Aid for Trade needs to shift from policy to greater action

Trade ministers and officials from South and North, academics, and donors will gather at the OECD in Paris next week for a policy dialogue to discuss the future of the Aid for Trade initiative.

Conceived in 2005 in the context of the WTO Doha Round, Aid for Trade aims to improve the trading prospects of developing countries through targeting aid to this sector. In the seven years since its launch, there has already been a fair amount of navel-gazing amongst policymakers on questions of how to ‘operationalise’ such a broad and ambitious agenda.

In the early stages, a focus on quantitative targets for donor assistance went alongside attempts to find consensus over definitions of what distinguishes trade-related interventions from other types of aid. These discussions have not always been straightforward: there has been a long-running debate over the ‘additionality’ of post-2005 AfT flows (i.e. whether commitments were truly new, or simply a repackaging of existing programmes). There has also been an often contentious relationship between aid and ongoing trade negotiations, and how closely the two should be linked.

In addition, the AfT agenda has appeared at times to be too donor-driven, with accountability frameworks that still tend to place a heavy emphasis on ‘headline’ figures for traditional donors’ reported AfT assistance, rather than outputs on the ground.

Such factors can still create confusion amongst potential beneficiaries on what AfT is supposed to represent, and to some extent frustrate the original aims of the initiative. The fragmented nature and sheer scale of AfT – covering support to ‘hard’ infrastructure, ‘soft’ trade policy reform measures, and a wide range of productive sectors from agriculture to tourism – makes it very difficult for developing countries to visualise and manage in a coherent way. As the limitations of AfT as a practical policy tool become more obvious, more aid managers and trade practitioners may be starting to ask the question: has AfT outlived its usefulness as an aid agenda?

Building on achievements

The answer however is probably not: to argue otherwise would mean overlooking the achievements made so far, and the potential that remains going forward.

On one level, AfT remains as an important political commitment by the international community – enshrined as a principle at the WTO – to mobilise resources to boost trade in developing countries. Funding for trade-related projects in the sector has increased significantly in the years since 2005, and should continue to be monitored to ensure resources are available in years ahead.

Within developing countries, the AfT initiative has helped raise the profile of trade ministries, and detailed diagnostic work has led to better understanding on the binding constraints to trade in many countries. Policy responses have improved, especially at the regional-level (as highlighted in a review by ECDPM of the COMESA’s strategy), and have led to more integrated approaches to dealing with trade constraints along key trade corridors to boost exports and imports.

Although many national and regional AfT strategies were initially designed to respond to the availability of increased donor funding, they have helped define immediate trade-related needs. In future they can serve as building blocks for more comprehensive trade development strategies that look beyond aid (including newer forms of ‘innovative finance’, as my colleagues and I highlight in another recent paper).

From theory to practice

Yet, ultimately the focus of the AfT agenda will need to shift increasingly away from policy development, towards more micro-level questions. Improved diagnosis of trade-related constraints has been only partially translated into viable and ‘bankable’ projects. Implementation has been hampered by a number of factors, including an initial lack of donor instruments to deliver AfT, inadequate capacity to prepare and manage projects and programmes, and few means to coordinate interventions across borders.

So far, there has been little dissection of such implementation problems, although there are signs that this is starting to happen: for example a new research project by ODI explores the conditions under which AfT works best (including a forthcoming contribution from ECDPM on how it works the regional level) Furthermore, this year’s OECD review of Aid for Trade will focus on developing value chains, this offers a chance to think about specific problems of how to build trade within and between developing countries, looking also more closely at the ways in which the different sectors covered by AfT link together.

This will also require broadening participation in AfT discussions from trade policy officials who are familiar with the concepts and debates, to a wider range of public and private stakeholders working on different aspects of trade-related policy, from private sector development and investment promotion to pro-poor enterprise and industrial policy.

As such next week’s OECD Policy Dialogue will be a useful opportunity to reaffirm AfT’s relevance – and to recognise that the challenges going forward increasingly lie less in the policy sphere, and more in delivering on individual projects to make trade happen.

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Dan Lui is a Programme Associate at ECDPM. 

This blog post features the author’s personal views and does not represent the view of ECDPM.