Concept Note: Aid for Trade

Trade can serve as a strong catalyst for growth and poverty reduction in developing countries. But these positive linkages are not established automatically. A telling fact is that the share of the poorest developing countries in world trade has remained marginal. There is ample evidence that the poorest countries successful integration into the world trade requires not only easier market access but also increased support for trade and productive capacities together with domestic reforms and more effective international trade rules.

For many developing countries, competitiveness in global, regional and bilateral trade is a major problem. Aid for Trade should aim at boosting their export competitiveness across the board. It should improve developing countries effective market access as well as to strengthen their trade-related infrastructure, governance of trade and investment issues as well as domestic productivity. The Aid for Trade initiative constitutes one of the efforts to increase economic growth in general and, is therefore, closely related to the international debate on pro-poor growth. It must be seen as an endeavour to increasingly strengthen developing countries' trade and productive capacities and as an element of the broader Official Development Assistance (ODA) policies and objectives to support, for example, the Millennium Development Goals (MDGs). This is important since the proportion of ODA allocated to productive sectors and economic infrastructure in least developed countries (LDCs) has been on the decrease during the past decade.

The international community has recognised the existence of these trade-related challenges for some time already. The United Nations Conference on Financing for Development in Monterrey in 2002 highlighted these issues and later in 2005 the UN World Summit also reaffirmed that the UN membership is committed to supporting and promoting increased aid to build productive and trade capacities for developing countries.

But the year 2005 was decisive for the Aid for Trade initiative. It was launched at the December WTO Hong Kong Ministerial Conference with a view to helping developing countries, particularly LDCs, to build their supply-side capacity and trade-related infrastructure.

In light of the temporary suspension of the DDA negotiations, the Aid for Trade Task Force emphasised in its recommendations in July 2006 the fact that Aid for Trade is important in its own right. According to the Task Force there was a clear consensus that Aid for Trade should be implemented as soon as possible despite the current impasse of the DDA negotiations. The Task Force also affirmed that Aid for Trade is not a substitute but a complement to a successful conclusion of the DDA. It should be remembered that despite the fact that the negotiations have been temporarily suspended, the competitiveness problems of developing countries still remain. The message of the international community has therefore been clear: enhanced aid is necessary to build stronger trade and productive capacities in developing countries, particularly in the poorest ones.

The 2005 European Consensus and its primary and overarching objective of eradication of poverty in the context of sustainable development gives the policy context for EU Aid for Trade. The European Consensus also anchors EU to the objectives set in the Paris Declaration on Aid Effectiveness.

The EU vision is that developing countries should decide and reform trade policy in line with their broader national development plans. In this context, the EU commits itself to providing additional assistance to help poor countries build their trade capacity, with particular attention to the LDCs and most vulnerable countries.

It is now time for the EU to deliver on Aid for Trade commitments as part of its development policies in all regions. Since the EU is the largest donor in the world, the way how the EU as a whole implements and operationalises general Aid for Trade principles in practice is of key importance to the entire initiative. The EU Council Conclusion on Aid for Trade are now under negotiation in different Council working groups and they are foreseen to be adopted in the Joint Trade and Development Ministers' Session, which is part of October General Affairs and External Relations Council.