AID FOR TRADE: IS IT WORKING?

T
rade can be a powerful engine for economic growth and In fact, aid for trade increased 62% in real terms between the 2002-
poverty reduction, but harnessing its power is difficult for many 05 baseline period and 2008, with commitments in 2008 totalling USD
developing countries. 41.7 billion. The increasing commitments were widely shared among
aid-for-trade sectors and across income groups.
This is particularly true for the least developed countries (LDCs),
where there is often a lack of capacity – in terms of information, Gradual recovery from the severe economic crisis, and continued
policies, procedures, institutions, and/or infrastructure – to integrate exploitation of market access opportunities – which a conclusion to
and compete effectively in global markets. the Doha Development Agenda will offer – underscore the case for
more and better aid for trade.
To address these capacity constraints, the WTO has led the call for
more and better aid for trade. Recommendations have been made Aid for trade can provide a short-term stimulus with long-term impacts
to strengthen both the demand-side and the donor response, while on improving the ability of enterprises in low-income countries to
working to better bridge the gap between these at the country, respond to trade opportunities. Aid for trade bolsters the contribution
regional and global level. of trade to economic growth and poverty reduction.
Furthermore, the WTO and OECD periodically put a spotlight on aid for Maintaining the momentum of aid for trade necessitates deepening
trade to monitor what is happening, what is not, where improvements the partnership between governments, regional organisations, the
are needed and whether aid for trade is having the desired effect. private sector, civil society and the development community. The OECD
and WTO’s work will contribute to this goal and aim to strengthen
The Aid-for-Trade Initiative has helped to promote considerable
the positive impact of the Aid-for-Trade Initiative on achieving the
progress in a short time. Partner countries and donor agencies are
Millennium Development Goals.
prioritising trade in their development strategies, and aid-for-trade
flows are rising.
WHAT IS AID FOR TRADE?
The Aid-for-Trade Initiative aims to help developing countries overcome needs (Figure 1). In other words, aid for trade is a holistic approach
structural and capacity limitations that undermine their ability to which draws various themes together into a single framework.
maximise the benefits from trade opportunities. Upon concluding its FIGURE 1. AID FOR TRADE: AN EXPANDING AGENDA
work in 2006, the WTO Task Force on Aid for Trade stated that:
“Aid for trade is about assisting developing countries to
increase exports of goods and services, to integrate into the
multilateral trading system, and to benefit from liberalised trade
and increased market access.” 1
Aid for trade is not a new global development fund, nor a new aid
category. On the contrary, aid for trade is an integral part of regular
official development assistance (ODA) programmes. Donors have,
in fact, been providing substantial amounts of aid to trade-related
programmes for many years. All the while, the focus has expanded
considerably. During the 1986-1994 Uruguay Round of trade
negotiations, trade-related assistance was mainly aimed at technical
support to help developing countries negotiate and implement trade
agreements. Subsequently, the scope expanded to include building
supply-side capacities, for instance in private sector development
and trade-related infrastructure. Now, the agenda also includes trade-
related structural adjustment programmes and other trade-related

1. Recommendations of the WTO Task Force on Aid for Trade [WT/AFT/1], 27 July 2006.
Trade is not a “sector” – it covers a wide range of activities and • Technical trade-related assistance: for example, helping
encompasses not just goods, but also services. Thus, the scope of aid countries to develop trade strategies, negotiate trade
for trade is likewise broad and not easily defined. For this reason, the agreements, and implement their outcomes;
Aid-for-Trade Initiative is based on setting objectives and producing
• Trade-related infrastructure: for example, building roads,
results, e.g. building trade capacity, enhancing growth prospects and
ports, and telecommunications networks that connect domestic
reducing poverty. It seeks to complement trade reforms (multilateral,
markets to the global economy;
regional or national) and promote more equitable distribution of
global benefits across and within developing countries. The initiative • Productive capacity building (including trade development):
is guided by the 2005 Paris Declaration on Aid Effectiveness, which for example, providing support to allow industries and sectors
emphasises local ownership as one of the key factors for effective to build on their comparative advantages and diversify their
aid. Consequently: exports;
“Projects and programmes should be considered as aid for • Trade-related adjustment assistance: helping developing
trade if these activities have been identified as trade-related countries with the costs associated with trade liberalisation
development priorities in the recipient country’s national such as tariff reductions, preference erosion, or declining terms
development strategies.” […] At the same time, clear […] of trade;
benchmarks are necessary for reliable global monitoring of aid
• Other trade-related needs: if identified as trade-related
for trade efforts and […] to assess additionality.”
development priorities in partner countries’ national
The benchmarks for measuring the volume of aid-for-trade flows and development strategies.
assessing additionality comprise ODA for:

WHY DOES AID FOR TRADE MATTER?

