IFI ‘aid for trade’ carrot ahead of Hong Kong trade summit

21 November 2005

Official hyperbole reached fever pitch last month with Bank president Paul Wolfowitz, in a 24 October op-ed for the Financial Times, saying that a deal in Hong Kong would mean “the difference between a healthy life or an early death from a preventable disease” for tens of millions. The World Bank predicted two years ago that a global trade accord would be worth as much as $500 billion to the economy. However, EU and US resistance to cuts in agriculture subsidies, has led Uri Dadush, the Bank’s trade director, to tone down official exuberance: “Let’s say all we’re talking about in the current context is a gain of $20-$30 billion for developing countries.”

Even such modest predictions are contradicted by recent research from UK NGO Christian Aid, which found that IFI-induced trade liberalisation has cost sub-Saharan Africa $272 billion over the past 20 years: “Had they not been forced to liberalise as the price of aid, loans and debt relief, sub-Saharan African countries would have had enough extra income to wipe out their debts and have sufficient left over to pay for every child to be vaccinated and go to school.” Christian Aid commissioned an expert in econometrics to work out what might have happened had trade not been liberalised. The work was reviewed by a panel of academics. The model looked at what trade liberalisation has meant for 32 countries in Africa, Asia and Latin America.

Sweetening the deal

In a joint WB-IMF paper for the annual meetings in September, entitled Doha Development Agenda and Aid for Trade, authors opened the section on aid for trade under duress: “the majority of developing countries will gain more from a successful Doha Round that opens markets and reduces subsidies than from any aid for trade package.” However by end October, in a joint statement from the heads of the institutions, a decision had been made to put a better face on the aid for trade package: “Ambitious market opening in agriculture, services and manufactures must be accompanied by significantly increased aid for trade to help the poorest countries take advantage of new opportunities and cope with any adjustment costs.”

Had they not been forced to liberalise, they would have had enough extra income to wipe out their debts

Elements of the Bank and Fund ‘aid for trade’ package include:

  • World Bank lending for trade will increase from $1.4 billion in FY 01-03 to $3 billion in FY 04-06.
  • The Integrated Framework for trade-related technical assistance will be increased from $30 million to $400 million, with a new window for financing activities identified in diagnostic studies;
  • A proposal for a dedicated fund to provide financing for regional projects; and
  • “Strengthened assessment of adjustment needs”. However, Bank and Fund staff expressed “serious misgivings” about the desirability of a separate fund to address adjustment given the “availability of existing mechanisms”.

Dipak Patel, the Zambian trade minister who co-ordinates the least-developed countries in the World Trade Organisation talks was unimpressed: “This aid for trade package is totally insufficient as a carrot being offered to least developed countries. This amounts to at most $2 million per country per year for technical assistance, capacity building and assistance in project preparation.”

Aldo Caliari of US NGO Center of Concern was sceptical about the benefits of increasing funding for the Integrated Framework when two independent evaluations have pointed to many problems in design and implementation: “the problems raised by the most recent evaluation closely mirror those raised by the previous one. Instead of temporarily halting its operations to rethink what went wrong, the ‘aid for trade’ proposal would expand it.” A working group of international trade NGOs have drafted a series of principles which must be upheld in any trade-related technical assistance.

Caliari also expressed concern about an increased role for the IFIs in evaluating adjustment losses attributable to trade liberalisation: “those familiar with the Fund’s tendency to be overly optimistic about growth and debt sustainability projections in the past know there are good reasons why poor countries should think twice before giving the Fund a role as arbiter in determining the size of trade losses warranting compensation.”

Trade campaigners are concerned that ‘aid for trade’ will be seen as a sop when better trade conditions, respect for policy space and preferential treatment are what developing countries really need. The US deparment of agriculture’s ‘aid package’ for West African cotton producers, for example, provides $7 million to compensate for the effects of $17 billion in subsidies to US cotton farmers. Furthermore, while the financial commitments of donors cannot be enforced, the obligations developing countries are asked to undertake in exchange, once adopted, cannot be signed away.