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Trade and aid are normally the most important external forces
helping a country to develop. There is extensive research
on how each can contribute to development. But there is less
understanding of how their effects interact. Recent rethinking
of aid priorities has suggested that more aid should go to
helping countries develop the capacity to trade, while in
trade policy the failures of some countries to respond to
market opening have led to suggestions that aid is a necessary
pre-condition for success in trade. To mark the publication
of a new book, Trade and Aid, Partners or Rivals in Development
Policy? edited by Sheila Page, published by Cameron May Ltd.,
this meeting will examine our current understanding of how
aid and trade work, and use this to assess current policy
initiatives such as giving a development dimension to the
World Trade Organization.
Wednesday 8th February (1pm – 3pm, followed by refreshments)
at ODI
Speakers: Chiedu Osakwe, Director of the Doha
Development Agenda Special Duties Division, World Trade Organization
Sheila Page, Senior Research Associate, International
Economic Development Group, ODI
David Booth, Research Fellow, Poverty and Public
Policy Group, ODI
Contributors to the book joining the discussion: Matthew
Lockwood, formerly Head of Advocacy at Actionaid, UK;
Susan Prowse, DFID and Dirk Willem te Velde, ODI
(Chair)
Meeting Report:
1. The chair welcomed everyone to the launch of the book,
highlighting the issues covered, the variety of contributors
and the timeliness of publication.
2. Chiedu Osakwe gave 4 aims for his presentation
i) to place the book in the current policy context
ii) to explain his understanding of the book's central issues
iii) to give his observations
iv) to make suggestions about work still outstanding
3. The book emerges in a policy context in which efforts
are being made by Director-General Pascal Lamy and the Membership
to complete the ambitious Doha Development Agenda (DDA) in
2006. Other important contextual considerations are the debates
around the importance of aid in development and of trade in
reducing poverty.
4. The central issue of the book is the interaction between
aid and trade, which can be either positive or negative, and
how this can be dealt with. A key question is the range of
aid priorities and their effects.
5. His observations included that the book stimulates our
thinking; challenging the 'common sense' idea that more aid
will produce the best development outcomes. It shows that
an excess of aid or a disproportionate aid to GDP ratio can,
in fact, reduce competitiveness and weaken trade outcomes.
6. A further important issue is the effort to revamp the
Integrated Framework. He stressed that recipient countries
must lead and have ownership of development processes.
7. Osakwe stressed some areas of work that still require
attention:
the importance of domestic policy;
domestic policy reform;
factors other than aid which lead to development (e.g.
opportunities for market access).
8. Osakwe concluded with three points:
A question to the authors - how do they plan to maximise
the policy impact of the book?
The need to consider domestic policy in the aid and
trade debate;
The need for further study on aid effectiveness especially
on donor coherence and domestic policies.
9. David Booth discussed the New Aid Agenda (which
includes the MDGs, PRSPs, the 2005 Paris Declaration on Aid
Effectiveness and budget support). He started by citing some
criticisms of the current policies on aid, in particular that
it overlooks the possible negative effects of aid on trade.
10. He pointed out several salient issues:
The weakness of PRSPs on trade and their poor translation
into policy at country level;
The precondition of creating effective states. He stated
that PRSPs have not created national authorities that make
policy and have not changed basic politics;
There are different approaches to aid. The successful
Japanese approach of investing in infrastructure in Asia is
different from the EU approach to Africa. The Japanese point
of view is that the EU is mistaken in its approach to African
aid;
Dutch disease (the macroeconomic impact of large inflows)
creates tensions between aid and trade.
11. He concluded by pointing out an area for further research:
how to evaluate the Paris Declaration on Aid Effectiveness.
12. Sheila Page started by emphasising the importance
of aid in relation to GDP and to total government revenue.
This is important given the polarisation of the trade and
aid debates. Some trade researchers tend to be anti government
intervention, and since they see aid as part of government
spending, this colours their view of aid.
13. She focused on the unintended problems caused by the
interactions of trade and aid:
On using trade to encourage development via preferences,
Page stated that by encouraging countries to trade more in
some commodities than they otherwise would, problems could
arise from interfering with the signal mechanism that trade
performs
an influx of revenues could cause Dutch disease.
