Making best use of aid for trade
This year marks the 16 years of formal launch of the Aid for Trade (AfT) initiative to support the developing and least- developed countries (LDCs) in developing their trade capacity and infrastructure. The aid is part of overall official development assistance (ODA) - grants and concessional loans - directed towards trade-related programmes and projects. Following the decision taken in the Hong Kong Ministerial Conference (MC5) in December 2005, the World Trade Organization (WTO) in the following year set up a taskforce to make the aid-for-trade concept a reality. The taskforce recommended a set of dos in this connection.
Different international organisations, already working on various capacities to provide aid and assistance to different countries, joined hands to work to that end. A monitoring body in the WTO is also established to undertake a periodic global review based on reports from different stakeholders.
After the formal inception of the AfT programme in 2006, the first global review took place in 2007. Since then, the review has been held every two years. Accordingly, it was scheduled to be held last year. Outbreak of Covid-19 pandemic in 2020, however, compelled the WTO to defer the event. Instead, a stocktaking event was organised in last year to examine the trade impacts of the pandemic and make the case for the mobilisation of AfT financing to support recovery and foster resilience of the affected countries. As the situation improved globally, the eighth global review of AfT took place in Geneva during the last week of July this year.
The latest review was held against four global risk factors: the continuing Covid-19 pandemic, the war in Ukraine, food insecurity, and climate change. So, stakeholders and participants faced more challenges to examine the effectiveness of aid linked with trade.
During the event, a joint report titled 'Aid for Trade at a Glance 2022-, prepared by the WTO and the Organisation for Economic Cooperation and Development (OECD), was released. It showed that AfT commitments increased by 18 per cent in 2020, reaching an all-time high of US$64.6 billion. The amount was around 26 per cent of the total commitment of ODA in the year under review. The amount disbursed as AfD against the commitments stood at around $49 billion which was 21.70 per cent of the disbursed ODA in 2022.
The review report also mentioned that a total of US$556 billion in AfT was disbursed between 2006 and 2020. Time-series data also revealed that AfT had increased over the years. The three major components of AfT are (i) trade policy and regulations (ii) economic infrastructure and (iii) building productive capacity. On average, around 50 per cent of AfT goes for economic infrastructures which include communications, energy generation and supply, and transport and storage. Some 48 per cent goes for building productive capacity and only 2.0 per cent of AfT is used for trade policy and regulations.
Nevertheless, the statistics of AfT are ambiguous to some extent and so it is not easy to analyse. For instance, there is no breakup of AfT in-between donation and credit although it is safely presumable that around 90 per cent of AfT is loan or credit. Most of these credits are tied with various conditions and some of these are unfavourable for the recipient countries. And, aid disbursed for development of economic infrastructure is not exclusively beneficial to trade. Even, in some cases, the infrastructure may have nothing to do with supporting trade.
WTO-OECD joint report also acknowledges the limitation. In presenting country-wise data, it said: "The country profiles do not posit a causal link and do not attempt to test or estimate the causal impact of aid for trade at the macro level. Instead, they give a dynamic perspective on a country's development. In this sense, the sequence traced is one of contribution, not attribution. Where such contribution can be discerned, the country profiles provide ground for further in-depth, country-based research." The country profile of Bangladesh, presented in the review report, showed that the country received some $6.49 billion in ODA in 2020 of which $2.49 billion is AfT. Thus, 38 per cent of ODA is AfT in 2020 against 16 per cent in 2006. Moreover, transport and storage sector received highest amount of AfT followed by energy generation and supply. In Bangladesh, export diversification is the top priority of AfT followed by environmentally sustainable growth and MSMEs growth and development.
On donor part, Japan is the top provider of AfT for Bangladesh followed by the World Bank, the Asian Development Bank, Germany and the United States. These five top donors provide 95 per cent of aid related to trade. Finally, Bangladesh is the second-highest recipient of AfT and India is on top of the list receiving aid worth $2.75 billion for trade-related purpose.
All this may seem impressive although some grey areas are also there. If 38 per cent of ODA is AfT, it is important to identify the country's trade efficiency or trade performance in detail which is absent from the review report. In 2020, the country's trade-GDP ratio was estimated at 28.70 per cent. A declining trend in trade cost is, however, visible along with increase in liner shipping connectivity index indicating some benefits of the trade-linked aid. Again, the country is well ahead of least- developed countries (LDCs) in most of the trade-facilitation indicators.
As Bangladesh is set to come out from the LDC status by 2026, it will lose preferential market-access benefits consequently. In the changed situation, though AfT will not discontinue, it may decline. Thus, Bangladesh needs to make better utilisation of AfT alongside negotiating for transparency in the aid-delivery mechanism. In this connection, the country itself needs to measure the effectiveness of the trade-related aid and examine it rigorously.