Aid for trade: “distraction” from a bad deal

23 January 2006

The consensus among civil society observers was that the agreement struck at the December Hong Kong WTO trade ministerial was a bad deal for developing countries, with IFI-backed ‘aid for trade’ used as a “major distraction”.

In the run-up to the ministerial, the World Bank’s trade department released their latest in a string of publications on the multilateral trade talks, entitled Trade, Doha and development: A window into the issues. A paper explaining why the Bank has been forced to back-pedal on its estimates of the benefits of an agreement to developing countries says that one of the key reasons for the adjustment was that “the most heavily protected economies have been growing more rapidly than the less protected”.

While most developing countries got something small out of the meeting (either in the form of a development package, a distant end date for rich country agricultural subsidies or improvements in safeguard mechanisms to defend sensitive products), the more important agreements on manufactured goods and services were contrary to their interests. Aileen Kwa, of Focus on the Global South, believes that the agreement “will force developing countries to provide foreign investors with the same rights as local suppliers. This would lock up their ability to develop their own services sectors.”

the most heavily protected economies have been growing more rapidly than the less protected

At the September annual meetings, the World Bank and IMF announced the key elements of their ‘aid for trade’ agenda, re-packaging existing plans for increased trade-related lending, technical assistance and support for adjustment costs (see Update 48). In Hong Kong, the industrialised countries joined the ‘aid for trade’ chorus, with the EU, Japan and the US all announcing major increases in their spending.

The Institute for Agricultural Trade Policy (IATP) in Geneva called the ‘aid for trade’ package a “major distraction”, and pointed out that proposals in the interest of African, Caribbean and Pacific country members were ignored because they are not classified as ‘least developed countries’. Other critics of the ‘aid for trade’ deal have underlined the lack of new money available and the fact that most is in the form of loans, which will put countries further in debt. They stressed that aid is not a substitute for strong multilateral trade rules that prevent dumping and protect countries’ right to design domestic policies according to their people’s needs.

Despite such misgivings, the WTO director general was instructed in the ministerial declaration to consult with IFIs and relevant international organisations on how to secure additional financial resources for ‘aid for trade’, and to create a task force that “shall provide recommendations on how to operationalise aid for trade”. The task force is supposed to submit recommendations by July 2006. This is in addition to the task force that will look into the Integrated Framework (IF) for technical assistance (a multi-agency initiative to coordinate national ministries, donors and multilateral agencies in the provision of trade-related capacity building, see Updates 38, 34) and submit recommendations by April 2006. The enhanced IF shall enter into force no later than 31 December 2006.