Aid for trade
What is Aid for Trade?
In 2006, the WTO defined Aid for Trade as "activities identified as trade-related development priorities in the recipient country's national development strategies". It identified 6 types of activities:
1) Trade policy and regulations -trade policy and planning, trade facilitation, regional trade agreements, multilateral trade negotiations, multi-sector wholesale/ retail trade and trade promotion. Includes training trade officials, analysing proposals and positions and their impact, helping national stakeholders articulate commercial interest and identify trade-offs and dispute issues, and institutional and technical support for implementing trade agreements and adapting to/complying with rules and standards.
2) Trade development - investment promotion, analysis and institutional support for trade in services, business-support services and institutions, public-private sector networking, e-commerce, trade finance, trade promotion, market analysis and development. Covers the most directly trade-related part of (4) Building productive capacity below.
Wider Aid for Trade also includes:
3) Trade-related infrastructure - e.g. transport and storage, communications, energy generation and supply.
4) Building productive capacity - includes business development and activities aimed at improving the business climate, privatisation, assistance to banking, financial services, agriculture, forestry, fishing, industry, mineral resources, mining and tourism
5) Trade-related adjustment - budget contributions to help beneficiary governments implement trade reforms and adjust to trade-policy measures by other countries
6) Other trade-related needs (not covered in categories 1 - 5).
Aid for Trade helps developing countries to expand their foreign trade - this helps foster sustainable economic growth, generating resources to reduce poverty.
The European Commission is the world?s largest donor of trade-related assistance.
Aid for trade divides roughly into:
- aid directly helping beneficiaries formulate and implement trade policiesandpractice ("trade-related assistance")
- aid supporting developing beneficiaries' wider economic capacity to trade, e.g. invest in infrastructure and productive sectors ("wider aid for trade")
For some developing countries, access to export markets is not enough. To become globally competitive, they may also need to improve their production and supply-side capacity and remove other obstacles to participating fully in trade.
EU Aid for Trade strategy
In October 2007 the Commission and EU governments adopted an EU Aid for Trade strategy to help developing countries better integrate into the rules-based world trading system and more effectively use trade to reduce poverty.
The strategy commits the EU to channel more resources to Aid for Trade and to do more to improvedelivery of results.
The additional funding will come from the substantial increases in total overseas development assistance (overseas development assistance) to which the EU is already committed.
The strategy hasfive strands :
1 -Aid for Trade volumes
- reconfirms the EU commitment of €2bn in trade-related assistance annually by 2010 .
- commits to increasing total Aid for Trade in line with increases in EU overseas development assistance .
- commits to delivering aid for trade in accordance with the Paris aid effectiveness principles, i.e. based on priorities in beneficiary countries' own development strategies.
- more active involvement by EU and beneficiary countries in the enhanced Integrated Framework.
2 -Aid quality and pro-poor focus
- strong emphasis on poverty reduction, including through joint work to better understand the linkages between (aid for) trade and poverty and enhance EU and beneficiaries' capacity to plan and implement funding accordingly.
- more focus on effective planning and delivery of aid for trade, in particular by applying existing international and EU principles for greater aid effectiveness, including those on division of labour . For example:
- more joint response strategies for countries and regions
- more joint responses to aid for trade priorities identified by needs assessments
- more joint implementation.
- increased and improved EU support for regionalintegration, e.g. by:
- helping regional organisations implement integration strategies (coordination and stakeholder involvement, identifying and prioritising needs, etc.)
- responding to priorities, using joint delivery mechanisms where possible, and helping translate regional priorities into national implementation strategies
3 - Capacity
EU capacity to deliver high volumes of high-quality aid for trade, via joint work on guidelines, training, sharing experience, etc.
4 - ACP specifics
ACP countries' needs regional integration and economic partnership agreements.
The EU to allocate around 50% of the increase in trade-related assistance to needs expressed by the ACPs.
5 - Reporting
The EU will prepare its own report on the implementation of Aid for Trade and will support partner countrie's own monitoring of Aid for Trade.
It will participate actively in the Global Aid for Trade review and act on its conclusions, especially to avoid "aid-for-trade orphans" (countries with comprehensive trade-needs assessments but whose key aid for trade priorities remain under-funded).
How is EC Aid for Trade financed?
Since Aid for Trade is a part of overall EU overseas development assistance, it is financed via the usual EC channels for overseas development assistance - the regular EU budget and the European Development Fund (EDF) .
Total overseas development assistance allocations (including to Aid for Trade) for 2007/08-13 are:
- EDF - €22.6bn for ACP countries
- Financing instrument for development cooperation (DCI)- €16.9bn for Latin America and Asia including Central Asia
- European neighbourhood and partnership instrument (ENPI) - €11.2bn for countries around EU's eastern and southern borders, including Russia
- Instrument for Pre-Accession Assistance( IPA) - €11.5bn for the Balkans and Turkey
- Special budget line for multilateral aid for trade initiatives - €4.5m globally in 2008.
For an overview of aid for trade and trade-related assistance commitments and activities by the EU and its member countries, see the first Commission Aid for Trade monitoring report
How is EU Aid for Trade channelled to developing countries?
Through the usual EU development assistance procedures - closely complying with the Paris aid effectiveness declaration.
Key principles of the declaration are ownership of projects by beneficiary countries and alignment by donors with beneficiaries? national development policies, strategies and systems.
This explains why effective delivery of trade-related support requires effective demand for aid for trade by developing countries.
The EC works to increase this demand through its policy dialogue with these countries, by supporting trade-needs assessments and by making trade a focus in development strategies - but it will not deliver Aid for Trade unless explicitly asked to do so by developing countries.
- The EU enters into consultation with the beneficiary country (involving its government, regional and non-state bodies and other donors).
- The consultation leads to country or regional strategy papers - based on shared analysis of the specific needs of a country or region and defining priority sectors for assistance, in line with national development strategies.
- These strategy papers include national or regional indicative programmes (NIPs/RIPs) that fix indicative funding allocations for a multiannual period.
The strategy papers enable us to match aid flows with national/regional development policies and ensure aid is delivered on the ground.
To be most effective, we seek to concentrate around 85% of funding on two or three main sectors.
Formulating programmes/projects by sector, including trade and economic issues:
- Once strategy papers are adopted, specific programmes and projects are identified and formulated in every sector - linked as closely as possible to the action and expenditure plans of the relevant national government or regional body.
- These programmes/projects are then included in annual action plans for each country. The plans are screened by EU governments and the European Parliament before the final financing decision is taken by the Commission.
- Once financing decisions are taken, a project/programme will be implemented.
Usually - supervised by the Commission - the beneficiary government will engage contractors to carry out the projects - though it may implement some projects directly itself. Contractors are paid only for specific services delivered or works performed.
- Increasingly, programmes are implemented through direct budget support to beneficiary governments.
In these cases, the Commission and the government negotiate performance criteria (policy outcomes). These criteria are monitored regularly and once met, the Commission directly transfers the relevant funding to the government.
For updated information, read the latest annual Aid For trade Monitoring report (2010).