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European Commission

Karel De Gucht

European Commissioner for Trade

Speech: Aid for Trade: Staying in for the Long Haul

OECD Policy Dialogue on Aid for Trade

Paris ,16 January 2013

Ladies and gentlemen,

The Aid for Trade initiative, launched just over seven years ago at the WTO Ministerial Conference in Hong Kong, has been, without doubt, a success.

In 2010, we collectively invested almost 25 billion euro on Aid for Trade projects – up 50% on 2006 – meaning Aid for Trade now accounts for roughly a third of all official development assistance.

This is a good news story, and an achievement to be proud of.

Being proud, though, and being complacent are two very different things. And complacency is something we must be very careful to avoid.

Because the economic crisis that began in 2007 has squeezed budgets in every area of government policy, including development.

That means that those of us who believe in Aid for Trade have to be ready to fight for it.

In developed countries we need to fight for funding to be maintained in the face of cutbacks.

In developing countries we need to fight to make sure that trade-related projects are at the centre of wider development strategies.

That is why I want to use my time this morning to make the case again for Aid for Trade, and to tell you what I believe can be done to strengthen that case, as you embark on your discussions.

The starting point is this: Trade is an engine of development.

Trade boosts demand in an economy: The more access companies have to markets around the world, the more products they can sell.

And trade's supply-side effects – which might seem less obvious – are just as important. Cheaper imports benefit consumers and companies, in the form of lower prices for goods and services. They also work to increase the level of competition in the economy as a whole, encouraging efficiency and productivity.

Both of these phenomena are intensified in today’s world of integrated production and global value chains. Trade is now at the heart of the way goods are produced – not just in one place but in a series of steps, in a series of places around the world.

As a result, the value of global trade is almost half that of global output, meaning no economic strategy worth its salt can afford to ignore it. On the contrary – governments, businesses and NGOs must see linking to international value chains as a core objective of development policy.

Now: There are some who say that these arguments are all very well for developed countries but that infant industries in developing countries need protection. I do not buy this line of argument.

If there is one thing that is not lacking in developing countries it is the spirit of entrepreneurship. You do not need to spend long days on the streets of any city in Africa, Latin America or developing Asia to learn that. What these entrepreneurs need are opportunities – opportunities that trade can provide.

And if you don’t believe the theory, just look at the practice: In China, India, Brazil, South Africa and all across the emerging world, the economies that have opened up have reaped the rewards.

But of course, we know that this is not the whole story.

Things are rarely that simple in life.

And if they were, there would be no need for me - or for any of us - to be here today at all.

Because, while trade is certainly a driver of growth and development, it needs the right conditions to flourish. Bottlenecks and inefficiencies – whether at border crossings, or in the way the economy is regulated, or even within the private sector itself – get in the way of prosperity.

Making a success of trade, then, means making reforms. Reforms that are sometimes difficult and sometimes expensive, and often have to take place in economic conditions that are less than ideal. Here, the least-developed countries are at the greatest disadvantage, especially when it comes to productive capacity and infrastructure.

And that is where Aid for Trade enters the picture – as assistance to those who wish to make the most of trade’s opportunities.

As I said when I began, the process so far has been a success:

In terms of the amounts of money committed.

But also, I am very pleased to say, in terms of results.

We can look at the empirical evidence: For example, a 10% increase in Aid for Trade spending on infrastructure has been shown to lead to a 6.5% increase in goods exports.

We also have many examples of specific cases where Aid for Trade projects have yielded impressive outcomes.

  1. Like the creation of a one-stop border post at Chirundu, on the frontier between Zambia and Zimbabwe. The five-day delays that trucks used to experience used to add 64 euro to the cost of shipping a tonne of goods between Johannesburg and Lusaka. Now, waiting times have shrunk, frequently to a matter of hours.

  2. Or the scheme in Mexico that has helped farmers and fishermen – particularly those in poorer regions – comply with European food safety requirements, allowing them to take full advantage of the EU-Mexico Free Trade Agreement. The project has resulted in huge increases of exports to Europe – more than a doubling for honey and a fourfold increase for fish and seafood.

