11

Preference Erosion and Aid Preference Erosion and Aid for Trade (A4T): for Trade (A4T):

A South Asian Perspective (?)A South Asian Perspective (?)

Janaka WijayasiriJanaka Wijayasiri

Shihana SamadShihana Samad

Institute of Policy Studies of Sri LankaInstitute of Policy Studies of Sri Lanka

22

Objectives of the studyObjectives of the study

Identify non-reciprocal preference programmes of Identify non-reciprocal preference programmes of major developed countries and assess their major developed countries and assess their importance to SAimportance to SA

Identify countries in SA vulnerable to preference Identify countries in SA vulnerable to preference erosion erosion

Summarise results of various simulation exercises Summarise results of various simulation exercises in which the impact of preference erosion has been in which the impact of preference erosion has been estimatedestimated

Discuss possible solutions (trade and non-trade Discuss possible solutions (trade and non-trade related) to the problem related) to the problem

33

Today's presentation …Today's presentation …

Define what is meant by preference erosionDefine what is meant by preference erosion

Background to the problem of preference erosionBackground to the problem of preference erosion

Overview of GSP schemes, namely EU and US GSP schemes Overview of GSP schemes, namely EU and US GSP schemes and assess their importance to SAand assess their importance to SA

Indicators to assess vulnerability to preference erosionIndicators to assess vulnerability to preference erosion

Assess SAs vulnerability to preference erosion in EU and US Assess SAs vulnerability to preference erosion in EU and US and sectors/products using a set of indicators and sectors/products using a set of indicators

Overview of measures to address preference erosionOverview of measures to address preference erosion

44

What is meant by preference What is meant by preference erosion?erosion?

Refers to a decline in competitive advantage that Refers to a decline in competitive advantage that preferential beneficiaries enjoy in foreign markets as a result preferential beneficiaries enjoy in foreign markets as a result of loss of preferential trade treatment…this can happen of loss of preferential trade treatment…this can happen when preferences granting countries:when preferences granting countries:

1) 1) eliminate preferenceseliminate preferences

2) 2) expand the no. of preference beneficiariesexpand the no. of preference beneficiaries

3) 3) lower their Most Favoured Nation (MFN) tariff without lower their Most Favoured Nation (MFN) tariff without proportionately proportionately lowering their preferential tariffslowering their preferential tariffs

55

BackgroundBackground

Erosion of preference is an important issue in Erosion of preference is an important issue in efforts to negotiate a multilateral trade round efforts to negotiate a multilateral trade round

Tariff reductions under agriculture and NAMA Tariff reductions under agriculture and NAMA negotiations are expected to lead to lowering of negotiations are expected to lead to lowering of MFN tariffs…adversely affecting beneficiaries of MFN tariffs…adversely affecting beneficiaries of preferential arrangements preferential arrangements

In HK Ministerial Declaration preference erosion In HK Ministerial Declaration preference erosion was identified as an issue that needs to be was identified as an issue that needs to be addressed on a priority basisaddressed on a priority basis

66

Background (cont.)Background (cont.)

Preference erosion has become a divisive issue among developing Preference erosion has become a divisive issue among developing countries in the WTO - between those who are beneficiaries of countries in the WTO - between those who are beneficiaries of preferential treatment (ie) LDCs, ACP group and those who have preferential treatment (ie) LDCs, ACP group and those who have less preferential access to markets abroad less preferential access to markets abroad

Currently most developing countries enjoy preferential access to Currently most developing countries enjoy preferential access to markets in industrialised countries under the various non-markets in industrialised countries under the various non-reciprocal trade preference schemes, namely the Generalised reciprocal trade preference schemes, namely the Generalised System of Preference (GSP) scheme System of Preference (GSP) scheme

Preferential schemes have had beneficial effects (investment, job Preferential schemes have had beneficial effects (investment, job creation, poverty reduction) but they can also have perverse creation, poverty reduction) but they can also have perverse effects and suffer from a number of shortcomings effects and suffer from a number of shortcomings

… … but they remain valuable for recipient countriesbut they remain valuable for recipient countries

Preference erosion is not a new concern…Preference erosion is not a new concern…

77

Background (cont.)Background (cont.)

