LDCs and aid for trade

The linking of aid with trade, believed to be a shift from undefined development assistance to well-defined productive capacities, is a recent phenomenon. The Aid for Trade (AFT) programme was launched at the 2005 World Trade Organisation (WTO) Ministerial meeting in Hong Kong. Its reported aims are to bring greater coherence to existing trade-support programmes and to generate additional funds to assist developing countries to build supply capacity and trade-related skills so that they can adjust to the post-Doha trading environment.
Although this packaging of trade and aid is less than a decade old, the United Nations Conference on Trade and Development (UNCTAD) has been pursuing an integrated approach to aid and trade in support of lasting developmental gains, especially for the Least Developed Countries (LDCs) since the last four decades. UNCTAD`s efforts to establish a sizable aid target for the international community is derived from an effort to link a growth target in developing countries, a complementary investment push to support structural transformation and a persistent balance of payments constraint facing many of these countries.
AFT is seen as the main multi-agency apparatus for addressing supply side and institutional constraints that restrict the developing countries from increased participation in the international trading system. As such, it has become a key component of international Official Development Assistance (ODA). However, as a percentage of total ODA, AFT flow to the LDCs represented, on average, less than 20 per cent whereas the share of the non-LDCs reached almost 30 per cent. The AFT flows should be assessed with caution, given that the programme includes previous aid flows which were not labelled as such. The 3rd Global Review of Aid for Trade took place in Geneva in July 2011. It offered an opportunity for donors and recipient countries to examine whether AFT and its related programmes are helping developing countries, particularly the LDCs, to overcome trade and productive capacity constraints.
AFT has certainly helped to shift the aid debate towards building productive capacities. According to the WTO/OECD database, AFT is mostly disbursed to productive capacity-building projects and trade-related infrastructure. Until 2009, transport and storage, energy, and agriculture accounted for 80 per cent of AFT resources, which were identified by the LDCs as priority areas, reported in the Aid for Trade evaluation survey. At the same time, support for trade policies and regulation has been marginal and non-existent for adjustments linked to liberalisation commitments. Neglect of these areas is hampering efforts to move the initiative forward.
As regards the performance of the programme so far, two key observations have been noted by UNCTAD:
o LDCs have high expectations of what Aid for Trade should achieve but, to date, the programme has fallen short in key areas.
o Aid for Trade should continue to provide resources to expand LDC exports and build up their productive sectors through better infrastructure and policy frameworks.
How effective has AFT been from the LDCs' perspective? In a recent global review, recipient countries were asked to rate the success of AFT in their own countries along twelve broad criteria. The results show there is consensus amongst LDCs that the programme should provide for greater resources, support export diversification, enhance the profile of trade in development strategy, promote more harmonised and aligned AFT projects and programmes, reduce poverty, promote economic growth, promote greater environmental sustainability, improve greater gender equality etc.
 Some of the LDCs' responses suggest that AFT should not be hostage to the single undertaking of the Doha Development Round. A new international development architecture for the LDCs should shift the focus from aid to development effectiveness by overcoming financial constraints to desired growth in LDCs and promoting domestic resource mobilisation. It appears that much of the programme has been a perceived as repackaging of trade-related aid flows.
That a good deal of the prospects of the AFT programme has already got eroded is being strongly voiced for a while in the third world. Deliberations based on research findings on the actual state of delivery suggest that AFT, so far, had had no impact on the macro economy in improving trade capacity and enhancing export competitiveness of the LDCs. This has been attributed to erratic flow of disbursement under the programme.
Findings also show that the contribution of AFT to economic infrastructure development and productive capacity building had been declining since 2006.  AFT flow in building productive capacity sector also saw a negative 45 per cent growth against 56 per cent global growth in the period.
 On the other hand, total disbursement as a percentage of total commitment of AFT declined in recent times, and the gap between the commitment and the disbursement continues to widen.
 These have worrying implications for the future of the programme and for the developmental impact of aid on LDCs' trade. The present WTO director general, who has jumpstarted on a number of stalled issues including some of those critically linked to the LDCs, is yet to make any statement to set in motion the AFT agenda. It's high time he did.
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The writer is with The Financial Express.
wasiahmed.bd@hotmail.com