  3. Or the project funded by the Swedish government that helped Sri Lanka obtain international recognition for its national accreditation body for product testing laboratories – making it much easier and cheaper for the country’s exporters to gain access to the full range of developed country markets.

Cases like these, and the many others that the WTO and OECD have collected as part of the Aid for Trade review process, have helped us make the case for expanding assistance since 2005.

But in today’s more challenging environment, with the intense pressure that we are facing to economise, we need to be able to justify everything that we do.

Which is why the question of effectiveness is fundamental and why the discussions that you will be having here today and tomorrow are so important.

From my perspective there are a few points that should be considered:

First, targeting. Focusing our collective efforts on the countries who need it most – particularly least-developed countries – is a core principle of the European Union’s strategy for trade and development. That goes for trade preferences and it certainly goes for aid.

However, in line with the principle of ownership, we depend on our partners' demands for the allocation of aid. Only if trade is fully integrated in their development strategies can we provide effective support. And that works best if needs assessments for Aid for Trade are at the heart of national development planning.

Second, cross-border and regional programmes. Some of the most better Aid for Trade projects involve multiple countries – like those focused on regional trade corridors, for example.

The EU sees regional economic integration as important to build the economies of scale that will help make firms globally competitive. That is one of the ways Economic Partnership Agreements can boost development for Europe's African Caribbean and Pacific partners.

Third, the private sector. Companies are the workhorses of international trade. Governments might be able to bring the horse to water. But it is the horse that decides whether or not to drink – based on its own interests.

If companies are not integrated in the design of Aid for Trade projects – by identifying the constraints that most need to be tackled for example – then they are unlikely to make use of the results. At the same time, the private sector can also contribute financially to Aid for Trade projects.

Fourth, coordination. The new sources of aid from emerging countries have come on stream at just the right time - as the crisis has put pressure on the developed donors. What is now important is that developing countries get the most out of them. And that will come by bringing all our individual efforts under the umbrella of the Paris Declaration on aid effectiveness.

Finally, trade facilitation. There is strong empirical evidence to suggest that aid that helps goods to cross borders may generate the largest welfare gains.

The reason is obvious: The potential for improvement is vast.

In the OECD, on average, customs clearance requires about 5 separate documents, takes about 10 days and costs around 750 euros per container.

By contrast, in sub-Saharan Africa almost double the number of documents is required; goods take 35 days to be exported and 44 days to be imported; and all of this is at a cost per container of 1300 euro for exports and 1500 euros for imports.

We also know from experience that border reform works, not just in Sub-Saharan Africa.

  1. Customs reform in Cameroon increased government revenue by 12%;

  2. A project on electronic customs in Haiti cut clearance times for low-risk goods from four days to two hours;

  3. Reforms to customs procedures in Ethiopia nearly doubled import and export transactions and led to a revenue increase of 51%.

Trade facilitation is an area where the link between trade policies and Aid for Trade is especially close – you might even say it's symbiotic.

If we manage to reach an agreement on trade facilitation in the WTO's ministerial conference in Bali in December of this year, its implementation will be furthered with financial support. I will make sure that the EU comes up with its fair share thereof.

The European Union remains committed to Aid for Trade. Together with our Member States we committed 10.7 billion euro in 2010.

That accounted for a third of all world flows that year and a quarter of our own total development budget. We have also met and exceeded our Hong Kong target of 2 billion euro devoted to the sub-category of trade-related assistance.

But we know that the story doesn't end there. If we want to see further results we need to be partners for development over the long haul. At both Member State and European level we must therefore stay the course. I certainly am ready to take this message to those responsible for aid budgets in the EU.

The same goes for the other partners represented here today.

It is only through a collective effort to deliver a well-funded, effective policy that we will achieve our objective: to see developing countries, particularly the poorest amongst them, make the most of globalisation.

I believe your work over the coming days and through the Global Review in the summer will provide great support to those efforts.

I hope you will see it in the same way.

And I hope that you will inspire each other to press hard for a strong, effective Aid for Trade policy, for as long as it is needed.

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