… … but it has become a sensitive issue following the granting but it has become a sensitive issue following the granting of duty free and quota free market access by industrialised of duty free and quota free market access by industrialised countries under schemes such as EBA, AGOA, etccountries under schemes such as EBA, AGOA, etc

Canada, EU, NZ, Norway, Switzerland grant duty free and Canada, EU, NZ, Norway, Switzerland grant duty free and quota free mkt access to almost all products from LDCsquota free mkt access to almost all products from LDCs

Japan offers duty free access to about 63% of importsJapan offers duty free access to about 63% of imports

US offers duty free access for all products from some LDCs US offers duty free access for all products from some LDCs from Africa and Caribbean under AGOA and CBIfrom Africa and Caribbean under AGOA and CBI

A number proposals have been submitted to address the A number proposals have been submitted to address the issue – one being Aid for Trade (A4T)issue – one being Aid for Trade (A4T)

88

Background to GSPBackground to GSP

In 1968, UNCTAD recommended the setting up of a In 1968, UNCTAD recommended the setting up of a ‘Generalised System of Tariff Preferences’ (GSP)‘Generalised System of Tariff Preferences’ (GSP)

Overall objectives were toOverall objectives were to Increase export earnings of developing countriesIncrease export earnings of developing countries Promote industrialisationPromote industrialisation Accelerate economic growthAccelerate economic growth

Basic principles:Basic principles: Generality – common scheme to be applied by all preference Generality – common scheme to be applied by all preference

giving countriesgiving countries Non-discrimination – all developing countries should be Non-discrimination – all developing countries should be

covered and treated equallycovered and treated equally Non-reciprocity – beneficiaries do not have to make Non-reciprocity – beneficiaries do not have to make

corresponding concessionscorresponding concessions

99

EU GSP schemeEU GSP scheme

Covers 178 countries Covers 178 countries Most generous of all GSP schemes in placeMost generous of all GSP schemes in place First to implement a GSP scheme in 1971First to implement a GSP scheme in 1971 Implemented for a ten year period, with the most recent being Implemented for a ten year period, with the most recent being

adopted in June 2005 and implemented on 01/01/06adopted in June 2005 and implemented on 01/01/06 Objectives: max. benefits to the most disadvantaged countries Objectives: max. benefits to the most disadvantaged countries

and provide a clearer graduation mechanismand provide a clearer graduation mechanism 3 types of arrangements:3 types of arrangements:

1) General scheme for all developing countries (IN, PK) 1) General scheme for all developing countries (IN, PK) - - duty free for 3300 non-sensitive productsduty free for 3300 non-sensitive products- duty reduction of 3.5 percentage points from MFN rate for 3900 sensitive - duty reduction of 3.5 percentage points from MFN rate for 3900 sensitive

productsproducts- textile and textile articles 20 percent duty reduction rate- textile and textile articles 20 percent duty reduction rate

2) GSP-plus scheme (SL) 2) GSP-plus scheme (SL) - duty free for 7200 products- duty free for 7200 products

3) Everything but Arms (EBA) for LDCs (BG, NP)3) Everything but Arms (EBA) for LDCs (BG, NP)- duty free for 9800 products- duty free for 9800 products

1010

US GSP schemeUS GSP scheme

First implemented in 1976 under the Trade Act of 1974 First implemented in 1976 under the Trade Act of 1974

Been in operation initially for two 10 year periods and Been in operation initially for two 10 year periods and thereafter renewed every one or two years, with the most thereafter renewed every one or two years, with the most recent renewal in 2002 under the Trade Act of 2002recent renewal in 2002 under the Trade Act of 2002

139 countries are eligible for GSP benefits (98 developing 139 countries are eligible for GSP benefits (98 developing countries, 41 LDCs)countries, 41 LDCs)

