A WTO ATTEMPT AT COHERENCE
JEAN-JACQUES HALLAERT
Collaboration with the Bretton Woods Institutions “with a view to achieving greater coherence in global economic policymaking” (i.e., coherence) is one of the five formal functions of the World Trade Organization (WTO).1 But achieving coherence is not easy. It often involves high transaction costs for little result (Winters 2007). The Aid for Trade Initiative is arguably the strongest WTO attempt at coherence: coherence among trade policy, aid policy, and development policy.
This history of the Aid for Trade Initiative discusses how coherence has been understood and implemented, and how it has evolved. Developing countries’ experience with the Uruguay Round of trade negotiations led them to request that promises of technical and financial assistance in implementing a multilateral agreement be met with more than just lip service. The WTO could not ignore this request but could not respond to it either and therefore entered into a collaboration with other organizations and agencies that led to the Aid for Trade Initiative. I discuss the choices made in shaping the initiative, their implications, and the impact of the stalled Doha Round negotiations. In its Aid for Trade Work Programme for 2012–2013, the WTO implicitly acknowledged that little coherence in policymaking had been achieved but did not attempt to change the situation, limiting itself to calling donors to consider the trade dimension of their new development priorities. More recently, the Trade Facilitation Agreement (TFA) offers the initiative an opportunity to address its challenges by focusing on clearly trade-related projects. But this opportunity may not be seized.
Traditionally, developing countries have been suspicious of the contribution of trade to development. This suspicion was at the root of the opt-out strategy they followed in the General Agreement on Tariffs and Trade (GATT) round of trade negotiations. For two main reasons, developing countries were more active in the Doha Round negotiations than in previous rounds.
First, when the Doha Round negotiations started in 2001, trade appeared to be a possible engine for growth and poverty reduction. The success of small export-oriented East Asian countries was followed by the success of large countries like China.
Second, the Uruguay Round had demonstrated that opting out was no longer cost-free. As long as the multilateral trade negotiations were limited to tariffs, the opt-out strategy had no visible cost. Thanks to the unconditional most-favored-nation clause, a developing country could benefit from other countries’ tariff cuts even if it did not reduce its own tariffs. There were hidden costs, though. Opting out of GATT rules and relying on preferential market access in practice limited developing countries’ bargaining power in the negotiations but did little to foster their exports and even hampered their export diversification. Since developing countries lost the capacity to negotiate tariff cuts on the goods they exported, it is not surprising that the negotiated tariff cuts did not cover agricultural goods and left largely untouched the high protection for labor-intensive products such as shoes, textiles, and apparel. In the Uruguay Round, when trade rules were extended to cover textiles and agriculture, developing countries gained a strong incentive to be involved in the negotiations because they were in part about market access for their main exports.
Moreover, starting with the Uruguay Round, opting out no longer meant being exempted from commitments. Because the Uruguay Round created a new international organization—the WTO—to replace the temporary GATT, all members had to accept all the provisions of the agreement. This principle, which also governed the Doha Round negotiations, implied that developing countries would adhere to legally binding commitments on issues such as sanitary and phytosanitary standards (SPS), technical barriers to trade (TBT), trade-related aspects of intellectual property rights (TRIPS), and customs valuation.2 These commitments required substantial and costly policy and administrative reforms. The possibility that the WTO could negotiate, and that those negotiations could lead to new commitments on issues such as labor or environmental standards or the “Singapore issues” (competition, investment, government procurement, and trade facilitation), further increased developing countries’ incentives to be active in the negotiations. They initially adopted a defensive posture. For example, the Like Minded Group, a coalition of developing countries, organized itself at the 1996 Ministerial Conference in Singapore to prevent labor standards from becoming part of the WTO negotiations. This coalition also tried to block the launch of a new round from 1998 to 2001 (Jones 2010).
When the Doha Round was eventually launched in 2001, developing countries expressed concerns about the potential adjustment and implementation costs of the agreement under negotiation. They forcefully requested both technical and financial support. Their concerns were largely the result of their experience with the Uruguay Round.
The benefits they had expected the Uruguay Round to provide for their exports of agricultural goods and textiles and apparel did not materialize. The “dirty tariffication” of agricultural nontariff barriers3 and the special agricultural safeguards, combined with other protectionist devices such as quotas and tariff escalation, large subsidies, and SPS, had in effect limited their access to rich countries’ markets. The phasing out of the Multi-Fiber Arrangement (MFA) quotas that had distorted trade in textiles and apparel for decades was in practice delayed to 2005, and only a few countries were able to seize the opportunities of the liberalization. Therefore, in the Doha Round, developing countries requested support to build the trade capacity they need to turn the trade opportunities of a Doha Round agreement into trade flows.