There is a large and growing body of evidence that there are positive as establishing sound economic frameworks, promoting business-
links between openness to trade and economic performance, which friendly environments, developing human resources, and ensuring
– depending on the pace and pattern of growth – is important for that the most vulnerable are protected.
achieving sustained poverty reduction. This can be seen in the
Aid for trade provides a coherent framework for supporting this broad
developing countries that have succeeded in benefitting from the
range of objectives. In doing so, it can help developing countries
expansion of global markets. Steady reduction in trade barriers –
grow and implement comprehensive export-oriented strategies that
particularly in manufactured goods – has enabled these countries
will benefit the poor. To be successful, these growth strategies need
to rapidly integrate into world markets through an export-led
to cover numerous areas – many of them “behind the border”. Only
industrialisation process, and thereby share in the prosperity
by doing so can they ensure that the benefits of export growth are
generated by globalisation.
distributed fairly.
Opening up trade regimes and enhancing market access is often
Strengthening the linkages between trade and human development is
not sufficient, however, to enable developing countries – and in
very much part of the broader development agenda. In particular, this
particular LDCs – to participate and reap all the potential benefits of
is an integral part of the global partnership for development mapped
trade liberalisation. These countries need help in building their trade-
out by the Millennium Development Goals (goal number 8). Aid for
related capacity if they are to benefit. There is no doubt that this
trade underpins these objectives by strengthening the positive links
may sometimes require painful structural adjustment. Domestically,
between trade, economic growth and poverty reduction.
countries should begin by doing what is right for their economies, such

HOW MUCH AID FOR TRADE IS THERE?

The Aid-for-Trade Initiative has achieved remarkable progress in their development strategies and clarifying their needs by developing
a short time: partner countries are increasingly prioritising trade in operational plans. Donors are improving aid-for-trade delivery and
scaling up resources. In 2007, aid for trade grew by more
FIGURE 2. GROWING REGIONAL AND SECTORAL AID FOR TRADE than 20% per annum in real terms on the 2002-05 baseline.
AVERAGE 2002–05, 2006, 2007 AND 2008 This was followed by a further 35% increase in 2008. Total
(COMMITMENTS, US DOLLARS, 2008 CONSTANT) new commitments from bilateral and multilateral donors
in 2008 reached USD 41.7 billion, with an additional USD
25.7 billion in non-concessional trade-related financing.
Furthermore, calculations suggest high disbursements of
commitments – i.e. pledges are honoured as money is
spent.
Donors are also on track to meet their aid-for-trade pledges,
which – based on their indicative forward spending plans
– will result in continued growth of aid for trade over the
medium term.
The largest share of aid for trade continues to go to Asia
(with 44%), although flows to Africa (with 35%) are also
increasing steadily (Figure 2). Overall, the distribution
of aid over the different trade-related categories has
Source: OECD Creditor Reporting System
remained relatively stable over this period: economic infrastructure technical assistance for human and institutional capacity-building in
and productive capacity-building showed similar increases, with trade policy and regulations.
strong support going to trade development programmes and declining

IS AID FOR TRADE WORKING?