On the concept of 'political Dutch disease', which she
explained as the pressure for governments to satisfy donors
(because of reliance on aid funds), rather than citizens or
business people (taxpayers), she pointed out the problems
of accountability that are created.
14. On the slogan 'Trade not Aid', she pointed out that
the term was ambiguous. What is clear, however, is that
one does not substitute for the other. Generally speaking,
aid tends to be associated with the 'public sector'(government
budget, projects) and trade with the 'private sector'. Aid
and trade have very different impacts on income distribution.
15. She concluded with a warning that, although the influx
of aid into an economy can create problems in the economy
(such as the effects of Dutch disease), these problems should
not lead us to think that aid should not be given at all.
Donors should, however, give due consideration to the wider
economic effects that aid can have.
16. Other authors who were present also gave comments from
the floor. Kathy-Ann Brown, who wrote on effective access
to the WTO dispute settlement system, pointed out that that
there is strong support for the view in developing countries
that where the WTO is the source of the problem, it should
also provide the means for a solution; as the proverbial
saying goes 'the buck ultimately stops there'. She stressed
that it is very difficult to persuade developing countries
to adopt policies which developed countries did not adopt
during their development.
17. Dirk Willem te Velde, who has chapters on aid
for private sector development and developing trade in services,
pointed out the need for forward planning in human resource
and infrastructure development to reduce constraints on
the private sector. Aid could be used directly in these
areas or for more general budget support.
18. Points emerging from the discussion included:
Donor vs. citizen interest and whether these are the
same. Page responded that developing countries should be able
to make their own decisions and often donors do not agree
with one another.
Businesses in developing countries being able to link
up with those in developed countries. Page recommended John
Roberts' chapter on aid and trade at the micro level. Dirk
mentioned that the book covers constraints to trade and donor
approaches to private sector development. Osakwe directed
the audience to the International Trade Centre [www.intracen.org],
a joint WTO and UNCTAD body which facilitates exports from
developing to developed countries.
PRSPs and National Development Plans. The WTO sees
PRSPs as country owned. The first generation of PRSPs did
not have a growth (trade component).
Tied aid and the need for change on the political factors
which affect aid and trade. Osakwe stated that aid complements
the Doha negotiations and is not a bribe to get countries
to proceed with negotiations. Aid can be used for adjustment
costs, to ease supply side constraints and to bring about
a more ambitious Doha outcome.
The differential impacts of trade negotiations on women
and men, especially in the apparel industry. Page responded
that domestic policy is the most important factor rather than
trade negotiations.
Whether Fair Trade distorted prices. Page replied that
the effects depend on governments rather than trade negotiations.
There is a risk that producers will become trapped in unsustainable
production.
Aid as a compensation for preference erosion. Osakwe
responded that this provides scope for covering the adjustment
costs of liberalisation. Page responded that compensation
is necessary to the success of the Doha round as all countries
must agree.
Sectoral approach and picking winners. Page responded
that a sectoral approach is taken in both aid and trade interventions.
The debate in the WTO in 2006. Osakwe responded that all
actors are welcome to input into the WTO process.
Book details
edited by Sheila Page
2006
isbn: 1905017189
749 pages, hardcover
Price: £ 125.00 (GBP)
Published by Cameron May Ltd., International Law Publishers,
17 Queen Anne's Gate, London SW1H 9BU, England
Contents
1. Bringing Aid and Trade Together, Sheila Page
2. Is the New Aid Agenda Anti-trade?, David Booth
3. Aid and Trade at the Micro Level, John Roberts
4. Mega-Coherence: The Integrated Framework, Susan
Prowse
5. Can EU Policy Be Coherent?, Christopher Stevens
6. Aid for Private Sector Development, Dirk Willem
te Velde
7. Fair Trade: Applying Poverty Reduction Objectives
Directly to Trade, Geoffrey Bockett
8. Using Trade Preferences as Aid, Sheila Page
9. Developing Trade in Services: Are the Constraints,
Economic, Regulatory or External?, Dirk Willem te Velde
10. Benefiting from Geology and Geopolitics:Trade and
Aid in Mongolia, Verena Fritz and Ts. Lhamsuren
11. Can Donors Help Countries to Negotiate and Maintain
Their Rights Under Trade Agreements?, Kathy-Ann Brown
12. Trade, Aid and the State: What Stops Africa Following
East Asia?, Matthew Lockwood
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