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United Nations (UN)

The potential impact of the aid for trade initiative

Research papers for the Intergovernmental Group of Twenty-Four (G-24) on International Monetary Affairs and Development, Number 45

Sheila Page

United Nations Conference on Trade and Development (UNCTAD)

April 2007

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The Aid for Trade initiative was revolutionary in the acceptance by international consensus of a role for the World Trade Organization (WTO) in aid and of the limitations of trade. The general case for aid for trade is that while trade can be a tool for development, countries need infrastructure, institutions, technical capacity, investment, etc., in order to trade, and in particular to respond to new liberalization under the WTO. The case for WTO-related Aid for Trade (AfT) is that although many in developing countries will gain from a WTO settlement, there are costs to some developing countries and some have little to gain from multilateral trade liberalization. The first responses proposed to the WTO dilemma were trade measures, more or better preferences. But this would not work for countries with exports that are either highly dependent on preferences or whose other exports are already relatively free from barriers. And preferences were increasingly being challenged by the non-preferred countries and by those who feared that they obstruct multilateral liberalization.

Aid for Trade emerged as an issue within the Doha Round, first driven by the need to find benefits for all countries in the negotiation, and thus “as a complement, not a substitute” for the Round. By the time the Round stalled, it had acquired sufficient support from the aid community as well as the trade community to go forward independently of the Round. When it was part of the negotiations, there was pressure to define a new structure for trade aid, outside normal aid mechanisms and parallel to those for other international concerns such as health or the environment. Without the need to secure developing countries’ support for a trade settlement, however, there is now a risk that it will be absorbed into normal country aid programmes, and be governed by the wishes of the international financial institutions.

There may be an increase in aid for improving the trading and productive capacities of developing countries. But there will be no way to ensure that the direction of that aid will be determined by the priorities of the international trading system. The WTO and its members retain the potential to influence the allocation of funds through monitoring, analysis, and debate. But the leadership has now shifted to the World Bank and the International Monetary Fund. To ensure that the implementation of Aid for Trade reflects the decisions that they have made in the WTO, therefore countries must act there to require that these institutions now act coherently to accept a priority for trade that has been determined by another international institution, the WTO. This may require greater voice for developing countries.

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