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Aid for trade is working

International trade is a key driver of development. But high trade costs prevent a large number of developing countries from fully exploiting the opportunities that the global market offers: increased development, stronger growth and more jobs.

Landlocked, remote, and small economies are marginalised by costs that reflect geography, not capability. Indeed, while producers in low-income countries are often competitive at the farm and factory gate, they are priced out of the international market. This is because of cumbersome border procedures, poor infrastructure, lack of finance, and complex standards.

This is exactly why we launched the Aid-for-Trade Initiative: to help developing countries build their supply-side capacities and overcome the constraints that prevent them from connecting to global markets.

The good news is that we are making progress. Since the start of the initiative 10 years ago, donors have disbursed US$264.5 billion in financing for aid-for-trade programmes, with annual commitments now standing at $55 billion. A further $190 billion in other official trade-related flows have been disbursed, while south-south trade-related support is also helping developing countries reduce high trade costs.

But it is not just about the numbers. It is about the jobs created, increased domestic and foreign investment and, ultimately, better lives for men and women across the globe. The OECD found that $1 in aid for trade generates $8 in extra trade for all developing countries and $20 for low income countries. These are impressive returns on investment!

And let’s not forget that aid for trade is a complement, not a substitute, for broader market liberalisation. That is why the WTO’s 161 members made a renewed commitment to open international trade to developing countries with the agreement of the Bali package almost two years ago.

The WTO Trade Facilitation Agreement (TFA) creates a significant opportunity to reduce trade costs and enhance participation in the global value chains. Making improvements in trade facilitation is possibly the policy reform with the greatest potential to impact on foreign input sourcing decisions.

At the OECD, we calculated that the implementation of the Trade Facilitation Agreement could reduce worldwide trade costs by up to 17.5%. And for those that do more, the benefits are even greater! Countries that implement the TFA in full will reduce their trade costs by up to four percentage points those that do only the minimum that the TFA requires.

Aid also has a key role to play in assisting countries with the implementation of the Trade Facilitation Agreement. Donors that report to the OECD have already disbursed some US$1.9 billion in aid for trade facilitation since 2005. Annual commitments now stand at US$668 million; an eight fold increase in donor support since 2005. And, according to the OECD-WTO survey, even more support is on its way!

The OECD has also developed Trade Facilitation Indicators, covering 152 countries, which can assist with the implementation of the TFA agreement. This tool allows countries to monitor and benchmark their trade facilitation performance, prioritise areas for action and mobilise technical assistance and capacity building in a targeted way.

Finally, let me remind you that we must join forces with the private sector if we are to see trade costs cut. Not only can they help identify the most distorting trade costs and suggest how best to reduce them, but they can also advise on the effective use of different development finance instruments offered by a wide range of providers.[…]

The OECD is committed to joining forces with governments, international organisations and the private sector to raise the bar for development. I firmly believe that reducing trade costs through trade facilitation and aid for trade should be a crucial pillar of international efforts under the Sustainable Development Goals. We are making progress, so let’s keep up the good work! […]

*Extract from speech delivered to launch the joint OECD/WTO report, Aid for Trade at a Glance: Joining forces to reduce trade cost for inclusive and sustainable growth, 30 June 2015. See http://oe.cd/12A.  

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©OECD Observer Special offprint, July 2015