Trade cannot be relied upon to reduce poverty

Trade is positively linked to economic growth but trade policies alone cannot be relied upon to meet a country's poverty reduction objectives, admits a review of aid for trade that was compiled for the World Trade Organisation (WTO) and the Organisation for Economic Cooperation and Development (OECD). Moreover, ''if the benefits of trade for development seemed to be assured at the launching of the Aid for Trade initiative, the crisis has changed the perception'', acknowledges the review, which was made available at a meeting in Geneva on Jul 6-7 to assess progress with aid for trade since the launch of the commitments at the Hong Kong WTO ministerial meeting in 2005. The review also concurs that "there is not a simple and general conclusion on the causal link between trade and poverty, be it directly between the two or through the impact of trade on growth and, in turn, on poverty". There are benefits attached to opening up economies but the evidence linking poverty reduction and trade is "weak". In case studies where trade liberalisation helped with poverty reduction, inequality increased. Increased trade benefited elites in both developed and developing countries, exacerbating income inequalities, according to the review. But, stated WTO director general Pascal Lamy, "if aid for trade was urgent in 2007, it is essential today. It is the investment that will allow many developing countries to prepare to exit the crisis by enhancing their trade capacity." He spoke on Jul 6 at the opening of the second Aid for Trade Review under the heading of "Maintaining Momentum". In the midst of the worst economic crisis since the Great Depression, it is not easy to keep to the commitments made in 2005. This new programme, which is still rather obscure to outsiders, is meant to help developing countries improve their capacity to compete effectively in global markets and to adjust to trade reform and liberalisation. Donors met their Hong Kong pledges until at least 2007. The joint WTO/OECD report affirms that, in 2007, aid for trade grew by more than 10 percent in real terms. Total new commitments reached 25,4 billion dollars. The largest share of this amount went to Asia - 10,7 billion dollars committed in 2007 - but Africa is catching up at 9,5 billions dollars. In low-income countries, most of the money is spent on addressing infrastructure needs, in particular roads and power, whereas in middle-income ones the focus is on building productive capacities, including trade development. To conduct this assessment, questionnaires were sent to recipient countries. These have identified poor network infrastructure, weak competitiveness, little export diversification, insufficient trade policy analysis, and negotiation and implementation capacities as the main constraints. Infrastructure is particularly an issue in Africa. ''Uganda highlights the challenge of achieving harmonised standards and building shared infrastructure with its regional partners. Cameroon focuses on the need for regional transport corridors and stronger enforcement of rules of origin," states the report. "Tanzania's regional priorities include trade negotiations, quality improvement and cross-border infrastructure. In the case of Mauritius, a small-island developing state, its main infrastructure challenges were addressed regionally through the establishment of a shipping line and warehousing system," according to the report. Three regional projects have been launched to cope with the lack of infrastructure. The north"south corridor pilot project to improve road and rail transport in southern and eastern Africa, serving eight different countries, is the most impressive. Indeed, regionalisation seems to be the way forward. Probably because of the difficulty in concluding the Doha Development Round, some 230 regional trade agreements were in force in 2008 and the WTO expects this figure to rise to almost 400 by 2010. The construction of the corridor may help to change the perception of developing countries that aid for trade is not very effective in infrastructure building, despite its utmost priority. Rather, they recognize its usefulness in trade policy analysis, negotiation and implementation, followed by trade facilitation - as shown by the simplification in customs procedures and improvement at port authorities in Ghana, Kenya and Malawi–and export diversification, like the improvement in Zambia's horticulture and floriculture sectors. Mainstreaming trade into national development strategies is one of the most often undertaken measures. It recently happened in Mali, where the United Nations Conference on Trade and Development (UNCTAD) helped the national government to elaborate its first national trade policy. Other concrete examples of aid for trade projects included: "Kenya's Revenue Authority received support for successfully computerising its various services. "Tanzania's business sector programme has upgraded national standards laboratories, established an SME (small and medium enterprises) competitiveness facility and trained approximately 50 trade experts to a post-graduate level. Mali also cites a number of successful aid-for-trade projects to strengthen its business sector," the OECD/WTO report continues. The crisis has certainly shifted needs and priorities. With trade in goods likely to diminish by nine percent in 2009 - a 10 percent decrease in developed countries exports and a two to three percent decrease in developing countries' exports - experts gathered at the WTO in March 2009 pointed to an unmet demand of trade financing of between 100–300 billion dollars. To cope with this shortage of financing, Lamy announced the launching of the Global Trade Liquidity Pool in May 2009, an initiative by the World Bank Group, with initial commitments of five billion dollars from public sector sources that should be able to go up to 50 billion dollars over the next three years. The crisis is also expected to boost other kinds of interventions that are still relatively small, like trade-related structural adjustment programmes to help developing countries cope with the costs associated with trade liberalisation, such as tariffs reduction, preference erosion, or declining terms of trade.