Approx. 4,600 articles are eligible for duty-free treatment, Approx. 4,600 articles are eligible for duty-free treatment, and in 1997, LDCs became eligible for an additional 1,783 and in 1997, LDCs became eligible for an additional 1,783 articlesarticles

Products excluded: textiles, watches, footwear, handbags, Products excluded: textiles, watches, footwear, handbags, luggage, flat goods, work gloves, other leather apparel and luggage, flat goods, work gloves, other leather apparel and import sensitive articles (steel, glass, electronic equipment) import sensitive articles (steel, glass, electronic equipment)

1111

South Asia’s exports to the world and the QUAD, 2004South Asia’s exports to the world and the QUAD, 2004

CountryTotal

exports% to US

% to EU

% to Japan

% to Canada

% to QUAD

Bangladesh 5,796,910 25.63 58.38 1.02 3.51 88.54

India 79,846,398 16.51 20.85 2.51 0.22 40.09

Nepal 658,942 23.70 19.19 1.15 1.72 45.75

Pakistan 13,379,015 23.34 29.33 1.20 1.33 55.19

Sri Lanka 5,485,135 34.03 31.59 2.82 1.31 69.76

1212

Code Description BG IN NP PK SL

01 Live animals & products 7.3 2.53 N/A 0.1 0.9

02 Vegetable products 0.02 3.69 0.13 1.05 1.3

03 Fats and oils 0 0.61 N/A 0 0

04 Prepared foodstuffs,beverages,etc. 0.23 0.93 N/A 0.42 0.1

05 Mineral products 0.01 1.87 N/A 0.01 0.08

06 Chemical products 0.38 6.99 0.06 0.02 0.55

07 Plastics & rubber 0.32 1.84 0.21 0.13 7.41

08 Hides and skins, leather, etc. 0.08 1.72 0.49 3.01 0.27

09 Wood & articles of wood 0.02 0.28 0.13 0.03 0.21

10 Pulp of wood, paper, books, etc. 0 0.29 0.6 0.05 0.02

11 Textile & textile articles 86.43 25.73 93.42 88.89 81.69

12 Footwear, headgear, umbrellas,etc. 4.74 0.86 0.42 0.12 0.98

13 Articles of stone, cement, etc. 0.15 2.23 0.02 0.39 0.77

14 Precious stones, etc 0 27.8 1.76 0.55 2.75

15 Base metals & products 0.01 9.61 0.32 0.88 0.09

16 Machinery & electrical equipment 0.02 6.56 0.36 0.19 1.37

17 Transport equipment 0 2.12 N/A 0.06 0.05

18 Optical & precision instruments 0.01 1.03 0.06 1.15 0.05

19 Arms and ammunition 0.24 0.02 0.01 0.19 0

20 Miscellaneous manufact. articles 0 2.4 0.25 2.68 0.9

21 Works of art, etc 0.03 0.13 1.19 0.08 0.01

Imports into the US (% of total imports), HS section-wise, 2004 Imports into the US (% of total imports), HS section-wise, 2004

