Making policies work

GREAT insights Magazine

Aid for Trade in German Development Policy

August 2013

Niebel, D. 2013. Aid for Trade in German development policy. GREAT Insights, Volume 2, Issue 5. July-August 2013. Maastricht: ECDPM

Trade plays a major role for global sustainable development. An open, rule-based and non-discriminatory trade and financial system is an explicit goal of the global partnership for development. Trade can contribute to inclusive growth and also to the creation of new and competitive jobs in the export sector. Steps must be taken to ensure that the welfare gains from trade also reach the poor, and particularly women. National sustainable development agendas cannot be funded in the long term without trade-induced growth; trade, as an engine of growth and also a source of income, is of key importance for development.

There have been vast changes in the production structures of the global economy in the past two decades. Value chains are becoming international, making global competitiveness far more important for individual countries. The globalisation of production has also led to a situation where working and production conditions in the countries of origin are attracting more and more attention. As a result, social, environmental and quality standards in production are increasingly important for sales prospects.

In many developing countries, participation in regional and global trade is hampered by poor internal framework conditions. National and regional institutions frequently lack the necessary analytical, management and regulatory capacities to participate in trade negotiations and to develop and assert positions which are compatible with their own development needs. Furthermore, agreements are not implemented in a manner that reinforces the positive interactions between trade, sustainable development and poverty reduction.

The relatively high trade barriers between developing countries are another reason why South-South trade is still relatively poorly developed. In addition, there is often a lack of adequate infrastructure and rapid and reliable border procedures. Transport infrastructure is one of the central requirements for trade, while a continuous and reliable energy supply is essential for production.

Following the launch of the WTO initiative in 2005, trade-related development gained political importance under the slogan Aid for Trade (AfT). In the international discussion, a common understanding emerged that AfT should assist developing countries in deriving the maximum possible benefit from the world trade system. In this process, trade was understood as a tool for development, but it was also recognised that a wide range of preconditions have to be met for trade liberalisation to contribute to sustainable development and poverty reduction.

Currently the challenges of linking LDCs to regional and global value chains and involving the private sector are high on the AfT agenda. Active involvement of the private sector has been an intrinsic part of German development cooperation for quite some time and also plays an important role in our AfT approaches.

The main goal of Germany’s trade-related development policy as laid down in the BMZ Aid for Trade Strategy Paper published in June 2011 is to assist partner countries in their efforts to diversify their economies and exports, become successfully integrated into the global trade system and regional economic communities, and use trade and foreign direct investment to reduce poverty more effectively in the context of sustainable development. Further objectives of the German AfT strategy are

  • Strengthening the private sector and civil society;
  • Improving integration into regional and international value chains;
  • Strengthening compliance with social and environmental standards.

In keeping with the EU strategy on AfT, Germany has committed to spending at least EUR 220 million annually from 2010 onwards on trade-related assistance (TRA). According to the 2012 EU AfT Report, Germany spent EUR 497 million on TRA in 2010, so this commitment was more than met in the first year. Furthermore, German development policy is committed to the EU’s goal of increasing AfT (in the broad sense) in proportion with growth in official development aid (ODA). Germany has consistently been one of the largest donors for AfT, disbursing USD 14 billion since 2006 (8% of total commitments). According to the latest figures, taken from the joint WTO/OECD publication “Aid for Trade at a Glance: Connecting to Value Chains”, which will be presented in Geneva at the 4th Global Review on 8 July 2013, in 2011 Germany spent USD 3.7 billion on AfT (in the broad sense); this puts Germany in second place – after Japan – among bilateral donors. A large percentage of these funds is invested in infrastructure projects in the energy sector, but support for transport routes, warehousing, cold chains, communication systems and harbour clearance also plays an important role.

German AfT is aligned with the strategies of its partner countries and seeks to increase their ownership. An essential requirement for German AfT is demand-oriented formulation and prioritisation of needs by the partner countries. A clear statement of need by the partner makes it possible to cooperate flexibly within the agreed priority areas. Within German development policy, trade is not a separate priority area. “Trade” can be embedded as a component in a broader programme for sustainable economic development, food security and agriculture, conservation and sustainable use of natural resources, or democracy and public administration.

