Review: Aid for Trade, 4 Years Later

Last week marked the fourth annual global review of the World Trade Organization’s (WTO’s) Aid for Trade (AfT) Initiative. Created in 2005 by the Sixth Ministerial Conference of the Doha Development Round, Aft targets “behind the border” constraints to trade in least developed countries (LDCs) as well as strengthens their capacity to negotiate beneficial trade agreements. Essentially, Aft focuses on trade facilitation.

The AfT Initiative shines a light on the idea that the best possible “aid” we can give LDCs is free trade. Evidenced by its theme, “Connecting to Value Chains,” the fourth annual review called for “connecting the least connected countries.” More broadly, the value chain world we live in offers many entry points for firms to connect to the global trade web. And countries don’t need to produce final goods to be a part of that global trade web—increasingly we are a world focused on trade in services and tasks. Sixty percent of global trade is now in parts and components.

Production networks stretch worldwide—Senegal assembles Indian cars, Ford has facilities in Vietnam, and Samoa produces automotive harnesses. As WTO Director-General Pascal Lamy puts it, “you do not need to be a Henry Ford to manufacture all the parts and components of your Model T under the same roof. What you do need to understand though is how Henry Ford transformed industrial processes.”

But this process is hampered by the constraints to trade many LDCs face. Even with the success of AfT, it still takes, on average, 33 days to export a container from an LDC; 14 more days than from other developing economies. And landlocked economies face export times of 42 days, with costs more than twice as high.

That’s why concluding a Trade Facilitation Agreement is such a necessary step forward in connecting the global supply chain. And some 27 governments and organizations stated their support for doing so at the fourth annual review, “A WTO Trade Facilitation Agreement would add significant momentum to these initiatives, leading to even greater reductions in trade costs.”

But with Doha stalled, the likelihood of such an event occurring seems like a far-away dream. The 9^th Ministerial Conference (MC9) of Doha is approaching in December, but the mix of statements from some of the biggest trade gurus indicate that, at best, there is a fundamental disagreement as to what might be discussed. Some call for intense negotiations, others indicate that MC9 is a chance to discuss broad policy objectives. It doesn’t look promising for a Trade Facilitation Agreement, or for LDCs in general.

AfT achieved more than what was expected in 2005: in 2011, industrialized countries committed a total of more than $381 million to trade facilitation programs, representing an increase of 365 percent compared to the 2002-2005 average.  And since 2006, over $1.2 billion in trade assistance has been disbursed.  But more can be done to facilitate trade in the most difficult regions of the world: notably cutting border clearance times, increasing revenue collection and generally simplifying procedures for traders.

AfT stimulated convergence between trade and aid in unexpected ways. But more than that, it created a forum that merged trade and development policy, resulting in a more dynamic and comprehensive approach that makes trade a key element to growth, poverty reduction and employment. If one initiative can do that, just imagine what the Trade Facilitation Agreement can do for all 159 members of the WTO.