1313

Code Description BG IN NP PK SL

01 Live animals & products 3.65 2.23 0.06 1.43 1.9

02 Vegetable products 0.28 4.66 0.43 2.51 6.31

03 Fats and oils 0 0.93 0 0 0.01

04Prepared foodstuffs,beverages,etc. 0.33 0.91 5.05 3.43 2.79

05 Mineral products 0 4.27 0.01 0.18 0.2

06 Chemical products 0.26 8.9 0.42 0.19 0.36

07 Plastics & rubber 0.13 2.15 0.03 2.19 11.37

08 Hides and skins, leather, etc. 1.37 5.2 2.54 8.85 0.83

09 Wood & articles of wood 0.05 0.34 0.32 0.02 0.5

10 Pulp of wood, paper, books, etc. 0.02 0.47 3.22 0.06 0.76

11 Textile & textile articles 91.42 28.04 80.49 71.47 52.33

12Footwear, headgear, umbrellas,etc. 1.45 4.41 1.23 1.2 1.21

13 Articles of stone, cement, etc. 0.4 1.82 0.24 0.19 1.12

14 Precious stones, etc 0 10.79 2.5 0.39 11.88

15 Base metals & products 0.06 9.08 0.91 1.19 0.65

16 Machinery & electrical equipment 0.07 8.78 1.48 0.9 3.73

17 Transport equipment 0.41 3.8 0.01 0.15 1.15

18 Optical & precision instruments 0.02 0.76 0.29 1.45 0.52

19 Arms and ammunition N/A 0.02 0 0.01 N/A

20 Miscellaneous manufact. articles 0.07 2.45 0.5 4.17 2.37

21 Works of art, etc 0 0.01 0.29 0.01 0.01

Imports into the EU (% of total imports), HS section-wise, 2004Imports into the EU (% of total imports), HS section-wise, 2004

1414

Market access to the US (by tariff lines)Market access to the US (by tariff lines)

0%10%

20%30%

40%50%

60%70%

80%90%

100%

Ban

glad

esh

Indi

a

Nep

al

Pak

ista

n

Sri

Lank

a

MFN duty free access Duty free preference No preferential access

1515

Market access to the EU (by tariff lines)Market access to the EU (by tariff lines)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

MFN duty free access Duty free preference Dutiable preference No preferential access

1616

Some indicators to measure Some indicators to measure vulnerability to preference vulnerability to preference

erosion..erosion..

Product coverageProduct coverage == value of imports eligible for preferencesvalue of imports eligible for preferences value of dutiable importsvalue of dutiable imports

Utilization rateUtilization rate = = value of imports receiving pref. treat.value of imports receiving pref. treat. value of imports eligible for preferencesvalue of imports eligible for preferences

Utility rate Utility rate = = value of imports receiving pref. treatmentvalue of imports receiving pref. treatment value of dutiable importsvalue of dutiable imports

Beneficiaries/sectors with high utilisation & utility rates are more Beneficiaries/sectors with high utilisation & utility rates are more vulnerable to preference erosion and vice versavulnerable to preference erosion and vice versa

1717

Main beneficiaries of the EU-Main beneficiaries of the EU-GSP scheme in South Asia, GSP scheme in South Asia,

20042004 EU received imports from South Asia worth some USD 30 bn EU received imports from South Asia worth some USD 30 bn

in 2004 of which 14bn of imports entered under the GSP in 2004 of which 14bn of imports entered under the GSP schemescheme

Bangladesh22%

Pakistan16%

Sri Lanka4%

India57%

Nepal1%

1818

Coverage, utilisation & utility rates for South Asia under EU Coverage, utilisation & utility rates for South Asia under EU GSP scheme, 2004GSP scheme, 2004

0

10

20

30

40

50

60

70

80

90

100

Bangladesh India Pakistan Nepal Sri Lanka South Asia

Potential Coverage Rate Utilization Rate Utility Rate

1919

Bangladesh

Nepal

Pakistan

Sri Lanka

India

0

50

100

0 50 100

Utilisation

Util

ity

Vulnerability of South Asia to preference Erosion in the EU Vulnerability of South Asia to preference Erosion in the EU (country-wise)(country-wise)

Low vulnerablity

High vulnerablity

2020

Description BG IN NP PK SL

01 Live animals & products X X X

02 Vegetable products X X X

03 Fats and oils X X X X X

04Prepared foodstuffs, beverages, etc. X

05 Mineral products X

06 Chemical products X X X

07 Plastics & rubber X X X X X

08 Hides and skins, leather, etc. X X X

09 Wood & articles of wood X X X X

10Pulp of wood, paper, books, etc.

