Since ancient times, trade has been one of the most important economic activities, driving development and progress. No wonder that nowadays it is not just perceived as a source of a country’s national income, it is also seen as an important development instrument for the least developed and poorest countries on the planet. ‘Aid for Trade’ is one of the programs that aims to boost commercial relations among nations in order to foster economic development and reduce poverty.
But how does ‘Aid for Trade’ actually improve commercial infrastructure and trade?
While some claim that this concept has fostered economic advances in developing nations, others emphasize that not all trade programs are effective and that some of the funds are misappropriated due to corruption. With this in mind, a tracking system has been developed by the OECD and the World Trade Organization (WTO) to observe the execution of the Aid for Trade program. The goal of this monitoring framework is to foster communication and encourage all the parties involved to honor promises, meet local needs, increase efficiency, and strengthen mutual accountability.
The following article explains some of the basic definitions of the term and its principles.
What is Aid for Trade?
Aid for Trade is a program that aims to help developing nations, particularly the Least Developed Countries (LDCs), to create infrastructure and trade capability.
Numerous challenges and limitations prevent many developing nations from taking part in international trade. Aid for Trade was introduced in 2005 at the World Trade Organization Ministerial Conference with the goal of helping to deal with these issues. It also features in Sustainable Development Goal 8 which refers to decent work and economic development.
The program facilitates trade among developing countries, particularly the LDCs, many of which have a variety of supply-side and trade-related infrastructural challenges that limit their ability to participate in international trade.
Aid for Trade offers support and resources (financial assistance, guidance, infrastructure development) to help these countries to expand their trading power and grasp trade opportunities.
However, the concept is broad and is therefore challenging to describe since trade is a complex operation but, as reported by the WTO, the initiative is comprised of 6 types of activity:
- Economic infrastructure: the program promotes the development of crucial communications and transportation networks to link domestic and international markets.
- Productive capacity: the program places a strong emphasis on assisting businesses and industries to help nations to diversify their exports and use their comparative advantages.
- Adjustment costs: the program helps nations to manage the costs associated with declining terms of trade, preference erosion, and tariff reductions.
- Trade policy and regulations: the program helps nations to create efficient trade strategies, improve their negotiating abilities, and put trade-related laws and regulations into effect.
- Trade development: the program assists companies in emerging nations by attracting foreign direct investment (FDI), and helping with market analysis activities.
- Other requirements.
Examples of Aid for Trade efficiency
Aid for Trade assistance has so far been offered to 146 developing nations.
In Africa, as a bustling border crossing between Eastern Uganda and Western Kenya, in 2013 Busia had around 210 trucks per day entering Uganda and 30 trucks entering Kenya. The Ugandan “One-stop border post” project attempted to speed up border crossings by consolidating border clearance operations, streamlining clearing processes, improving the coordination of controls, and exchanging data. With the help of the World Bank, as well as financial assistance from the UK, USAID, and Canada, the project was successfully implemented and according to a survey in June 2016, border crossings between Busia, Uganda, to Busia, Kenya, and vice versa today take around 80% less time.
Another example that merits review is the 827-km submerged fiber-optic cable system in Oceania connecting Tongans to the internet. This project was financed in part by the Asian Development Bank and the World Bank Group which joined forces with the Government of Tonga and Tonga Cable. As a result, the cost of international connectivity has decreased by over 60%. Moreover, high-speed broadband internet has had a great impact on virtually everything for the Tongan people, from healthcare and education to business and government services.
What is the link between WTO and Aid for Trade?
The WTO has a defined role and obligation to ensure that nations can successfully engage in and profit from global trade. At the same time, it is important to note that the WTO does not commit or disburse aid funding because it is not a development organization. Its role is to establish trade regulations and monitor their implementation.
The difficulty behind the initiative lies in getting multiple development organizations and networks to cooperate more successfully. In this instance, the WTO can function as a catalyst by ensuring that the development organizations have an understanding of the trade standards set by WTO members and inviting them to suggest solutions.
In a nutshell, the WTO’s function is to:
- Assist recipient nations with applications for trade-related capacity building by promoting a greater flow of Aid for Trade from bilateral, locally based, and multilateral donors.
- Promote better methods for assessing and monitoring the program.
- Urge partner nations to incorporate trade within their national development objectives.
New 2023–2024 Aid for Trade Work Program
At the beginning of 2023, WTO members managed to approve the Aid for Trade Work Program for the next two years.
A focal topic of the initiative is to assist developing nations, notably LDCs, and the main emphasis will be on using Aid for Trade to boost food security, enhance digital connectivity, and encourage the inclusion of trade in the development objectives of these countries.
Final word
Aid for Trade seeks to promote equitable and sustainable economic growth, alleviate poverty, encourage job creation, and increase the overall development effect of trade by helping developing countries to overcome trade-related obstacles. It acknowledges the significance of trade as a catalyst for development and works to guarantee that all countries, especially the least developed and disadvantaged economies, can profit from global trade.
