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‘Aid for trade’ should integrate poverty and social analysis to promote trade growth, says briefing paper

04 December 2010

A briefing paper from the London-based think tank, the Overseas Development Institute (ODI), argues that for ‘aid for trade’ to effectively expand trade in a way that promotes growth, development and poverty reduction, it must be designed to help different social and economic groups engage with trade. Informal traders, small and medium enterprises, migrant workers and female traders should be a particular target of such poverty and social analysis, which offers disaggregated insights into the trade-related opportunities, barriers and risks facing different groups of people. Used well, the ODI claims, such analysis ‘informs and strengthens trade policies and programmes in ways which contribute to trade expansion, inclusive growth and poverty reduction.’

The concept of ‘aid for trade’ has come a long way since it originated in World Trade Organization (WTO) negotiations following developing country concerns that they stood to gain little from improved market access without supply-side support, but faced potential adjustment costs from trade liberalisation. An important step in this progress was the report of the Task Force on Aid for Trade set up at the 2005 WTO Ministerial Meeting in Hong Kong, which identified four categories and made recommendations on how they should be operationalised. These are:

  • Trade-policy regulation – supporting countries to develop trade strategies, negotiate regional and international trade agreements and implement the outcomes;
  • trade-related infrastructure – supporting countries to develop infrastructure hardware and software to connect to the global economy;
  • productive capacity building – supporting countries to develop an enabling business environment and promote the private sector;
  • adjustment support for countries facing costs associated with trade liberalisation.

There are strong economic arguments, the ODI report argues, for unpacking the different opportunities, barriers and risks that people face when it comes to trade. Evidence suggests that women face more barriers than men in participating in and benefiting from trade. They are more likely to have poor access to information on regulations and customs requirements, experience harassment at border posts, be forced to pay bribes, have limited access to credit, and spend more of their income and time transporting goods to market. By taking action to address these, their participation in trade and the economy can increase, fuelling growth.

This conclusion was reinforced by a roundtable on the gender dimension of ‘aid for trade’ organised by the ICTSD with the WTO, which considered presentations on how women can benefit from better integration into ‘aid for trade’ efforts. One example from Uganda, where a National Export Strategy (NES) incorporating gender dimensions was launched in 2007, claimed that targeting women ‘worked as a catalyst for the entire economy’, since 80% of the enterprises in Uganda are small or medium-sized, many of them run by women.

Yet, according to a working paper from the Centre for Global Dialogue, utilisation rates for ‘aid for trade’ are typically well below 100%, and in many cases 50% or less. The paper investigates some of the reasons for this low take-up, with a particular analysis of ‘aid for trade’ that aims to help countries to adjust to preference erosion.

Editorial comment

The idea of ‘aid for trade’ evolved during the Doha Round to deal with the concern of countries like many in the ACP group that they would gain little by liberalisation in the richest and most dynamic countries (since they lacked the supply capacity to exploit the opportunities) but would simply suffer preference erosion when Europe and North America liberalised towards their competitors. ‘Aid for trade’ was seen both as a sweetener, to give them a stake in a successful completion of the Round, and as a way of increasing their trade gains: by boosting supply capacity (so that they could tap into new markets) and to adjust to preference erosion.

It has since taken on a broader role – essentially as a reaction against the sharp falls in aid away from the productive sector in recent years towards social support. Countries need more assistance to grow their economies and become less reliant upon aid, the reasoning goes, which means that there must be support in areas that allow economic operators to produce more, to do so more efficiently, and to get their product to market.

With this transition has come the need to make sure that such aid reaches all producers, and not just the few. In this way, it is hoped, ‘growth’ can be faster and any tension with ‘development’ can be avoided. But these papers suggest that this will only happen if social and poverty analysis is in-built into design – and if the utilisation rate of ‘aid for trade’ improves.


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