In the face of the worst economic crisis in generations, stakeholders needs to be complemented by efforts to measure results and evaluate
are interested, more than ever, in finding out whether the Aid-for-Trade outcomes.
Initiative is producing the desired results. In particular, do country-
A number of donors have recently evaluated their programmes and
owned trade strategies and donor-funded trade-related programmes
most have concluded that while direct effects on export (growth)
actually build the capacity to improve trade performance and reduce
volumes are likely, they are complex to substantiate. The most
poverty? How do we know we are on the right track? How can we
widely cited positive outcomes include improved understanding of
learn from failure? How can we build a body of best practice? These
the potential contribution trade can make to development, increased
are the kinds of questions that are being raised by stakeholders in
awareness and knowledge of trade policy issues, and strengthened
developed and developing countries alike.
national dialogue.
Measuring the impact of aid for trade is never going to be easy, given
There exists a growing consensus on the real and overall positive
the difficulty in establishing the counterfactual (i.e. testing the opposite
benefits countries can gain by opening up their economies, despite
hypothesis) and because of the other factors which may come into
differences of opinion among researchers on the questions of “how”
play (political, economic, social). For this reason, case-studies about
and “why”. Indeed, the weight of evidence indicates clearly that
the relationship between aid for trade and trade performance present
greater openness is an important element in growth performance and
a useful way of establishing what works, what doesn’t work, where
has been a central feature of successful development. By encouraging
improvements are needed and what type of impacts aid for trade can
this opening and addressing the constraints that can prevent its
have. To date, a limited number of these studies have been conducted
benefits from flowing through the economy, aid for trade has a critical
– and more are called for. Much more analysis has been undertaken
supporting role to play.
to clarify the links between trade, growth and poverty, but this now

WHAT ARE GOOD PRACTICES?

While aid for trade shares many of the same challenges inherent to all unrealistic, however, to address these needs all at once for political
aid delivery and management, five broad challenges are particularly economy, capacity and financial reasons. In fact, even when external
pertinent to the effective delivery of aid for trade: finance is available, domestic absorption capacity is often limited.
It is, therefore, imperative that the binding constraints to trade
è Getting the co-ordination right: development are prioritised and that aid for trade is structured so that
mainstreaming trade into it focuses on addressing the bottlenecks that seem most likely to lift
development strategies trade and boost productivity. Focusing on priority actions demands
Trade encompasses all sectors of the economy. The complexity of political leadership and requires joint analytical work by government
trade and its interdependence with a country’s overall development officials, private sector representatives, academics and other experts,
makes mainstreaming essential. The critical issue is how to reflect that as well as the active engagement of the development community
interdependence by mainstreaming trade into national development around a reform agenda.
plans and poverty reduction strategies. Most governments recognise
the crucial role trade plays. Fewer though have operational strategies
è Getting the political economy right:
that seek to proactively harness the potential of integration into the feasibility of reforms
regional and multilateral trading systems for economic growth and Successful integration into the world economy demands considerable
development. And if trade is not signalled as a priority in the national reforms. There are very few instances where the binding constraints
strategy, the donor community will focus on other needs which do are solely physical, resolved by a small number of large-scale
reflect national priorities. Aid-for-trade needs are not enough; those investments in infrastructure. Trade reform can challenge vested
needs must be expressed in an operationally effective way. This interests. In developing their aid-for-trade strategies, reformers should
reflects a broader need for a whole-of-government approach and include the objective of strengthening the constituency for reform.
effective dialogue with stakeholders in the formulation of trade and Engaging the private sector is critical in this regard. Issues – such as
development policy to exploit synergies and minimise inconsistencies finding the right sequence of reforms, implementing complementary
between the trade development agenda and other economic and policies to amplify the growth and poverty impact of trade, piloting
social policies. For LDCs, the Enhanced Integrated Framework can projects to showcase the benefits, and accompanying reforms with
play a central role in this regard2. adjustment support – need to be fully integrated into implementation
plans in order to ensure the effectiveness of aid for trade.
è Getting the diagnostics right:
from needs to binding constraints è Getting the delivery right:
Developing countries typically suffer from multifaceted supply-side the Paris Declaration on Aid Effectiveness
constraints, such as poor infrastructure, limited access to finance Experience in both developing and developed countries’ public sectors
and technology, and lack of human and institutional capacities. It is has shown that complex assistance programmes – if designed