In contrast, the implementation costs of the Uruguay Round agreement were visible. The agreements on SPS, TRIPS, and customs valuation were costly and difficult to implement, diverting limited resources and capacities from other projects that were arguably more important for development (Finger and Schuler 2000). As a result, most developing countries did not, or could not, comply with their obligations. In 2000, according to Stiglitz and Charlton (2005), 90 of the 109 WTO developing country members were in violation of SPS, TRIPS, or customs valuation agreements. This experience prompted their calls for financial and technical assistance so that countries could implement both the Uruguay Round commitments and the expected Doha Round commitments.
Developing countries also requested support to mitigate the perceived adjustment costs from an agreement. Mauritius, which was expected to be significantly affected by the end of the textiles quotas and by the erosion of preferences on sugar, suggested the creation of a compensation mechanism to address the impact of preference erosion. Net food-importing developing countries expressed concerns about the impact of a price increase following the negotiated elimination of agricultural subsidies.
Finally, developing countries requested that support take the form of actual assistance, not promises of assistance. This was another legacy of the Uruguay Round. As summarized by Finger (2007), developing countries’ experience was that “the Uruguay Round agreements imposed bound commitments to implement, but provide only unbound promises of assistance.” The Uruguay Round agreement included:
Because they were unfunded, nonbinding, and unenforceable, these promises were, however, soon forgotten.
In sum, developing countries’ requests for financial and technical assistance in the Doha Round were both a legacy of the Uruguay Round and the result of the expansion of the WTO to behind-the-border issues. The novelty is that developing countries made forceful requests that the promises of technical assistance be fulfilled.
Developing countries’ requests for assistance in the Doha Round negotiations could not be ignored, for three main reasons.
First, following the failure in 1999 of the WTO Ministerial Conference in Seattle to launch the Millennium Round of trade negotiations, the WTO emphasized the development dimension of trade to garner enough support for a new round, called the Doha Development Agenda (DDA) or the Development Round. Technical and financial support was an important component of the development dimension, and the Ministerial Declaration that launched the Doha Round states: “We have established firm commitments on technical cooperation and capacity building in various paragraphs in this Ministerial Declaration. We … reaffirm … the important role of sustainably financed technical assistance and capacity-building programmes.”10
Second, developing countries had demonstrated their readiness to block an agreement if they perceived that their interests and concerns were not sufficiently taken into account. The Like Minded Group had made the resolution of the Uruguay Round implementation issues a condition for the launch of a new round (Jones 2010). In 1999 at the WTO Ministerial Conference in Seattle, developing countries opposed the launch of a round that would discuss labor standards. In 2003, the WTO Ministerial Conference in Cancún collapsed in part because developing countries felt that the draft texts did not reflect their priorities.
Third, developing countries agreed that trade facilitation would be part of the Doha Round negotiations only in 2004 and on the condition that aid would be provided. The “modalities for the negotiations on trade facilitation” (WTO 2004) include commitments to provide developing countries with support as early as the negotiation phase: “It is recognized that the provision of technical assistance and support for capacity-building is vital for developing and least-developed countries to enable them to fully participate in and benefit from the negotiations. Members, in particular developed countries, therefore commit themselves to adequately ensure such support and assistance during the negotiations.”11 More important, the implementation of the agreement was, from the start, explicitly conditional on the country capacities to do so and thus on the availability of support to build this capacity: “It is understood, … that in cases where required support and assistance … is not forthcoming, and where a developing or least-developed Member continues to lack the necessary capacity, implementation will not be required” (WTO 2004). As a result, the Trade Facilitation Agreement concluded in December 2013 dramatically changed the approach to special and differential treatment: instead of providing exemptions and transition periods, it explicitly links the implementation of the agreement by developing countries to the provision of adequate assistance in building the necessary capacity.12
In this context, “providing something to developing countries had become of paramount importance politically—in most eyes it had become the sine qua non for completing the Round” (Winters 2007). But what should be provided and how?
The WTO could not itself respond to the requests for financial support. It is not an aid agency, and both the link between trade and development and the management of adjustment costs belong on the agenda of other international institutions. Answering developing countries’ calls therefore required cooperating with other organizations and the development community; it required coherence.
Other organizations and donors stood ready to help. In an example of coherence, in 2004 the International Monetary Fund (IMF) established the Trade Integration Mechanism (TIM) to “mitigate concerns that implementation of the WTO agreements might give rise to temporary balance of payments shortfall” (IMF 2004). The IMF established the TIM to facilitate the Doha Round negotiations, despite its assessment that preference erosion or fiscal revenue losses from tariff cuts would be a problem only for a few countries. The IMF assessment of losses from preference erosion was presented in a communication to the WTO (IMF 2003). Later, in response to the Hong Kong Ministerial declaration calling for more analysis of the scope of the tariff dependency problem, the IMF published estimates of fiscal revenue losses from various tariff-cutting formulas considered in the negotiations (Elborgh-Woytek and others 2006). In the absence of a Doha Round agreement, only three countries requested and obtained support under the TIM (Bangladesh, the Dominican Republic, and Madagascar). In all cases, the assistance was intended to mitigate the impact of the end of the MFA quotas.
