15-16 JUNE 2016 / Tour & Taxis / Brussels

Aid for trade, trade for aid : What's the new deal?

<p>Lifting the “bottom billion” requires developing countries to effectively participate in global markets and scaling up global value chains. Trade-related reforms and an enhanced business environment can leverage the private sector’s contribution to development. The debate will focus on how best to achieve cooperation between trade-related bodies and governments, international organizations, donors and private sector to facilitate the latter’s access to global and regional markets.</p> <p>The panel will analyse the challenges faced when working with the private sector. It will then highlight potential benefits of Trade Facilitation and Trade Capacity Building advisory, especially for SMEs. Discussants will showcase tools to effectively engage with the private sector and will prioritize next steps needed to overcome the obstacles discussed. The debate will explore the necessary conditions for fruitful public-private cooperation to catalyse trade-related reforms and achieve development results.</p>
Place: 
Auditorium B
Session type: 
Auditorium
date: 
Wednesday, November 27, 2013 -
14:00 to 15:30
Key Points: 
  • Trade and market access do not always translate into sustainable growth for a country. Nigeria is a good example of what happens when a resource like oil is discovered, but infrastructure for other sectors is ignored and new wealth is created for a very small group of people.
  • A new international consensus is needed: the Geneva or Brussels consensus, with a framework that has robust institutions, as well as transparent and free markets, within a rules-governed system.
  • Africa needs to create value-added for its raw materials. For example, it produces 20 % of the world’s leather, but only 2 % of the world’s leather goods.
  • We must replace ‘aid for trade’ with ‘aid for investment’.

 

Synopsis: 

In the keynote address, Pascal Lamy, former Director-General of the World Trade Organization (WTO) said that trade policy had been based on the belief that if trade were liberalised, God would take care of the rest. As a result, development aid had focused on supporting public institutions so they can encourage investment markets and help leverage growth and welfare creation.

However, private sector activity has not automatically supported development. What is needed now is to replace ‘aid for trade’ with ‘aid for investment’.

As part of its Agenda for Change, the European Union has made significant efforts and given large amounts of money to help the private sector grow, and to facilitate trade and investment. Part of development aid’s function in this context is to fill gaps in some government support, particularly in areas such as technology transfer.

The new United Nations Industrial Development Organization Director-General, Li Yong, said emerging economies like the BRICS (Brazil, Russia, India, China and South Africa), growing South-South trade, and thriving triangular trade (i.e. South-South-North) offer huge potential for developing countries. But as well as needing aid to support trade, poor countries need to strengthen the local private sector’s capacity to meet international production or food health standards and they need access to world markets.

The discussion at this high-level panel was a testament to how the approach to development and working with business has changed. For example the World Wildlife Fund, the nature conservation organisation, takes a strategic approach, realising that one must work with businesses to ensure their products do not contribute to climate change, destroy the environment or compromise biodiversity.

Ironically, trade can also have a detrimental effect in a developing country. For example, in the 1960s Nigeria had a vibrant agricultural sector, but then caught ‘the Dutch disease’, when oil was discovered. As a result the country’s agricultural sector declined due to the lack of proper infrastructure, and the government had to step in to create an enabling environment for private enterprise in the agricultural sector. Nigeria has become a country of consumers who buy imported goods with their newfound oil wealth, while their agriculture sector is dwindling.

Developing countries also need help to develop their own industrial sector, but there are a number of obstacles:

  • In Africa, tax systems are not conducive to trade.
  • A free market economy is developing without any rules to contain it.
  • If agriculture is going to develop an export market, land reform is a priority, with clear legislation stipulating property rights – particularly important for women.
  • Africa’s wealth is being extracted and exported without any added value. For example, the continent produces 20 % of the world’s leather but only 2 % of the world’s leather goods.

Speakers generally agreed that a new consensus is needed. The Washington Consensus that emerged after World War II put markets in charge. In Africa this has since been followed by the ‘Beijing consensus’, where deals are done and silence maintained about human rights abuses, provided the country benefits from some new infrastructure. Both have resulted in unanswered questions and disenchantment.

A new framework – the Geneva or Brussels Consensus – needs to get institutions and the financial architecture right, and to create free and transparent markets that operate within a rules-based system.

Insight: 

In 2009, when US President Barack Obama came to Africa he said, ‘Africa doesn’t need strongmen, it needs strong institutions.’

  • Body: Africa cannot eat raw materials. It cannot drink its gas and its oil. It has to trade. It needs to do that on the basis of fairness, and away from the old paradigm of raw materials. Value must be added.
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  • Body: International cooperation is key. Of course there have to be home-grown solutions, there has to be ownership, but we need to work with others. We need to work with Europe in order for Africa to grow.
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  • Body: The debate is straightforward. It is not about either the government or the private sector. Both have a place. You need smart governments run by smart people, and with a strong vibrant private sector.
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  • Body: How do we get from where we are today – aid for trade – to investment for trade? How do we make that leap? It’s really about looking at the entire value chain.
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  • Body: It’s important for us to provide the small farmers with the tools and the capacity to form useful relationships.
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  • Body: How can "aid for trade" morph into "investment for trade"? In conceptual terms, this is probably what the next generation of aid for trade will be about.
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  • Body: We have to realise that trade is a means not an end – volumes of trade really aren’t a valuable metric in this discussion if you’re talking about development.
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  • Body: Everyone has now understood that we have to go into some kind of partnership, because we have seen that just doing aid is not driving out hunger.
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  • Trade & private sector
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    A thriving private sector is an important precondition to improving income and employment prospects and thus the eradication of poverty. International trade too is part of the path to sustained economic growth and development, but many nations need support and assistance to be able to fully reap the benefits of trade liberalisation.

    Since 2001 and the ‘Doha Development Agenda’, EU trade-related assistance (TRA) has been provided to support partner countries, amongst other things, in drafting trade strategies and negotiating trade agreements, and support the private sector in accessing export markets and promoting sustainable trading schemes. Going beyond TRA through its ‘Aid for Trade’ (AfT) package, the EU assists developing countries to design and implement trade policies that cover issues such as trade-related infrastructure and adjustment costs.

    EU support to private sector development is given to reduce barriers for business, build capacities and improve the business environment. Support is also provided for training to improve skills and encourage the transfer of know-how and technologies. At the institutional level, the EU supports chambers of commerce, industrial federations, SME associations, and promotes reliable local financial institutions.

    In the Council conclusions on the 2011 Communication ‘An Agenda for Change’, the EU resolved to support the creation of enabling business environments to attract foreign direct investment and increase productivity, recognising the need to work more closely with the private sector as its role in development grows. Trade aspects were further developed in the 2012 Communication ‘Trade, Growth and Development’.

    In its February 2013 Communication ‘A Decent Life for All’, the EU Commission noted an 80 % rise in developing country exports between 2000 and 2009 and its leading role in the success of duty-free and quota-free access to all least developed country products under the ‘Everything But Arms’ initiative. It called on the post-2015 framework to be developed in close partnership with all stakeholders, including the private sector.

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