2. The Enhanced Integrated Framework is an initiative of six multilateral institutions (IMF, ITC, UNCTAD, UNDP, World Bank, and the WTO). It aims to integrate trade in LDCs development strategy, and
to help the delivery of trade-related technical assistance in response to needs identified by each LDC. See http://www.integratedframework.org/.
incorrectly – can consume large amounts of administrative resources side constraints at the regional level – such as transport infrastructure,
and overburden already stretched human and institutional capacities. trade facilitation and standards – can encourage economies of scale
What was originally meant to help, ends up actually hindering. Over and reduce vulnerability to external shocks by diversifying export
the last two decades, the development community has developed markets. In some regions, however, there is a lack of articulated
a growing body of good practice on delivering aid effectively. The demands and priorities, coherence between national and regional
principles set out in the Paris Declaration on Aid Effectiveness – such programmes, or effective co-ordination. All of this impedes the ability of
as local ownership, harmonisation and alignment, management for developing countries to fully capture the potential benefits of regional
results, and mutual accountability – should underpin the design and trade. Thus, aid for trade should address regional binding constraints
implementation of effective aid-for-trade projects and programmes. and build institutional and human capacities at the regional level.
è Getting the regional dimension right:
strengthening capacities
Regional projects – like building cross-border infrastructure – can
serve as a powerful catalyst for economic growth. Addressing supply-

WHAT IS NEXT?
The Aid-for-Trade Initiative is succeeding in mobilising more and active involvement of the private sector – which is essential to
better aid for trade. Maintaining momentum, however, particularly in identifying the real binding constraints to trade, as well as to making
light of the economic crisis, hinges on the implementation of the work local officials accountable for results – is also wanting.
programme agreed for 2010-11, and more broadly on three priority
areas:
èGet the right information
The 2008 Accra Agenda for Action stresses the need to improve mutual
èStrengthen the arguments accountability and develop incentives for effectively monitoring and
It is important to show that aid for trade is worth doing. Gathering evaluating development results. As more aid resources get channelled
evidence of the positive impact of aid for trade on trade performance into activities aimed at building developing countries’ trade capacity,
should be emphasised, which should include results that demonstrate concrete evidence that demonstrates the effectiveness of such
the relationship between openness to trade on the one side, and activities has become crucial. More needs to be learnt about what
welfare gains and poverty reduction on the other. Furthermore, does and does not work, and why – building on the experience of
it is important to show that aid for trade is part of a larger picture, developing countries that are both succeeding and seeking to reach
encompassing international co-operation, improved policy coherence out to other developing countries. We need indicators to track the
and a whole-of-government approach to economic development and implementation and impact of aid for trade. Moreover, performance
poverty reduction. information should be an integral part of managing aid-for-trade
activities. Getting the right information is, thus, essential.
èManage for results
As highlighted in the joint OECD-WTO Aid for Trade at a Glance 2009 The OECD and the WTO attach great importance to this agenda and
report, progress has been made in the delivery of aid for trade. But will continue to work closely together and with other stakeholders to
more remains to be done. Country ownership (including broadening make aid for trade an effective tool for a stronger, cleaner and fairer
ownership of aid for trade beyond the trade ministry) and results- world economy.
based management are far from being systematically applied. The

FURTHER READING
OECD (2006), Aid for Trade: Making it Effective, OECD, Paris.
OECD (2006), Trading Up: Economic Perspectives on Development Issues in the Multilateral Trading System, OECD, Paris.
OECD (2007), Trade-Related Assistance: What Do Recent Evaluations Tell Us?, OECD, Paris.
OECD/WTO (2007), Aid for Trade at a Glance 2007, OECD, Paris.
OECD/WTO (2009), Aid for Trade at a Glance 2009, OECD, Paris.
OECD (2009), Trading out of Poverty: How Aid for Trade can Help, OECD, Paris.
OECD (2009), Binding Constraints to Trade Expansion: Aid for Trade Objectives and Diagnostics Tools, OECD, Paris.
OECD (2010) Increasing the Impact of Trade Expansion on Growth: Lessons from Trade Reforms for the Design of Aid for Trade, OECD, Paris.
OECD website: www.oecd.org/dac/aft
WTO website: www.wto.org/english/tratop_e/devel_e/a4t_e/aid4trade_e.htm

For further information about this document or the Aid for Trade Initiative please contact:
Frans Lammersen, OECD, at [email protected] or tel.: +33 1 45 24 89 88
Jean-Jacques Hallaert, OECD, at [email protected] or tel.:+33 1 45 24 13 82
Michael Roberts, WTO at [email protected] or tel.: +41 22 739 5747.