The development community was also ready to embrace the calls to supplement its usual activities with efforts to promote trade as an engine for development. Donors have long financed projects that have an impact on trade, but, with a few exceptions, this impact was less an objective than a side effect. In the early 2000s, the situation had changed. Donors were facing calls to scale up aid to reach the Millennium Development Goals (MDGs), as well as growing evidence that aid alone might not boost growth (Easterly 2001, 2003; Calì and te Velde 2011) and could even make matters worse (Rajan and Subramanian 2005). Thus they were looking for ways to go beyond the double-gap model (Chenery and Strout 1966) emphasizing that money alone is not the answer and aid effectiveness is crucial, arguments that led to the principles of the Paris Declaration on Aid Effectiveness in 2005 (OECD 2005).
Against this background, the aid to support trade projects appealed to donors. Aid for trade could be branded as an effort to reach the MDGs.13 Moreover, aid for trade had the potential to be very effective. The aid and growth literature and the trade and growth literature were both providing new empirical evidence on ways to increase the impact of aid and trade on economic growth and poverty reduction. Moreover, they were providing intellectual support to the need to achieve coherence among trade policy, aid policy, and development policy.
In the early 2000s, there was mounting evidence that aid does more for economic growth and poverty reduction in a good policy environment and that effectiveness depends on “complementary policies.”14 The importance of complementary policies was echoed in the trade and growth literature. Complementary policies had long been recognized by trade economists as a factor that determines the impact of a trade reform on both trade and growth. However, their role had been challenging to show empirically in cross-country analyses. In the first half of the 2000s, developments in econometric techniques allowed this to be done (Hallaert 2006). Chang, Kaltani, and Loayza (2005) showed that the positive impact of trade on growth is larger if it is accompanied by improvements in education and infrastructure, a deeper financial sector, and institutional and regulatory reforms. Bolaky and Freund (2004) found that the impact of trade liberalization is greater if it is accompanied by regulatory reform. These findings prompted trade economists to emphasize more vigorously the role of complementary policies and the role aid could play in improving the ability of developing countries to use trade for growth and poverty reduction (Hallaert 2010; Hoekman 2007; Hoekman and Olarreaga 2007; Hoekman and Prowse 2005; Prowse 2005; Winters, McCulloch, and McKay 2004).
By 2005, the political economy was ripe for the launch of an aid-for-trade initiative. Several high-profile reports were published that year detailing the rationale for an initiative that would focus on alleviating the constraints that prevent developing countries from benefiting from trade opportunities and making trade a tool to reach the growth needed to achieve the MDGs: the UN Millennium Task Force on Trade report of which Patrick Messerlin was a lead author (United Nations Millennium Project 2005); a report supported by the UK Department for International Development (Zedillo and others 2005); the report of the Commission for Africa (2005) and a report commissioned by Sweden on developing countries and the WTO (Page and Kleen 2005).
The intellectual advocacy was accompanied by political commitments. In May 2005, the Group of 8 (G-8) heads of government committed “to increase our help to developing countries to build the physical, human and institutional capacity to trade, including trade facilitation measures” and “called on the IFIs to submit proposals to the annual meetings for additional assistance to countries to develop their capacity to trade and ease adjustment in their economies” (G-8 2005). A few weeks earlier at the IMF-World Bank spring meetings, the Development Committee stressed the need for aid for trade and called “on the Bank and Fund to work with others to develop proposals to help developing countries adjust to and take advantage of the round, for consideration by our next meeting” (IMF and World Bank 2005a). At the annual meetings in September 2005, the IMF and World Bank staff’s proposal to provide more aid for trade capacity building was endorsed (IMF and World Bank 2005b). Then, in December 2005 at the WTO Ministerial Conference in Hong Kong, the Aid for Trade Initiative was officially launched.
The Ministerial Declaration (WTO 2005) reflects the interests and objectives of both the WTO (“Aid for Trade should aim to help developing countries, particularly LDCs, to build the supply-side capacity and trade-related infrastructure that they need to assist them to implement and benefit from WTO Agreements and more broadly to expand their trade”) and donors (“Aid for Trade cannot be a substitute for the development benefits that will result from a successful conclusion to the DDA, particularly on market access. However, it can be a valuable complement to the DDA”).