11 Textile & textile articles X X X

12Footwear, headgear, umbrellas,etc. X X X X X

13 Articles of stone, cement, etc. X X X X X

14 Precious stones, etc X X X X

15 Base metals & products X X X X

16Machinery & electrical equipment X X

17 Transport equipment X X X X

18Optical & precision instruments X X X X X

19 Arms and ammunition

20Miscellaneous manufact. Articles X X X X

21 Works of art, etc

Note: *Note: * Utilisation and utility rates over 60 percent

X account for 5 percent or more of total exports

Sectors vulnerable to preference erosion* under the EU GSP scheme, 2004Sectors vulnerable to preference erosion* under the EU GSP scheme, 2004

2121

Main beneficiaries of the US-Main beneficiaries of the US-GSP scheme in South Asia, GSP scheme in South Asia,

20042004In 2004, US imported goods worth approx. US$ 24 billion, of In 2004, US imported goods worth approx. US$ 24 billion, of

whichwhichonly US$3bn were imported under GSP schemeonly US$3bn were imported under GSP scheme

India92%

Bangladesh1%

Sri Lanka4%

Pakistan3%

Nepal0.1

2222

Coverage, utilisation & utility rates for South Asia under US GSP Coverage, utilisation & utility rates for South Asia under US GSP

scheme, 2004scheme, 2004

010

2030

405060

7080

90100

Bangladesh India Pakistan Nepal Sri Lanka South Asia

Potential Coverage Rate Utilization Rate Utility Rate

2323

Nepal Bangladesh Sri LankaPakistan

India

0

50

100

0 50 100

Utilization

Uti

lity

Vulnerability of South Asia to preference Erosion in the US Vulnerability of South Asia to preference Erosion in the US

(country-wise)(country-wise) High vulnerablity

Low vulnerablity

2424

Description BG IN NP PK SL

01 Live animals & products X

02 Vegetable products X X

03 Fats and oils X X

04Prepared foodstuffs, beverages, etc. X X X

05 Mineral products X

06 Chemical products X X X X

07 Plastics & rubber X X

08 Hides and skins, leather, etc.

09 Wood & articles of wood X X X X X

10Pulp of wood, paper, books, etc.

11 Textile & textile articles

12Footwear, headgear, umbrellas,etc.

13 Articles of stone, cement, etc. X X X X X

14 Precious stones, etc X X X X X

15 Base metals & products X X X X

16Machinery & electrical equipment X X X

17 Transport equipment X X X

18Optical & precision instruments X X

19 Arms and ammunition X x

20Miscellaneous manufact. Articles X X X X

21 Works of art, etc

Note: *Note: * Utilisation and utility rates over 60 percent

X account for 5 percent or more of total exports

Sectors vulnerable to preference erosion* under the US GSP scheme, 2004Sectors vulnerable to preference erosion* under the US GSP scheme, 2004

2525

Preference erosion under the Preference erosion under the EU and US GSP schemes? EU and US GSP schemes?

Reduction in tariff rates by US is Reduction in tariff rates by US is unlikelyunlikely to lead to a significant to lead to a significant erosion of preferences for South Asia due to limited coverage of erosion of preferences for South Asia due to limited coverage of products of export interest … some sectors are vulnerable but products of export interest … some sectors are vulnerable but they do not account for significant share of exports except for a they do not account for significant share of exports except for a few important sectors in IN and SLfew important sectors in IN and SL

Tariff reductions by the US are most likely to result in gains for Tariff reductions by the US are most likely to result in gains for South Asia in the form of lower tariffs for its major exports sector South Asia in the form of lower tariffs for its major exports sector (ie) textile and textile articles, which are not covered under US (ie) textile and textile articles, which are not covered under US schemescheme

Compared to the US, the EU scheme is more generous in providing Compared to the US, the EU scheme is more generous in providing market access to countries in the regionmarket access to countries in the region

……. SA is likely to be more exposed to preference erosion in the EU . SA is likely to be more exposed to preference erosion in the EU than in the US…. than in the US….

