, New Zealand, Australia, Canada and Norway. Bangladesh was able to build its own capacity while aid for trade was still under discussion. Amb. Chowdhury stated that, in his opinion, market access through trade preference programs is the key to development. According to him, the United States collects more money from Bangladesh through tariffs than it distributes through aid, and he would like to see this net negative flow of resources reversed.
John Sewell of the Woodrow Wilson International Center for Scholars said it would be difficult for him to imagine national agencies agreeing to increased aid for trade without a flexible international funding mechanism analogous to the HIV/AIDS or avian flu funds. Rep. Kolbe responded that trade capacity building is best done bilaterally. For example, he was able to create TCEF through the appropriations process without any authorizing legislation. He thought there might be some support for a more formalized international fund, but wanted to see how the TCEF works first. Mia Horn answered that, with regard to an international fund, no one wants to see the WTO become an implementing organization. She reemphasized the importance of building on the foundation of existing aid for trade architecture and expertise, coordinating the many actors involved, and focusing on efficiency of delivery.
Ken Levinson of Fontheim International asked how the international community could best capitalize on the surplus of positive energy for capacity building that seems to be in fashion at the moment, particularly with regard to Africa. Rep. Kolbe replied that those with a stake in the success of Africa—including Rep. Bill Thomas, Chairman of the House Appropriations Committee, Charles Grassley, Chairman of the Senate Finance Committee, and members of the Congressional Black Caucus—need to “build a fire in Congress” on aid for trade.
Uta Hennig of Inside US Trade was struck by the suggestion that a framework similar to the IF might be created for non-LDCs, given that the only thing she knew about the IF was that it didn’t work. Mia Horn clarified that the Hong Kong Ministerial Declaration contained two different mandates: one to reform the IF and a second to find solutions on aid for trade. Regarding the former, Amb. Horn acknowledged that the IF has its shortcomings, but she was hopeful that the IF Task Force working under the Canadian ambassador would produce solid recommendations for its improvement on June 22. These recommendations will be passed on to the IF Steering Committee for implementation. Amb. Horn believed the insights from the IF Task Force would be important for her own work on aid for trade and relevant to non-LDCs. As to how the final report of the aid for trade Task Force would be used, Amb. Horn clarified that it was not part of the “single undertaking” of the Doha Round, i.e. it is linked to the Doha Development Agenda but not entirely dependent on it. The goal is to have some form of aid for trade mechanism in place at the conclusion of the Round.
Sandra Polaski of the Carnegie Endowment pointed out that missing from Amb. Horn’s remarks was the problem of tariff revenue losses, which can total as much as $50 billion for LDCs and constitute a huge share of government revenues (30-40%). These losses compromise developing countries’ ability to undertake their own capacity building, and she wondered if this issue was on the Task Force’s radar screen. Amb. Horn responded that tariff revenue losses were an important part of the adjustment picture, but that the Task Force has not reached a level of detail yet that would enable her to answer the question. She looked forward to pushing this question ahead to future meetings of the Task Force.
James Kentworthy, an international trade consultant, lamented that the current debate on the IF and aid for trade sounded a lot like previous discussions from the Uruguay Round. Since these initiatives and funds are prescriptions of a sort, he wondered what type of conditionality would be attached to them and what assurances the international community could expect with or without conditionalities. Amb. Horn acknowledged that these points had been raised in the Task Force’s discussions. She regretted that she could not give any definitive answers on the question of conditionality at the present moment but recognized that it was of major concern to many developing countries.
Alan Beattie of the Financial Times wondered how it might be possible to avoid merely relabelling current bilateral activities ‘aid for trade’ and thus declaring success without changing the on-the-ground reality. He compared the capacity building situation to that of the Millennium Development Goals (MDG): now most documents contain an expression of support at the beginning and end for the MDGs but little of substance has been achieved. Dr. Hoekman agreed on the importance of additional funds and claimed that developed countries have indeed been increasing levels of official development assistance. The key, for him, is prioritization: if there is a clearly identified need, then the international community can work together to try to meet it.
