November 19, 2007 –Momentum is building on the aid for trade agenda, with increased international attention being paid to helping low-income countries develop their trade infrastructure, institutions and policies to integrate into world markets.
Ministers, heads of regional development banks and key organizations, including World Bank Group President Robert B. Zoellick, will meet in Geneva November 20 and 21 for the first global review of the World Trade Organization’s “Aid for Trade” initiative.
“No country has grown successfully without engaging the global economy,” Zoellick has said. “Globalization presents unprecedented opportunities. But if globalization is to be sustainable, benefits must be shared and opportunities must be available to all. Aid for trade is a critical part of this picture.”
The Geneva conference will take stock of what has been happening on the aid for trade front around the world and identify how additional aid can help low-income countries build their capacity to integrate into and benefit from global markets.
Zoellick will present the World Bank Group’s strategy to expand work on trade, including efforts to tackle problems such as substandard infrastructure, poor regulatory frameworks, and inadequate access to trade finance.
Zoellick will underline that the Bank Group stands ready to support countries that make competitiveness a pillar of their growth strategy.
Lack of the basic machinery for trade has contributed to keeping the least developed countries from benefiting from the huge expansion in world trade in the last 10 years.
Sub-Saharan Africa’s world market share of non-oil merchandise exports, for instance, fell from 3.4 percent some 25 years ago to around 1 percent today, according to World Bank calculations.
“It’s not necessarily that countries are actually finding themselves going backwards, it’s that they’re in danger of being left behind by the star performers. More importantly, their share of the global market may be declining at a time when their growth and poverty reduction needs are for that to be increasing,” says Uri Dadush, Director of the Bank Group’s International Trade Department.
Those concerns and others were aired at three WTO-sponsored forums this fall that brought together finance and trade ministers throughout Latin America, Asia, and Africa to discuss their countries’ aid for trade problems and priorities.
A major objective of the Geneva meeting is to develop a roadmap for implementing aid for trade and to discuss ways to better monitor and evaluate progress in partner and donor countries.
IDA Replenishment Needed
Developing countries received as much as US$21 billion a year in aid for trade over 2002-2005, according to the definition now used in WTO/Organization for Economic Cooperation and Development (OECD) estimates. These estimates include all investments in transport, energy, and telecommunications infrastructure. The Bank is working with the WTO and OECD to refine the measurement of aid for trade.
About US$3.1 billion of this amount is provided by the International Development Association (IDA), the arm of the World Bank Group that provides grants and zero-interest loans to the world’s poorest countries.
“The World Bank Group is the largest multilateral donor of Aid for Trade to low income countries—but I believe we can and should do more,” Zoellick said in his October 1 taped address to the Africa Aid for Trade forum in Dar Es Salaam, Tanzania.
But the Bank’s ability to help “depends crucially” on further replenishing IDA’s financial resources, says Zoellick. To this end, the World Bank Group will contribute some $3.5 billion of its own resources to IDA, and has also asked donors to increase their contributions.
While ongoing Doha Round trade negotiations are on a parallel but separate track from aid for trade, a successful Doha Round would lower tariffs and other trade barriers and “markedly open doors to the products poor people produce,” says Bernard Hoekman, Senior Advisor in the Bank Group’s research department.
“If the negotiations can open up market opportunities for developing countries, that will contribute to raising their living standards, to economic growth, and to poverty alleviation,” he says.
The benefits include wider markets, economies of scale, productivity gains, lower prices for domestic goods as imports increase, access to new technology, and skills and information through the temporary movement of workers across borders, says Richard Newfarmer, the Bank’s Special Representative to the WTO and UN in Geneva, who was also lead author of the Bank’s Global Economic Prospects 2007: Managing the Next Wave of Globalization.
Tariffs and trade barriers have been lowered on many products over the last 20 years, but protection on agricultural products—important exports for many developing nations—remain high.
According to the OECD, farmers in rich countries receive around $268 billion per year in support—paid both by taxpayers in the form of subsidies and consumers through higher prices for food due to tariffs. High tariffs in Japan, the United States, the EU, Korea, and other countries restrict markets for agricultural products such as rice and beef. Huge subsidies depress the world price in cotton, taking income away from poor producers in West Africa and elsewhere.
But protection in agriculture also remains high in many developing countries—to the detriment of their own exporters and consumers. And while high tariffs in manufactured goods in rich countries remain on products that poor countries produce, such as clothing, protection in developing countries is some four times higher than in high-income countries.
High tariffs in developing countries harm their own consumers, their exporters (whose competitiveness in world markets is harmed by more expensive inputs), and their developing country trading partners—who account for around one quarter of developing country exports.
“While the talks are difficult, a deal should be doable if all countries are prepared to go the extra mile,” says Dadush.
“Failure in the Round would likely result in increased trade disputes, and rising protectionism. It would be a missed opportunity. We will have lost the growth impulse that would come out of a successful Doha Round.”