2626

Measures to deal with Measures to deal with preference erosionpreference erosion

Two broad measures:Two broad measures: Trade based solutionsTrade based solutions Aid based solution (A4T)Aid based solution (A4T)

2727

Trade based solution to Trade based solution to preference erosionpreference erosion

Objective – partly compensate for Objective – partly compensate for immediate losses from preference erosion immediate losses from preference erosion in short run while preparing countries to in short run while preparing countries to survive without preferences in long runsurvive without preferences in long run

Include measures to:Include measures to: Increase preference utilisationIncrease preference utilisation Extend product coverage of preferential Extend product coverage of preferential

schemesschemes Extend preferences in other marketsExtend preferences in other markets Protect preference dependent countriesProtect preference dependent countries

2828

Measures to increase Measures to increase preference utilisationpreference utilisation

Number of factors affecting utilisation of trade preferences: Number of factors affecting utilisation of trade preferences: lack of security of accesslack of security of access insufficient coverageinsufficient coverage lack of understanding/awareness of preferences availablelack of understanding/awareness of preferences available lack of capacity to supplylack of capacity to supply non-trade related conditionsnon-trade related conditions stringent rules of origin (RoO)stringent rules of origin (RoO)

Measures to improve utilization of preferences : Measures to improve utilization of preferences : relax RoOrelax RoO increase predictability of preferential trade arrangements. increase predictability of preferential trade arrangements. harmonizationise requirements of various preferential schemes harmonizationise requirements of various preferential schemes improve understanding/awareness of the preferences available improve understanding/awareness of the preferences available address supply side capacity constraintsaddress supply side capacity constraints

2929

Extending product coverage & Extending product coverage & scope of preferencesscope of preferences

Negative consequences of preference erosion could be partially addressed Negative consequences of preference erosion could be partially addressed through efforts to provide duty free and quota free market access to through efforts to provide duty free and quota free market access to products of interests to LDCs products of interests to LDCs

There are number of ‘sensitive’ products of interest to LDCs such as There are number of ‘sensitive’ products of interest to LDCs such as textiles and clothing and agricultural products that still attract relatively textiles and clothing and agricultural products that still attract relatively high tariffs and currently are partially or not covered by preference high tariffs and currently are partially or not covered by preference schemes schemes

In the case of the US, there is still great scope to extend duty free In the case of the US, there is still great scope to extend duty free treatment to BG and NP - about 27 percent of the tariff lines do not receive treatment to BG and NP - about 27 percent of the tariff lines do not receive any preferential treatment… but the prospects of this happening is unlikely any preferential treatment… but the prospects of this happening is unlikely

The scope to extend similar treatment in the EU is very limited as it The scope to extend similar treatment in the EU is very limited as it already extends duty free and quota free market access to both BG and NP already extends duty free and quota free market access to both BG and NP under EBA initiative under EBA initiative

Extend scope of preferences beyond trade in goods to services (ie) mode 4 Extend scope of preferences beyond trade in goods to services (ie) mode 4 which will have larger positive effects than preferences for goodswhich will have larger positive effects than preferences for goods

3030

Compensating through Compensating through preferences in other markets preferences in other markets

Part of a solution to preference erosion from MFN liberalization Part of a solution to preference erosion from MFN liberalization could be addressed by obtaining preferential treatment in other could be addressed by obtaining preferential treatment in other markets (ie) South-south trademarkets (ie) South-south trade

In the case of Bangladesh, this is not promising with over 80 In the case of Bangladesh, this is not promising with over 80 percent of exports directed to the QUAD countries and to a lesser percent of exports directed to the QUAD countries and to a lesser degree in the case of Sri Lanka (70 percent) degree in the case of Sri Lanka (70 percent)

In the case of India, Nepal(?) and Pakistan, a substantial of portion In the case of India, Nepal(?) and Pakistan, a substantial of portion of their exports goes to countries other than the QUAD, so there is of their exports goes to countries other than the QUAD, so there is a possibility of addressing the problem by entering into a possibility of addressing the problem by entering into preferential agreements with these countries or strengthening preferential agreements with these countries or strengthening existing ones existing ones

Possibility of addressing the problem within the region remains Possibility of addressing the problem within the region remains doubtful given the past track recorddoubtful given the past track record

