Aid for trade: a roadmap for success.

Author:Cai, Phoenix X.F.
 
FREE EXCERPT
  1. INTRODUCTION

    Let us imagine a cooperative of mango growers in Mali, (1) one of the poorest countries in Western Africa. These mango farmers grow delicious mangos prized by local consumers for their sweetness, firmness, and long shelf life. Let us further imagine that our mango farmers dream of expanding their business beyond local demands to export their mangos to markets in Europe, where they can garner higher prices for their produce. How would they make their dream come true? Imagine the difficulties our mango growers would have to overcome. Perhaps the roads from Mali to the closest seaport of Dakar, Senegal are poorly maintained and unreliable. Perhaps no fleet of refrigerated trucks is available to transport the mangoes to port. Perhaps the Mali government does not have a system in place for inspecting agricultural products for export to meet the safety and health regulations of the European Union. Aside from these infrastructural concerns, the farmers may not possess the know-how to market their products to compete effectively with mangos grown in Mexico, California, or the Philippines. To whom should our hypothetical farmers mm for assistance? The answer, surprisingly, may be the WTO.

    Traditionally, when one thinks of development and aid, the World Trade Organization (WTO) does not immediately come to mind. Rather, the usual suspects are the development agencies of the UN, (2) private non-governmental organizations (NGOs), and the much beleaguered World Bank (3) and International Monetary Fund (IMF). (4) Nonetheless, development had been a hot topic at the WTO recently. In particular, aid for trade has emerged as the rising star, invested with the hopes of many as the best means to carry out the laudable goals of the so called "development" (5) or Doha Round (6) of multilateral negotiations. While the Doha Round has collapsed, seemingly moribund for moment, WTO officials have been casting about for another means of spurring economic growth in the developing countries. (7) The answer of the moment is aid for trade, the appealing simple idea of building trade capacity from the ground up with various forms of trade-targeted aid. Aid for trade is broad, multifaceted, and complex, comprising forms such as technical assistance (helping countries develop trade policies, negotiate more effectively, and implement outcomes), technology transfers, infrastructural projects, capacity-building, and adjustment assistance (helping with the costs associated with tariff reductions and declining terms of trade). Aid for trade is such a hot topic these days that Pascal Lamy, Director General of the WTO, recently devoted a whole conference (a Global Forum on Aid for Trade) to it, and afterwards went on tour to promote its virtues to WTO member nations and NGOs. (8)

    This article seeks to critically examine aid for trade, to assess its shortcomings and strengths, and to offer a roadmap for implementing it with success. Part II begins by taking a very selective and brief look at the development of trade-related aid from the end of World War II into the 21st century, with a focus on the historical and political tensions that have lingered and continue to shape aid for trade today. Part III provides both a description and a frank assessment of how aid for trade is currently conducted, and argues that it is still largely ineffectual in promoting sustainable economic development where it is most needed. Part IV examines the inherent conflicts between the aid regime and the trade regime, which conflicts yield implications for how aid for trade should be structured. Another goal of Part IV is to encourage greater dialogue between aid experts and trade experts, who have much to learn from each other. Lastly, Part V coalesces the lessons from the first three parts into a normative roadmap for success, one in which aid for trade is not a substitute for meaningful changes to WTO multilateral trade regime, but rather an effective tool both for promoting economic growth and laying the informational and institutional foundations for effective reform of the WTO system to ensure it works for both developed and developing nations.

  2. THE HISTORICAL LESSONS

    Aid for trade is not new. So long as development agencies have been in existence, some portion of the aid they oversee has been ear-marked for trade-related projects. While it is beyond the scope of this article to canvass the complete history of trade-related development aid, it is worthwhile to highlight some of the trends in such aid since the end of World War II. The broad themes that emerge are important guideposts in shaping aid for trade programs today.