The first challenge for coherence was how to deliver aid for trade. The Integrated Framework for Trade-Related Technical Assistance to Least-Developed Countries (IF) was an obvious channel through which to provide aid, to implement a multilateral trade agreement, and to deal with its implementation costs. The IF, an early attempt at policy coherence, is an initiative of six multilateral institutions (IMF, International Trade Center (ITC), UN Conference on Trade and Development (UNCTAD), UN Development Program (UNDP), World Bank, and WTO) that was set up in 1997 to help with the delivery of trade-related technical assistance in response to the needs identified by each LDC. Thus the Development Committee of the World Bank and the IMF argued that the IF should deliver aid for trade. In order to increase its firepower,15 it was agreed at the 2005 IMF-World Bank annual meetings to provide the IF with $US200 million–400 million in additional resources (IMF and World Bank 2005b).
Others favored a different delivery mechanism. The lack of financial resources was not the only problem with the IF. It had disappointed many developing countries: it was not operational (in part because coordination issues had slowed down its action); it was plagued by high bureaucratic costs; and it was limited to assistance to LDCs, whereas the requests for support in the Doha Round were made by developing countries. Therefore, many stakeholders favored another delivery mechanism that would be both sufficiently large and quickly operational. The EU, the OECD, the G-8, the WTO, and several bilateral donors supported the idea of an aid for trade initiative and donors pledged “more money than the IF had ever received” (Winters 2007).
This difference in views persisted at the WTO Ministerial in Hong Kong. Ministers launched the Aid for Trade Initiative but also indicated in their Declaration that they “continue to attach high priority to the effective implementation of the Integrated Framework (IF) and reiterate our endorsement of the IF as a viable instrument for LDCs’ trade development, building on its principles of country ownership and partnership” (WTO 2005).
The Hong Kong Ministerial Declaration gave the WTO the mandate to shape the initiative, stressing the importance of collaborating with other institutions: “We invite the Director-General to create a task force that shall provide recommendations on how to operationalize Aid for Trade. The Task Force will provide recommendations … on how Aid for Trade might contribute most effectively to the development dimension of the DDA. We also invite the Director-General to consult with Members as well as with the IMF and World Bank, relevant international organisations and the regional development banks with a view to reporting … on appropriate mechanisms to secure additional financial resources for Aid for Trade” (WTO 2005).
The choice to give the WTO the lead in shaping, monitoring, and defining precisely the scope of the initiative was made by default. Although it was in the context of the Doha Round negotiations that developing countries’ requests for support were most clearly expressed, the WTO has no expertise in delivering aid and no mandate to do so. But there was no other politically viable alternative. Developing countries feared that the IF would focus too much on market liberalization, while donors suspected that the UNDP would promote it too little (Winters 2007).
This choice had two major implications. First, the WTO put resource mobilization at the core of the initiative. Pascal Lamy, then head of the WTO, was clear: “Resource mobilization was really the focus of our efforts.… It must remain central” (WTO 2011a). The Hong Kong Declaration had instructed the WTO Director-General to do so because showing that financial resources are available was important to facilitate the Doha Round negotiations. There was also an institutional motivation for the WTO to focus on resource mobilization—lobbying for more resources and monitoring the financial flows is all that the WTO Secretariat could do given the limits of its mandate.
The second implication was that donor coordination and coherence in policymaking could not be enforced, or even advocated, given the limit to the WTO mandate.16 This problem was increased by the delivery mode that the task force recommended. The delivery mode was widely debated and involved virtually all donors (bilateral, multilateral, and regional) but also the Bretton Woods Institutions, the UN agencies, the Commonwealth Secretariat, and the OECD. The debate boiled down to the question of creating a dedicated fund or leaving aid for trade as part of regular official development assistance (ODA). Eventually, the latter was chosen.17 This choice had the advantage of maximizing resource mobilization because it allows regular aid projects that are somewhat related to trade to be labeled as “aid for trade” and because some donors might have political or institutional difficulty funding a dedicated fund. It had the disadvantage that aid for trade is delivered in an uncoordinated manner leaving donors free to choose the projects they support, and do so on their terms. Therefore there is no coherence in the Aid for Trade Initiative, and collaboration between institutions and donors is largely limited to the preparation of the Global Review of Aid for Trade that takes place every two years.
The Aid for Trade Initiative succeeded in mobilizing a large amount of resources but, after five years, resource mobilization was at risk. Facing a fiscal crisis, many donors were cutting their development budgets. Moreover, because the Doha Round negotiations had stalled, the resources mobilized could not support the implementation of a multilateral agreement and instead were used to finance other projects, some of them only remotely related to trade. In this context—delivered on donors’ terms through existing channels and without coordination—aid for trade was difficult to distinguish from other forms of aid. Its rationale was blurred, and many developing countries began to question the “additionality” of aid for trade (Hallaert 2013),18 while for many donors, in the absence of a Doha Round agreement, trade capacity building was increasingly falling out of favor as new priorities emerged.