Trade policy and regulation

In trade policy and regulation, German activities follow a multi-level approach, focusing primarily on strengthening national and regional negotiating and implementation capacities, and developing and implementing environmental, social and technical standards.

At the intergovernmental and macro level, German trade-related development policy promotes regional economic integration and assists in formulating, negotiating and implementing trade policies and regulations. The secretariats of regional organisations are advised on economic and trade policy issues and national strategies to diversify the economy, and support is provided for the expansion of productive capacity in selected sectors. The private sector and civil society are integrated into the relevant political processes.

At the meso level, German TRA supports business-oriented trade promotion organisations, public institutions and private sector organisations (e.g. associations, export and investment promotion agencies, fair trade and organic/ecological organisations). Various measures help them to create a supportive environment for value addition and exports, strengthen quality infrastructure and enforce compliance with standards.

Other measures for capacity development in the productive sectors (including SMEs and small-scale farms) help create a pro-trade environment, increase the volume and value added of exports, diversify products or target markets, boost foreign investment and stimulate the trade activities of domestic companies, for example, through access to trade finance and by meeting international standards.

The priority areas of German AfT derive from the comparative advantages of German development cooperation, experience from past work, partner needs, a focus on Africa, the importance of regional integration and the potential for cooperation with the private sector.

Commitment to the task of assisting the regional economic integration of partner countries is high. Partner institutions will be strengthened with a particular focus on the negotiation and implementation of Economic Partnership Agreements (EPAs) between the EU and ACP countries, e.g. by assisting the EAC Secretariat in developing a regional quality infrastructure (QI) system.

Trade facilitation will be strengthened. This means making border crossing for goods more efficient by reducing bureaucracy, linked with activities to promote regional integration and improve transport. Current German approaches involve simplifying and harmonising customs declarations, border management and goods control systems. German development cooperation also plays a decisive role in supporting and financing South-South cooperation. For example, Kyrgyzstan received assistance with its pre-customs single window from advisers from Senegal, as the Senegalese model was more suitable for the Central Asian context than models from leading industrialised nations.

Quality infrastructure will be strengthened. Improved, harmonised quality standards and internationally recognised conformity assessment structures are a core element in reducing technical barriers to trade and a central requirement for increased integration at the regional and international levels, as is the case in the support provided for the CARICOM Regional Organisation for Standards and Quality and the support provided for the East African Standardization, Quality Assurance, Metrology and Testing (SQMT) Act. In the quality infrastructure area, important framework conditions are also being created for foreign companies in developing countries.

The opportunities and possibilities that regional and international export markets offer are systematically incorporated into the design of measures for developing productive capacity. Activities in rural development and private sector promotion are more directly concerned with integrating producers into regional and international value chains. The value chain approach covers all agricultural and non-agricultural sectors, as well as services with export potential.

Strengthening results orientation

A cross-sectoral evaluation of Germany’s AfT portfolio (in the narrow sense) is due to be carried out in 2014 by our newly founded independent evaluation institute (DEval). Increased results orientation in AfT projects and programmes is to be achieved through greater attention to measurable results and the incorporation of corresponding indicators. To use AfT effectively as an instrument for poverty reduction and sustainable development, the link between trade and poverty reduction must be taken into account more clearly in the future, both conceptually and in the context of programme implementation (trade-poverty linkage). In order to maximise the desired impacts on poverty and prevent additional impoverishment, distributional effects must be more systematically analysed in advance, and the impacts on poverty given more attention in programme design in the future. Partner institutions are thus receiving assistance for the ex-ante examination of the social and economic consequences of measures on poor households, with the participation of the target groups. In this context a BMZ discussion forum on the “Effects and Results of German AfT” was held recently in Hamburg (3-4 June 2013). The forum included a panel discussion on assessing the impact of trade policy on economic, environmental and social sustainability so as to underline the importance of this issue and highlight the efforts made and the challenges ahead.

Dirk Niebel is the German Federal Minister for Economic Cooperation and Development/BMZ

This article was published in Great Insights Volume 2, Issue 5 (July-August 2013)

 

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Economic Transformation and TradeAid for TradeBusiness and DevelopmentRegional IntegrationEconomic Partnership Agreements (EPAs)Private sectorTradeAfricaGermany

External authors

Dirk Niebel