3131

Multilateral trade concessions Multilateral trade concessions designed to protect preference designed to protect preference

dependent countriesdependent countries Delaying liberalization of sensitive sectors and accelerating Delaying liberalization of sensitive sectors and accelerating

liberalization of goods that beneficiary countries of preferential liberalization of goods that beneficiary countries of preferential arrangements have a comparative advantage arrangements have a comparative advantage

No convergence on this issue…countries which are non-beneficiary No convergence on this issue…countries which are non-beneficiary of non-preferential agreements, having graduated from these of non-preferential agreements, having graduated from these schemes are unlikely to support such a move schemes are unlikely to support such a move

… … and it will involve a substantial welfare loss from a global and it will involve a substantial welfare loss from a global perspective perspective

A more pragmatic solution woul address the problem of A more pragmatic solution woul address the problem of preference erosion while adhering to the overall purpose of trade preference erosion while adhering to the overall purpose of trade round – that is to liberalize trade by bringing down trade barriers…round – that is to liberalize trade by bringing down trade barriers…

… … which seems to be offered under A4T which seems to be offered under A4T

3232

Non-trade Solution - Aid for Non-trade Solution - Aid for TradeTrade

Not a new concept… but became a part of international discourse Not a new concept… but became a part of international discourse only in 2005only in 2005

A4T was officially put on the WTO agenda at HK ministerial in Dec. A4T was officially put on the WTO agenda at HK ministerial in Dec. 2005:2005:’’

... ... Aid for Trade should aim to help developing countries, Aid for Trade should aim to help developing countries, particularly LDCs to build supply capacity and trade-related particularly LDCs to build supply capacity and trade-related infrastructure that they need to assist them to implement and infrastructure that they need to assist them to implement and benefit from WTO agreements and more broadly to expand benefit from WTO agreements and more broadly to expand their trade…’their trade…’

In showing their support for A4T, the EU, Japan and the US all In showing their support for A4T, the EU, Japan and the US all announced increases in resources for A4T prior to and at and after announced increases in resources for A4T prior to and at and after Hong KongHong Kong

3333

What is A4T?What is A4T?

Trade policy and regulationsTrade policy and regulations - to help countries - to help countries negotiate, reform and prepare for closer negotiate, reform and prepare for closer integration in multilateral trading system integration in multilateral trading system

Trade developmentTrade development - to help enterprises engage - to help enterprises engage in trade, reinforce business support structures in trade, reinforce business support structures and develop the business climate and develop the business climate

InfrastructureInfrastructure - trade related infrastructure such - trade related infrastructure such as transport, communications, energy. as transport, communications, energy.

Building productive capacityBuilding productive capacity – improve capacity – improve capacity of a country to produce goods and servicesof a country to produce goods and services

Trade related adjustmentTrade related adjustment Other trade related needsOther trade related needs

3434

Trends in A4TTrends in A4T

Significant scaling up of trade-related technical Significant scaling up of trade-related technical assistance and capacity building to developing assistance and capacity building to developing countries since 2001countries since 2001

Volume of trade related commitments for Volume of trade related commitments for trade trade policy & regulationpolicy & regulation and and trade developmenttrade development rose rose by 50 percent during 2001-2004 to reach USD3bn by 50 percent during 2001-2004 to reach USD3bn in 2004in 2004

In 2004, about 4.4 percent of total worldwide aid In 2004, about 4.4 percent of total worldwide aid budget was devoted to trade-capacity building, budget was devoted to trade-capacity building, with infrastructure accounting for a 25 percent with infrastructure accounting for a 25 percent share. share.

3535

Trade policy & regulation, USD mn

0

100

200

300

400

500

600

700

800

900

1000

2001 2002 2003 2004

Oceania

Global programmes

Europe

South Asia

Asia*

America

Africa

A4T to South Asia, 2001-A4T to South Asia, 2001-20042004

- Assistance to South Asia has fallen in absolute and relative terms between 2001-2004- Assistance to South Asia in 2004 amounted to USD 22mn