The WTO response was to expand the already broad scope of the initiative to cover donors’ new priorities. In its Aid for Trade Work Programme for 2012–2013, titled “Deepening Coherence,” the WTO claimed that donors’ new priorities, such as gender empowerment, green growth, food security, energy, and climate change, could be part of aid for trade. It also gave a higher profile to topics—such as trade finance and the role of the private sector in development—that had always been part of the initiative but were attracting more attention (WTO 2011b).19
In the Work Programme, the WTO also called for donors to consider the trade dimension of their new priorities. Raising donors’ and developing countries’ awareness of the role trade can play in development is probably a major achievement of the Aid for Trade Initiative. As part of the 2009 monitoring exercise, the WTO and the OECD asked recipient countries to evaluate the role given to trade in their development strategy (OECD and WTO 2009). The answers suggest that awareness of trade as a development tool is extremely high, reaching levels unthinkable only two decades ago: 96 percent of developing countries claimed that they had mainstreamed trade in their development strategy. This is certainly an overestimate that reflects the bias of a monitoring exercise based on self-assessment; the assessment of outsiders is more nuanced. At the time that the OECD-WTO survey was conducted, UNCTAD (2009) wrote: “Mainstreaming trade into national development strategy is a major concern.… So far, only a minority of country-level plans includes trade-related policies and assistance among their priorities.” A more recent UNDP study found that 85 percent of Poverty Reduction Strategy Papers (PRSPs) included a trade component, whereas only 25 percent had this in 2000 (UNDP 2011).20 These more nuanced views are consistent with the IMF-World Bank joint assessments of the PRSPs.21
In the Work Programme, therefore, the WTO watered down significantly the meaning of coherence when applied to aid for trade. “Deepening coherence” was not about more or better coherence in policymaking but about lobbying donors to consider the trade dimension in their new objectives. In fact, coherence was conspicuous for its absence in the Work Programme. In paragraph 3, the WTO explains how aid for trade should work:
Operationalization of Aid for Trade lies in the hands of developing countries, regional economic communities (RECs) and their development partners. Mainstreaming of trade into national and regional development programmes helps ensure that demand for Aid for Trade is expressed in dialogues with development partners; demand against which Aid for Trade support can be aligned. Implementation of Aid for Trade programmes is multi-faceted, encompassing a diverse range of delivery mechanisms and development partner organizations including, inter alia, bilateral donors, international financial institutions (including the World Bank Group and regional development banks), RECs and multilateral agencies.
This paragraph acknowledges the diversity in delivery and in development partners, instead of stressing the need to ensure coherence in policymaking and aid delivery. Moreover, it does not mention any role for the WTO but repeats the utopian conception underlying the Paris Principles—that developing countries are expected to identify and prioritize their needs and sequence the implementation of projects. Donors would then benevolently align their support on these priorities. The burden of policy coherence was passed to the developing countries, a formidable task for countries that are often deemed to have insufficient capacities.
To some extent, in its Work Programme for 2012–2013 the WTO acknowledged the reality of aid for trade. The WTO Secretariat is not in an institutional position to push for coherence. Aid-for-trade resources are increasing, but they are delivered by donors on their terms without incentives for collaboration or coherence. Aid for trade is not any different from other form of ODA and suffers from the same flaws of lack of donor coordination and volatility.
At the Ministerial in Bali in December 2013, the Doha Round delivered the first multilateral agreement since the creation of the WTO—the Trade Facilitation Agreement (WTO 2014a) which entered into force in February 2017. The TFA makes an explicit link between implementation by developing countries and the technical and financial assistance they receive. Moreover, developing countries are required to implement many of their obligations under the agreement only when they believe they have the capacity to do so (Hoekman 2014a; Neufeld 2014).22
Aid for trade therefore has an important role to play in the TFA implementation, and the TFA provides a unique opportunity for the Aid for Trade Initiative to tackle its challenges. By focusing its activities on trade facilitation and, more broadly, on reducing trade costs, the initiative could become more efficient and restore its credibility (Hallaert 2013). Will the opportunity be seized?
