Ladies and Gentlemen,
It is my pleasure to address you today. The OECD has been a trusted partner since the launch of the Aid for Trade Initiative in 2005. The impressive programme which Angel and his team have pulled together for this Policy Dialogue is further evidence of OECD’s substantive contribution to this common undertaking. I am impressed, not just by the Dialogue’s content, but also by the level of participation. This high-level political participation bodes well for future engagement and the substantive output of this Dialogue will enrich this year’s Fourth Global Review of Aid for Trade, which will be held at the WTO from 8 to 10 July.
Angel and I have a full day ahead of us - reflective of the on-going and deepening cooperation between our two institutions. Noteworthy is the launch of the joint OECD-WTO statistics and first-ever results on trade in value added which we will present later this morning. This common endeavour will change the way in which we consider trade flows. It should also engender an overdue reflection about the way in which we conceive trade and development policies today, when most manufactured products are no more made in a single country of origin, but are truly “Made in the World”. I hope it will lead us to recognize interconnectivity and to promote it, not just as integral to national economic growth and development, but also to global recovery. It is also the reason why we chose “Connecting to Value Chains” as the theme for the Fourth Global Review of Aid for Trade.
Before I look forward and elaborate on this theme, let me first consider the road which we have already travelled. Angel has already traced out this route, but let me add my own thoughts on our journey.
Since the Aid for Trade Initiative was launched in 2005, over US$ 200 billion has been mobilized in funding. Particularly gratifying is that some US$ 60 billion has been directed to least-developed countries (LDCs). Indeed, growth in funding to LDCs has outstripped the 80 per cent rise in the total funding envelope. Funding to all regions is up, with Africa posting a 180 per cent increase in real terms and other regions not far behind. Funding to regional programmes has tripled and now accounts for 11 per cent of total Aid for Trade. In short, we have made significant progress in securing additional financial resources. This was a key component of the mandate given to the WTO at the Hong Kong Ministerial Conference in December 2005. Let me, ’en passant’, acknowledge how much DDG Rugwabiza’s contribution, constant advocacy and involvement contributed to these achievements.
Sustaining financing flows in the continued tight fiscal environment is going to be tough. Fiscal pressures are mounting among key donors and voices are growing that “charity should begin at home”. The funding outlook for development assistance is muted. As part of their Multiyear Action Plan on Development, G-20 leaders have committed to maintain Aid for Trade expenditure at 2006-2008 levels. Notwithstanding this pledge, we need to make the case for continued Aid for Trade funding. Central to this task is to highlight the tangible results being achieved on the ground.
The OECD’s work on ’Managing for Developing Results’1 is an important contribution in this regard. And one which builds on the strong narrative crafted by the last Global Review. In short, Aid for Trade is generating results. Our further joint monitoring work and the Busan Partnership for Effective Development Co-operation will take this results agenda forward. Indicators are an integral and indispensable part of this process.
But in my view there is also a more fundamental message which we need to get across. It is this: Aid for Trade is not charity. In an ever more interconnected global trading system, our future prosperity is intertwined. The current political imperative for export expansion cannot come without import growth. Even on a conservative basis, the average import content of exports has grown in recent decades from 20 per cent to 40 per cent and much more for export-oriented emerging countries. Put simply, in today’s economy, “you need to import in order to export”. Improving the trade capacity of developing countries is in everyone’s interest. It is also a collective vocation as the growing number of South-South partners attests.
Annualized over the period 2005-2011, the volume of world merchandise trade grew by some 3.7 per cent annually – albeit with a sharp downturn in 2009. For many developing countries, growth rates over this period have been much higher. For example, LDCs’ merchandise exports grew by 4.6 per cent annually. By contributing to mobilizing the potential of developing countries to participate in world trade, Aid for Trade can reasonably claim to have played a part in this expansion, and in particular for LDCs.
As we know from the work on trade in value-added, this expansion suggests that developing countries are getting a foothold in the complex production sharing networks that underpin the global economy. A policy dilemma for many trade ministers in developing countries is that this foothold is often on what they perceive as the bottom rung of the value ladder. One policy message which I expect to emerge is that adding value does not necessarily mean capturing the next stage in the processing of raw materials. Comparative advantage may lie elsewhere in the value chain, for example in assembly of final products or in the oiling of the chains through the provision of a service. This is one important lesson from the Asian economic experience of the past 30 years.
Trade in value-added statistics will shed further light on this issue. The joint Aid for Trade monitoring and evaluation exercise which we launched in November last year will also provide greater clarity. This exercise zeroes in on the barriers which constrain developing countries and their firms from participating in value chains. The results should help us target Aid for Trade support at these obstacles.
The process of answering the monitoring questionnaire is also a valuable exercise in coherence. This is another area where we can point to success. Indeed, some might argue that the mainstreaming of trade into national development strategies may be the more important long-term achievement than resource mobilization. I will leave that argument aside and merely note that funding can also greatly help this mainstreaming process. The Enhanced Integrated Framework for LDCs is a case in point. And I am happy to share with the meeting the decision of the EIF Board to continue the mechanism for at least a further two years. By focusing on value chains at the next Global Review, we should be able to provide more specific policy advice on how national development strategies can be tailored to foster connectivity.
One final but important issue I wish to raise is that of trade finance - a form of finance which as we know is critical to allowing firms in developing countries, especially LDCs, to participate in trade. I have been a strong supporter of this form of finance which has been shown to be low risk and reliable and with substantial development impact in developing countries. Trade finance is also a necessary ingredient in the value chain recipe: national, regional and global.
The importance of granting short-term trade finance instruments low-risk treatment has been supported by the risk weights and capital treatment released by the Basel Committee on Banking Supervision in the past couple of years. It is also evident in the new liquidity rules just released by the Basel Committee on 7 January 2012. The use of letters of credit, which is prominent in South-South trade, will hence not be made more difficult. It is hoped that similar considerations are applied to trade finance instruments in the future implementation of the leverage ratio. This is good news for developing countries. Many of us, including the World Bank and the WTO, raised this issue at the G-20. The recent move shows what inter-agency co-operation can achieve.
In conclusion, we have cause to be happy with what we have achieved, but no reason to rest on our laurels. Resource mobilization is only going to get harder in these straitened economic times. And coherence is under threat from pressure to put national interests first. One insight from the work on value chains is that national interests cannot be easily dissected from complex production networks. Beggar-thy-neighbour policies risk “a plague” on your own house.
Let me in closing congratulate Angel and his team for the hard work which has gone into this Policy Dialogue. I look forward to seeing its substantive outputs inform our discussions on 8 to 10 July when we meet for the Fourth Global Review of Aid for Trade. I hope that the Policy Dialogue and July Review will convince Ministers when they meet in December in Bali for the Ninth Ministerial Conference to agree a strong mandate to continue building on the good foundations which we have laid.
1. Managing for Development Results is a management strategy that focuses on development performance and on sustainable improvements in country outcomes. It provides a framework for development effectiveness in which performance information is used to improve decision making. It also includes practical tools for strategic planning, risk management, progress monitoring, and outcome evaluation. There are four features that distinguish this approach from traditional public administration: shared goals and strategies; performance-based budgets; evidence-based decision making; and public accountability.Back to text