Are Trade and Aid-for-Trade connecting Value Chains?
As we are all well aware, the WTO World Trade Organisation has reached a global agreement with the 159 members. Some praise the recent agreement of Bali as a great breakthrough for further enhancement of trade that would add billions of USD to the USD 65 trillion global economy, by making it easier for goods to pass through customs. Others weigh it as the least compromise available and critic that it will take months and even years to come into effect. Only future will tell who is right or wrong. TextileFuture will look also at textile and apparel developments
We don’t want to repeat what was achieved in details, because we suppose that you have read these already, but we want to give you an insight what aid for trade has achieved and what it will provide in the future. WTO and OECD Organisation for Economic Cooperation and Development have made a joint survey and published the results. The publication is titled “Aid- for-Trade at a Glance 2013 – connecting to value chains”. The report analyses the strategies. The report suggests that the increasing fragmentation of production process offers developing countries new trading opportunities, but also present risks. Value chains reinforce the rationale for keeping markets open and highlight the costs of burdensome procedures that are created by “non-porous” artificial walls.
The survey is based on stakeholders, 132 self-assessments from 80 developing countries (including 36 least developed countries, 28 bilateral donors, 15 multilateral donors and 9 providers of South-South cooperation. Moreover, 524 supplier firms in developing countries provided their views on the barriers they face in linking to value chains, while responses from 173 lead firms (mostly, but not exclusively in OECD countries) highlight the obstacles they encounter in integrating developing country firms in their value chain.
Table 1 gives the breakdowns of the stakeholder engagement in the Aid-for-Trade initiative
In 2011 aid-for-trade commitments reached USD 41.5 billion or 57 % more than 2002-05. However, 2011 there was a decline of USD 6.4 billion in less support to large projects in economic infrastructure, with commitments to the transport and energy sectors falling by USD 3.5 billion and USD 3.2 billion, respectively. On the other hand, commitments to building productive capacities increased by USD 18 billion in 2011, indicating the growing priority partner countries and donors attach to developing the private sector.
Support for business services, agriculture and industry all rose by 10 %. The funding of programmes with a clear objective to promote trade doubled since 2007 and reached USD 5.4 billion, while trade related adjustment financing more than doubled from the previous year to USD 62.8 billion. Trade facilitation attained commitments of USD 3380 million in 2011.
Asia is now the largest aid-for-trade recipient with USD 17 billion. The strong growth of aid for trade to Africa in recent years has been halted and support declined to USD 13.1 billion. Aid for trade to emerging European economies also declined, while other regions continue to receive relatively stable, albeit lower, levels of support.
Table 2 presents the aid for trade by region in 2011 constant USD
Some textile insights
Suppliers in developing countries are well established in value chains in agri-food, tourism, and textile and apparels, whi8le value chains in information and communication, and transport and logistics offer opportunities to crack hindrance in trade at borders.
Partner countries consider inadequate infrastructure, access to trade finance, compliance with standards, lack of comparative advantage and high market entry costs, as the main obstacles to their value chains integration. Donors and providers of South-South cooperation also point to the lack of skilled labour force and the inability to attract FDI Foreign Direct Investments and trade restrictions.
Suppliers in developing countries all rank the lack of access to trade finance as their main barriers to enter, establish or moving up value chains. They also cite transportation and shipping costs, the business environment and certification requirements as obstacles.
Lead firms rank transportation costs as their main barrier. They also point to custom procedures, licensing requirements and the business environment as hindrance to integrate developing countries suppliers into their value chain.
Table 3 Presents the public views of the main barriers in percentage of respondents
Table 4 shows the private views of the main barriers in percentage of respondents
The tripling of regional aid for trade to USD 7.7 billion in 2011 proofs evidence of the rising awareness among partners and donors about the potential impact of regional aid for trade programmes in achieving trade and development goals.
It is a fact that aid for trade in combination with complementary policies is helping to lower trade costs – in the form of additional infrastructure, better institutions such as customers and standard authorities, as well as more trade friendly policies and regulations, or in regulatory procedures that increase competition and reduce prices.
Econometric analysis suggests that bilateral aid for trade is broadly correlated with increases in trade performance. The report calculates that one USD is associated with a nearly increase of USD eight in additional exports from all developing countries, USD nine for all low and lower-middle income countries and USD 20 for international Development Association (IDA) countries.
The progressive proliferation of value chains is changing global trade flows, and widening trading opportunities for developing countries’ suppliers. Aid for trade is already addressing the right set of issues to further support this process.
Improving import efficiency appears to be one area that requires additional attention. Too frequently, aid for trade programmes fail to exhibit sufficient concerns about this dimension of competitiveness, it is vital for connecting developing country suppliers to value chains.
To conclude, we wish to ad that a total of 106 textile and apparel firms from the private sector were among the respondents, thereof 23 were lead firms, 86 were developing country suppliers.
Detailed information on sectors, countries and measures are available by clicking on the first link below.