At first glance, there are reasons for hope. The WTO Aid for Trade Work Programme 2014–2015 emphasized that the “Bali Package emerged as a central theme” of the initiative, and the theme of the Fifth Global Review of Aid for Trade held in the summer of 2015—reducing trade costs—was clearly the core rationale of Aid for Trade and of the TFA (OECD and WTO 2015). Moreover, initially donors appeared to respond. According to the OECD, disbursements to support trade facilitation projects increased in real terms by 22 percent in 2013, and commitments remained high by historical standards (they declined by 8 percent after a 34 percent increase in 2012).23 Adding another incentive for donors to finance trade-related projects are the Sustainable Development Goals (SDGs) for 2015–2030 adopted at a UN Summit in September 2015; following in the steps of the MDGs, they consider trade to be a tool for development.
A closer look suggests, however, that the TFA is not an opportunity for the Aid for Trade Initiative, but business as usual.
For the development community, the focus remains unchanged: mobilizing resources and improving market access. The SDGs are broader in scope than the MDGs, reflecting the view that development policies need to consider issues of equity and inclusion as well as the environmental impact of human activity. Aid for trade is seen as a tool for achieving the SDGs, but its role is limited to the usual resource mobilization. The “Means of Implementation” (section 8.a) proposes to “increase Aid for Trade support for developing countries, particularly LDCs, including through the Enhanced Integrated Framework for Trade-Related Technical Assistance to Least Developed Countries.” As in the MDGs, trade has a role to play (goals 17.10 to 17.12), and, as in the MDGs, the focus is on market access rather than reducing trade costs (Hoekman 2014b) notwithstanding the growing body of evidence that reducing trade costs will bring larger benefits than improving market access, and the recent empirical evidence that the role of imports for growth and development is as large as the role of exports (Hallaert 2015).
Against the background of a broadening of development goals and notwithstanding the institutional importance of the TFA, the incentives for the WTO to call for an expansion of the scope of the initiative are strengthened. In the Aid for Trade Work Programme 2014–2015, the WTO claims that the Bali Package “add[s] a significant, novel dimension to on-going work on Aid for Trade” (WTO 2014b, emphasis added). Similarly, Pascal Lamy, who as head of the WTO oversaw the birth and development of the Aid for Trade Initiative, has stressed the importance of helping “least developed countries [to] acquire the capacity to raise the quality of their production to the required level. This adds a large Aid for Trade area, besides existing support programs for production capacity, infrastructure, trade facilitation or trade finance” (Lamy 2015, emphasis added). Clearly, reducing trade costs had not become the focus of the Aid for Trade Initiative, but just another expansion of its scope.
The Aid for Trade Work Programme 2016–2017 focused on “Promoting Connectivity’ by reducing trade costs” (WTO 2016). Reducing trade costs was meant to be much broader than trade facilitation as an “increased focus [was put] on services trade and upgrading infrastructure.” The 2017 Aid for Trade at a Glance Report (published on the occasion of the Sixth Global Review) noted that “trade facilitation tops the aid-for-trade priorities of both developing countries and their development partners, albeit in a broader conception that also includes physical connectivity, such as transport corridors, and digital connectivity too” (OECD and WTO 2017, emphasis added).
Finally, the Aid for Trade Work Programme 2018–2019 is broad in scope:
The new Work Programme will seek to further develop analysis on how trade can contribute to economic diversification and empowerment, with a focus on eliminating extreme poverty, particularly through the effective participation of women and youth, and how Aid for Trade can contribute to that objective by addressing supply-side capacity and trade-related infrastructure constraints, including for Micro, Small and Medium-sized Enterprises (MSMEs) notably for those MSMEs in rural areas. Other issues to be developed during the Work Programme will include industrialization and structural transformation, digital connectivity and skills, as well as sustainable development and access to energy. (WTO 2018)
Though very broad, the Work Programme does not mention trade facilitation and has only two references to trade costs: one to highlight their link with poverty and the other to emphasize their gender dimension.
Despite efforts to remain in line with donors’ priorities, the growth of aid-for-trade disbursements slowed dramatically: after growing in real terms by 11 percent a year on average over the period 2008–2012, disbursements grew by only 5 percent per year on average from 2012 through 2015 and then by 2 percent from 2016 to 2018. Disbursements for trade facilitation accounts for only about 1 percent of total aid-for-trade disbursements. They had increased in the run-up to the TFA agreement (by 22 percent in both 2012 and 2013) but experienced a decline of 6.4 percent per year on average in the years 2014–2017. The entry into force of the TFA appears to have reversed the trend: preliminary data for 2018 report a 62 percent increase. This rebound may have come at the expense of other projects since total aid-for-trade disbursements slightly declined in 2018.
The financial cost of implementing the TFA is small and thus does not require a large increase in aid-for-trade resources. The OECD estimates that the initial investment cost ranges between US$5 million–25 million per country and that the annual operating costs do not exceed US$3.5 million (OECD 2014). The World Bank estimates range from US$7 million–11 million (Jackson and McLinden 2013).