    1. Recipient Countries of Aid had Limited Autonomy

      Development aid and trade-targeted aid in the post-World War II era was largely donor-run, politically driven, and characterized by a lack of country ownership. For example, beginning with the Marshall Plan, the United States used aid in a politically-driven way to advance its Cold War policies--in order to prevent the spread of communism. (9) Other developed nations subsequently used aid to ensure "a relatively peaceful transfer of power to independent governments at the end of colonialism." (10) Recipient nations also exercised little autonomy over the uses of aid funds. Aid grants often came with political or commercial strings. (11) It is important for aid for trade not to repeat the mistakes of the past by avoiding similar problems. Part IV will develop detailed suggestions to ensure aid for trade is country-driven, politically and commercially untied, and characterized by a high degree of country ownership.

    2. Exclusion of Developing Nations from Meaningful Participation in Multilateral Trade Negotiations

      Until very recently, developing nations played little, or no, role in the shaping of the global trading system. (12) Immediately in the aftermath of World War II, the reconstruction of Europe was the number one priority of the victorious allies. When twenty-three nations, consisting of primarily wealthy but war-ravaged nations, formed the General Agreement on Tariffs and Trade (GATT) institutions in 1947, their focus was on the rebuilding of trade linkages among themselves. For the most part, the developing nations of Asia, Central and South America, and Africa, many of whom were still under colonial control, were not part of the calculus. (13) Economic growth and integration were principally goals for Europe, North America, and Japan, achieved through a series of multilateral trade liberalization agreements negotiated under the auspices of the GATT. In fact, developing nations continued to not have a seat at the table for many decades. One explanation is that the majority of developing nations continued to export only primary commodities, an area in which the trade regime was already fully developed and solidified. In fact, with respect to agricultural commodities, the GATT system was so mature and inflexible that major changes to it critical to the trade interests of developing nations are being negotiated only now under the Doha Rounds. The upshot is that developing nations were, and remained for a long time, marginalized voices in the global trade system. As one scholar has noted:

      Instead of aggressively seeking market access in the industrialized world, these countries defensively sought special and differential treatment on commitments to open their markets, and they obtained marginal trade preferences or concessions on a nonreciprocal basis. Not surprisingly, even while they were "free-riding" by virtue of the GATT's most favored nation (MFN) principle, they received new concessions of specific interest to them. (14) The history of exclusion of developing countries means that much rides on the ability of the Doha Development Agenda to both fix and make some amends for past lack of participation.

    3. How Aid for Technical Assistance can be Used Successfully

      History does offer one model of success, albeit not from the trade arena. Commentators are virtually unanimous in hailing the Ozone Convention and accompanying protocols (15) as a success in the reduction of ozone depleting cholorofloridecarbons (CFCs), halons, and certain other greenhouse gases. (16) The relative success of the Ozone Convention can be attributed to a number of factors, including, among others, the presence of strong public support, widespread political will, the efforts of the UNEP in consensus building among interested constituencies including industrial CFC producers, (17) education, and implementation, the imposition of measurable milestones and other binding obligations in the Ozone Convention's progeny. For the purposes of this article, one characteristic of the ozone regime is especially salient for the aid for trade discussion, i.e., its technology transfer and technical assistance mechanisms to enable developing nations to comply with the Ozone Convention.

      Certain similarities between the ozone regime and the trade regime are striking. First, no regime to reduce the emission of ozone-depleting substances would work without the buy-in of developing nations, in particular of rapidly industrializing or developing economies like China, India, Brazil, and the former Soviet republics. Likewise, the world trade regime functions optimally only with full participation. Second, developing nations felt that developed nations bore the lion's share of the blame for the ozone problem. After all, industrialized nations had the benefit of using dirty technologies to fuel their economies for decades. It seemed both hypocritical and morally wrong to ask developing nations to wean themselves off such technology, resulting in a slowing of their own development. The same feeling of moral outrage explains why for many years developing nations sought special concessions to trading rules. They felt severely disadvantaged by having a system in whose creation they played no part imposed upon them. Third...

To continue reading

FREE SIGN UP