Ten years ago, the sixth WTO Ministerial Conference invited the Director General to set up a task force for operationalising aid for trade with the aim of generating support for developing countries, particularly least developed countries, to build the supply-side capacity and trade-related infrastructure they need to implement and benefit from WTO Agreements and more broadly to expand their trade.

The task force recommended using existing mechanisms for identifying and prioritising trade-related capacity constraints around which donors should align their support. The Paris Declaration on Aid Effectiveness was acknowledged as the guiding principles for the Initiative. These principles have created a strong partnership between the trade and development communities around a shared agenda with clear objectives, reciprocal commitments based on transparency and mutual accountability.

The WTO Global Reviews of Aid for Trade, together with the joint OECD/WTO Aid for Trade at a Glance monitoring reports, have shown that the Initiative has raised awarness among developing countries and donor agencies about the positive role that trade can play in promoting economic growth and development. Moreover, developing countries, notably the least developed, are getting better at articulating, mainstreaming and communicating their trade-related objectives and strategies.

Aid for trade is effective at both the micro and macro level according to a broad range of trade and development literature. More specifically, OECD research found that one dollar extra invested in aid for trade generates nearly eight additional dollars of exports from all developing countries – and twenty dollars for the poorest countries. Results, however, may vary considerably depending on the type of aid-for-trade intervention, the sector at which the support is directed, the income level, and the geographic region of the recipient country.

Aid-for-trade case stories buttress this evidence. The sheer quantity of activities described in these case stories suggest that aid for trade is becoming central to development strategies and has taken root across a wide spectrum of countries and activities. Although not always easy to attribute cause and effect, the stories show tangible evidence of how aid for trade is helping countries build the human, institutional and infrastructural capacities for turning trade opportunities into trade flow and helping men and women make a more decent living.

Building trade-capacities is an ongoing process. The continued need for the Aid for Trade Initiative is obvious; tackling trade-related binding constraints requires continues efforts in a globalising economy where connectivity is key for success. This is especially true with trade growing at a slower pace than before. Despite the significant achievements of the Initiative over the past 10 years, challenges remain in keeping it relevant.

The role of the private sector should be strengthened. Much progress has already been made with involving the private sector, but engagement could be intensified further by creating shared multi-stakeholder value and by scaling up and systematically including the private sector in the different stages of the aid-for-trade project cycle. Such engagement should, however, respect multilateral agreements which discipline the potential distortion of trade flows with aid money.

Engage with the providers of South-South trade related co-operation who are substantial source assistance in Asia, Latin America, and especially in Africa. Although some are transparent about their support, increased comparability and co-operation with DAC donors would help reduce institutional and human capacity constraints at the local level as well as facilitate co-ordination among the different providers of support for trade. This would also help in creating a level playing field among the different providers of trade-related assistance.

Enhance effectiveness through regional programmes. Deepening economic integration via regional co-operation is a key priority in the reform strategies of most developing economies. It is also actively promoted by donors, who collectively committed USD 3.1 billion to regional priorities in 2013. These programmes can be made more effective by involving an honest broker to help find common ground among countries, offering financial incentives, building human and institutional capacities, and harmonising regulations.

Experiment with new forms of aid delivery to enhance mutual accountability and provide incentives for more and better aid for trade. Focussing aid-for-trade programmes on quantifiable targets, would allow for the experimenting with results-focussed approaches, such as budget support, or payment for performance.

Focus on connectivity and trade costs to provide an operational focal point for an action oriented agenda among a broad collation of stakeholders, including the providers of South-South cooperation and the private sector. The advantages of such targets are also that they are neutral in the sense of benefiting not just exporters, but also importers and households.

Expand the scope to sustainable investment. The initial emphasis should be on trade in services, with a focus on those sectors that are central to promoting sustainable development, such as agriculture, energy and transport. Donor support in this area could tackle a range of issues such as transparency (i.e. aid for investment facilitation).

Promote green growth. Aid for trade should support developing countries in moving to sustainable agriculture, building climate-resilient infrastructure, strengthening the supply chain of low-carbon technologies and environmental goods and services, and more generally helping them with achieving green growth.

Play a catalytic role in supporting the SDG. The SDGs highlight that “(…) increasing aid-for-trade support for developing countries, in particular the least developed (…)” would help to “(…) promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all.”

In response to the changing nature of the world economy, its rising complexity, its shifting trade and investment patterns, new approaches are required to better understand the trade-offs and complementarities between different policy objectives and deal with these interlinkages. In the face of the sluggish trade growth since the 2000s, there is considerable scope to enhance the international division of labour by further integrating countries that have heretofore remained marginally engaged in trade in general and in regional and global value chains in particular. The Nairobi WTO Ministerial Conference can provide a strong impetus to these efforts by agreeing to focus the Aid for Trade Initiative on improving connectivity, boosting sustainable investment, promoting green growth and, thus, contribute to the delivery of the SDGs.

---

This document is submitted for DISCUSSION under Item 7 of the Draft Annotated Development Assistance Committee (DAC) Agenda for the Meeting on 9 November 2015. The paper will be published under the joint responsibility of the OECD and WTO Secretariats in time for the Tenth WTO Ministerial Conference, which will take place in Nairobi, Kenya from 15-18 December 2015.