Nonetheless, in another sign that developing countries are skeptical about the additionality and delivery of aid for trade, they express concerns that support may not be available to implement the TFA. These concerns were so strong that in July 2014, in a show of coherence, nine international organizations (ITC, OECD, UNCTAD, UN Economic Commission for Europe (UNECE), UN Economic Commission for Latin America and the Caribbean (ECLAC), UN Economic Commission for Asia and the Pacific (ESCAP), UN Economic and Social Commission for Western Asia (ESCWA), World Bank, and World Customs Organization (WCO)) issued a joint statement stressing their commitment to provide coordinated assistance, and the WTO announced the launch of the Trade Facilitation Agreement Facility (TFAF) financed on a voluntary basis by WTO members (WTO 2014c). Its purpose is to address possible aid-for-trade delivery failure.24As such, it responds to the credibility issue of the initiative, but because it is limited in scope it is only a partial response. The Aid for Trade Initiative needs to do more and should seize the opportunity of the TFA to reinvent itself.
The Aid for Trade Initiative increased donors’ and developing countries’ awareness of the role trade can play in development. It has also been instrumental in increasing aid to build trade capacities and in donor financing to the productive sector.
However, the Aid for Trade Initiative failed to bring coherence to policymaking. The WTO Secretariat is not in a position to promote coherence in aid for trade. It has no expertise in aid delivery or in development policies, and perhaps more important, cannot institutionally steer the initiative. Its role is largely limited to calling for more resources and to monitoring aid flows. Thus the initiative is headless and, in the absence of a Doha Round agreement, without a precise goal. The consequence is that donors deliver aid for trade the same as any other form of aid—on their own terms and in an uncoordinated way. Experience has demonstrated that complementary policies and sequencing are crucial for the success of trade reforms; thus the failure to achieve coherence reduces the effectiveness of aid for trade.
In this context, and with the Doha Round ending without an agreement, aid for trade has become less of a priority for donors. In its Aid for Trade Work Programme 2012–2013, the WTO implicitly acknowledged this reality. Unable to promote coherence in policymaking, it redefines coherence as coherence “in objectives” by calling for donors to consider the trade dimension of their new priorities.
The Trade Facilitation Agreement has the potential to transform the Aid for Trade Initiative and to increase policy coherence. However, the TFA risks being a missed opportunity for the initiative. The WTO considers trade facilitation, and more generally reducing trade costs, as merely an expansion of the scope of the initiative rather than an opportunity to focus its activities. Similarly, for the development community, the TFA does not lead to a revisiting of “business as usual.” The role of trade in the post-2015 development agenda remains the same as it was in the MDGs: improving market access. Despite its large benefits and low cost, reducing trade costs is largely ignored.
I would like to thank Patrick Messerlin for suggesting this analysis and for his comments on a previous version.
1. Article III(5) of the Agreement establishing the WTO, www.wto.org/english/docs_e/legal_e/04-wto_e.htm. For more details, see the “Declaration on the Contribution of the World Trade Organization to Achieving Greater Coherence in Global Economic Policymaking,” http://www.wto.org/english/docs_e/legal_e/32-dchor_e.htm.
2. Rules on customs valuation are a good example of how rules evolved. Previously, developing countries could opt out of the Tokyo Round code on customs valuation (and most of them did), but the Uruguay Round’s agreement on customs valuation is legally binding on all WTO members.
3. As part of the Uruguay Round, some members agreed to replace their nontariff barriers on agriculture with ad valorem tariffs. Estimating the ad valorem equivalent of nontariff measures is difficult. The tariffication was usually done in a way that the tariff equivalent was high and arguably has not reduced protection.
4. World Trade Organization, Uruguay Round Agreement, “Decision on Measures in Favour of Least-Developed Countries,” www.wto.org/english/docs_e/legal_e/31-dlldc_e.htm. It is noteworthy that the decision includes assistance to strengthen and diversify the production base. This is outside the WTO mandate and will be an aid-for-trade objective.
5. World Trade Organization, Uruguay Round Agreement, “Agreement on Technical Barriers to Trade,” Article 12(7), www.wto.org/english/docs_e/legal_e/17-tbt_e.htm.
6. World Trade Organization, Uruguay Round Agreement, “Agreement on the Application of Sanitary and Phytosanitary Measures,” Article 9, www.wto.org/english/docs_e/legal_e/15sps_01_e.htm.
7. World Trade Organization, Uruguay Round Agreement, “Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade 1994, Article 20, www.wto.org/english/docs_e/legal_e/20-val_01_e.htm.
8. World Trade Organization, Uruguay Round Agreement, “Trade-Related Aspects of Intellectual Property Rights,” Article 67, www.wto.org/english/docs_e/legal_e/27-trips_01_e.htm.