3636

Trade policy & regulations, South Asia, 2001-2004

50%

20%

14%

0%

12%

4%Trade mainstreaming

Technical standards

Trade facilitation

RTAs

Multilateral trade negotiaions andagreements

Trade education/training

Trade policy & regulations, 2001-2004

Bangladesh38%

India40%

Nepal1%

Pakistan12%

Sri Lanka9%

3737

A4T to South Asia, 2001-A4T to South Asia, 2001-20042004

Trade development, USD Mn

0200

400600800

10001200

140016001800

20002200

2001 2002 2003 2004

Oceania

Global programmes

Europe

South Asia

Asia

America

Africa

- Assistance to South Asia has fallen in absolute and relative terms between 2001-2004- Assistance to South Asia in 2004 amounted to USD 39mn

3838

Trade development, South Asia, 2001-2004

16%

6%

1%

46%

24%

7%

Business support servicesand institutions

Public-private sectornetw orking

E-commerce

Trade f inance

Trade promotion strategy andimplementation

Market analysis anddevelopment

Trade development, 2001-2004

Bangladesh21%

India36%

Nepal4%

Pakistan30%

Sri Lanka9%

3939

A4T to South Asia, 2001-A4T to South Asia, 2001-20042004

Infrastructure, USD Mn.

0

2000

4000

6000

8000

10000

12000

14000

16000

2001 2002 2003 2004

Oceania

Global programmes

Europe

South Asia

Asia*

America

Africa

- Assistance to South Asia has increased in absolute and relative terms between 2001-04- Assistance to South Asia in 2004 amounted to USD 1.8bn

4040

Infrastructure, South Asia, 2001-2004

54%

2%

44%Transport & Storage

Communications

Energy

Infrastructure, 2001-2004

Bangladesh22%

India51%

Nepal4%

Pakistan6%

Sri Lanka17%

4141

Existing A4T mechanismsExisting A4T mechanisms

A4T (in a narrow sense) is currently delivered A4T (in a narrow sense) is currently delivered through:through: Bilateral donor programmesBilateral donor programmes Multilateral/multi-donor funded programmesMultilateral/multi-donor funded programmes Individual international organisation programmesIndividual international organisation programmes Regional organisations and regional financial Regional organisations and regional financial

institutionsinstitutions

Determining effectiveness and impact of trade Determining effectiveness and impact of trade related assistance is difficult … but where it was related assistance is difficult … but where it was possible, the impact was mixedpossible, the impact was mixed……

4242

Weaknesses of existing Weaknesses of existing mechanismsmechanisms

Identified shortcomings of existing trade related Identified shortcomings of existing trade related assistance:assistance: Unsystematic/incomplete needs assessmentUnsystematic/incomplete needs assessment Weak project managementWeak project management Fragmented trade related assistance with insufficient Fragmented trade related assistance with insufficient

links to broader development assistance programmeslinks to broader development assistance programmes Weak linkages to poverty reductionWeak linkages to poverty reduction Insufficient donor coordinationInsufficient donor coordination Inadequate internal communications and donor Inadequate internal communications and donor

expertise on trade related mattersexpertise on trade related matters

Will A4T be additional, adequate, predictable, Will A4T be additional, adequate, predictable, recipient driven, coherent, free of conditions?recipient driven, coherent, free of conditions?

4343

A way forwardA way forward

Some form of trade and aid based solutions to the Some form of trade and aid based solutions to the problem…problem…

Trade solutions would address the problem in the short run Trade solutions would address the problem in the short run by providing foot hold in markets abroad before multilateral by providing foot hold in markets abroad before multilateral tariff liberalisation is completetariff liberalisation is complete

……while aid solution (A4T) would provide a long term while aid solution (A4T) would provide a long term solution to the problem if delivered effectivelysolution to the problem if delivered effectively

Aid solution is considered a better approach to deal with Aid solution is considered a better approach to deal with preference erosion than any trade based solutions, as it preference erosion than any trade based solutions, as it does not further discriminate countries within the does not further discriminate countries within the multilateral system (and thus welfare reducing)… but the multilateral system (and thus welfare reducing)… but the record on trade related assistance has been mixed so far…record on trade related assistance has been mixed so far…