Trade and Investment

These are the lessons we can learn for the future of Aid-for-Trade

A worker walks in a shipping container area at the Port of Shanghai April 10, 2012. China returned to an export-led trade surplus of $5.35 billion in March, heralding the prospect that a rebound in the global economy is lifting overseas orders just in time to compensate for a slowdown in domestic demand. REUTERS/Aly Song (CHINA - Tags: BUSINESS TRANSPORT) - RTR30JOK

Aid-for-Trade: supporting economic growth and development. Image: REUTERS/Aly Song

Anabel González
Vice-President, Countries, Inter-American Development Bank
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Long-Term Investing, Infrastructure and Development

This week, myself and colleagues from the World Bank Group will participate in the World Trade Organization’s Sixth Global Review of Aid-for-Trade. The bi-annual meetings, held at WTO headquarters in Geneva, bring together trade ministers, civil society, international development institutions and the private sector to monitor progress made toward connecting developing countries to the global trade system. The meetings are also an opportunity to mobilize resources that help countries address trade-related constraints. The theme for this year’s review: “Promoting Trade, Inclusiveness and Connectivity for Sustainable Development”.

As the largest multilateral provider of Aid-for-Trade, the World Bank Group supports countries through a number of initiatives that promote connectivity and inclusiveness, including our Trade Facilitation Support Program. The Program directly supports concrete trade facilitation reforms in 34 countries and leverages additional financing from donors and other partners.

We know that Aid-for-Trade plays a vital role in ensuring that the gains from more and cheaper cross-border trade reach everyone, everywhere. But, as we look back over the 10 years since the first global review of Aid-for-Trade, it is important to take stock of the lessons we’ve learned and to identify some priorities for the future. Here are the five key areas of focus as I see them:

1. Infrastructure connectivity matters. Better roads and rail, upgraded ports and airports, and investments in ICT infrastructure are all essential for boosting trade. But, there’s a growing awareness that the infrastructure deficit in developing countries is well beyond what can be met through traditional channels of development finance. Those of us engaged in helping countries finance trade must ensure that every dollar goes further and that we use our resources as effectively as possible to crowd in private financing. It also means intensifying our support to improve the investment climate in developing countries to lower the risks faced by private investors.

2. Policy, regulation and institutions matter. We can only make the most of improved physical connectivity if we also improve the “soft infrastructure” of trade through reforms to streamline trade; promote competition; improve transparency and enhance the quality of policy design and of those implementing it. Trade facilitation, which has been one of the fastest-growing areas of Aid-for-Trade in recent years, offers a prime example of how novel trade rules can be a powerful anchor to mobilize resources for development. In Cambodia, for instance, where the Bank Group has been involved in a more than 10-year partnership, trade facilitation reforms to improve transparency and strengthen coordination among border agencies have helped cut border clearance times from six days to 1.4 days over just a few years. This has led to Cambodia’s growing export competitiveness in manufacturing, especially in the garment sector, where 85% of the workforce is female.

3. Upgrading competitiveness matters. This encompasses a range of “behind the border” policy areas like innovation and entrepreneurship; or skills and education. Although we don’t always think of these areas as “Aid-for-Trade”, investing in them is essential for boosting productivity, promoting gender equality and ensuring that businesses can take advantage of the opportunities presented by openness.

4. Rules matter. The multilateral system underpinned by the WTO provides a critically important global public good in the form of a predictable, rules-based, environment so that cross-border commerce can thrive. A lack of stability and rules would significantly undermine efforts to protect the weakest and the most vulnerable. Such efforts must be directed at developing rules that address the constantly evolving new dimensions of trade and investment while also tackling long-standing distortions in areas like agriculture.

5. Managing the process of adjustment matters. Trade and investment liberalization often entail adverse distributional consequences, with some in developing and developed countries feeling “left behind”. If left unaddressed, these costs can sap public support for policies of openness. Trade-related adjustment assistance has been a very small part of overall Aid-for-Trade to date. I believe that the international community must scale up support in this area and develop an approach to adjustment that doesn’t simply manage costs, but helps build the resilience of economies and workers to participate in an open global economy. Here, skills, education, and infrastructure are all essential ingredients. Experience has taught us that open, growing economies where new jobs are created are much better equipped to deal with adjustment than those that are uncompetitive and stagnant.

Through action in each of these five areas, not by one institution, but as part of an effort by international organizations at the global and regional levels, the donor community, the private sector and a host of other key actors in academia and civil society, I believe that Aid-for-Trade will continue to support economic growth and development well into the future while also fostering inclusion.

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