9. World Trade Organization, Uruguay Round Agreement, “Decision on Measures Concerning the Possible Negative Effects of the Reform Programme on Least-Developed and Net Food-Importing Developing Countries,” www.wto.org/english/docs_e/legal_e/35-dag_e.htm.
10. World Trade Organization, Ministerial Declaration, November 20, 2001, paragraph 41, emphasis added, www.wto.org/english/thewto_e/minist_e/min01_e/mindecl_e.htm.
11. World Trade Organization, Doha Development Agenda, August 1, 2004, Annex D, paragraph 5, www.wto.org/english/tratop_e/dda_e/draft_text_gc_dg_31july04_e.htm#annexd.
12. See Articles 14 to 20 of the Trade Facilitation Agreement (WTO 2014a).
13. Millennium Development Goal 8 addresses both trade and aid. Its target 12 is to “develop further an open, rule-based, predictable, non-discriminatory trading and financial system” that works for developing countries. Its targets 13 and 14 address the special needs of LDCs, landlocked developing countries, and small island developing states. “Proportion of ODA provided to help build trade capacity” is listed under MDG 8, indicator 41. The relation between aid for trade and the MDGs was made explicit in the recommendations of the WTO Task Force on Aid for Trade. The task force indicates that an objective of aid for trade is “to enable developing countries, particularly LDCs, to use trade more effectively to promote growth, development and poverty reduction and to achieve their development objectives, including the Millennium Development Goals” (WTO 2006a).
14. For a review, see De Lombaerde and Mavrotas (2009), as well as Calì and te Velde (2011).
15. In early 2004, the IF had received only US$21.1 million from donors for the Diagnostic Trade Integration Studies and for technical assistance (Winters 2007). On the eve of the WTO Ministerial Conference in Hong Kong, the IF had given out a maximum of only US$1 million in aid to each country (Beattie 2005).
16. It seems that the WTO initially hoped to be able to do so. Finger (2007) reports that, in a chatroom discussion (on October 16, 2006), WTO DG Pascal Lamy explained that while the WTO makes only a modest contribution to capacity building, it seeks to contribute coherence and clarity to others’ efforts.
17. For details, see Hoekman (2007) and Luke, Monge-Roffarello, and Varma (2009).
18. Additionality is a major concern of developing countries; they fear that aid for trade will divert aid from other sectors. Reflecting this concern, Kofi Annan, the United Nations secretary-general, indicated at the WTO Ministerial in Cancùn that “developing countries need aid for trade, and such aid must not come at the expense of aid for development” (WTO 2003). The additionality of aid for trade is explicit in both the Hong Kong Declaration (WTO 2005) and the task force recommendations (WTO 2006a).
19. Trade finance was a high-profile issue during the “great trade collapse” of 2008–2009. In November 2008, Pascal Lamy claimed in his report to the WTO General Council that the World Bank support for trade finance was “aid for trade in action.” The Aid for Trade Initiative provided the WTO with extra leverage to promote its trade finance agenda (Hallaert 2011). As for the role of the private sector in development, the Fourth High Level Forum on Aid Effectiveness held in 2011 emphasized that the private sector is essential to move from “aid effectiveness” to “development effectiveness.” In this context, the role of the private sector was given particular attention at the Third Global Review of Aid for Trade.
20. Inclusion of a trade component is obviously a softer criterion than the WTO-OECD criterion of “mainstreaming trade in development strategy” or UNCTAD’s “priority.”
21. See the “Joint Staff Advisory Notes” and the “Progress Reports” published on the IMF website. For an evaluation of the (lack of) mainstreaming of trade in development strategies when the initiative was launched, see WTO (2006b).
22. Developing countries notify the WTO of the provisions they will implement when the agreement enters into force or, in the case of LDCs, within one year after entry into force (category A); the provisions they will implement after a transitional period following the entry into force of the agreement (category B); and the provisions they will implement on a date after a transitional period following the entry into force of the agreement and that require the acquisition of assistance and support for capacity building (category C). Category C is thus of relevance for AFT. As of September 3, 2020, ninety-four WTO members had made notifications under category C.
23. The OECD’s Creditor Reporting System can be accessed at www.oecd.org/dac/aft/aid-for-tradestatisticalqueries.htm. Aid to trade facilitation is reported under code 33120.
24. The TFAF provides two types of grants to developing countries that have been unable to access support for their TFA commitments through regular channels. Project preparation grants (up to US$30,000) are available to members requiring additional support to successfully apply for assistance to implement their category C provisions. Project implementation grants (up to US$30,000) are available for implementation of applicants’ specific category C provisions of the TFA. For details, see the website of the Trade Facilitation Agreement Facility at https://www.tfafacility.org/.