Sixteen years ago, an “Aid for Trade” (AfT) strategy was proposed by G7 at the WTO’s Hong Kong Ministerial meeting. Reacting to the growing gap in exploiting the opportunities in trade opened up by globalisation, the AfT regime was intended to assist developing countries to build their “trade capabilities” in line with their own development plans. The catchphrase was that “market access must be converted into market presence”. An AfT strategy for Caricom was launched by 2013, but judging by our shrunken share of global trade (market presence), something happened on the way to securing “market access”.
But the premises of AfT remain critical because, with the evident abandonment of the Doha (Development) Round of the WTO, the developed world has focused in creating trading regimes in which the less developed countries are not in a position to benefit from their trade commitments. A good example was the Economic Partnership Agreement (EPA) that Caricom entered into in 2008 with the European Union (EU). The Caricom nations were by and large in no position to exploit the “trade opportunities”, unlike the case with the EU nations.
As part of the EPA, the EU had made a commitment to proceed with the AfT and to work with both Government and the Private Sector yet very little came out of the effort. The WTO had more specifically emphasised that AfT must be deployed to assist developing countries to enter the Global Value Chain (GVC) in which production is spread among any number of countries and value is added at each stage of the transfer. Much of today’s global trade is in intermediate goods which are imported, value added, and then exported.
The problem is that most value is captured in the design and conceptual stage of the value chain, as well as in the final sales and marketing end of the GVC. However, this is not where most developing countries are located. They are generally located in the lower-value manufacturing section of the GVC, and even then, this is true for some, not all developing countries.
The benefit a country gets from participating in the GVC will depend on where a country is lined up in terms of its technological capacities; the depth of their manufacturing capacities; how developed their services sectors are; the size of their enterprises; their managerial expertise; and their ability to meet the standards of the international markets to name only a few criteria.
Due to these and other limitations, developing countries could open up, and they could become more integrated, but the quality of their integration may not be of real benefit. Mere liberalisation will not upgrade countries’ technological or services supply-side capacities. Nor will Trade Facilitation Agreements – expediting the entry of imports through a range of customs procedures.
So, the focus of AfT to increase trade via the GVC should have been to deepen the production capacities of developing countries so that they can garner a bigger share of the value added. From a decision Caricom made in 2009, the AfT strategy was crafted towards “upgrading key economic infrastructure; enhancing export competitiveness; diversifying economies; retooling the Private Sector; strengthening regional integration; and creating financial and other instruments to encourage and support innovation and research and development”. How much was actually done?
We suggest that the strategy can be revived against the background of the return of the People’s Progressive Party (PPP) to Government and its launching of a holistic development plan. It has to engender the movement of our manufacturing capacities beyond being assembly lines; creating a more vibrant agricultural sector – including agro-processing and increased production capacities in a range of service sectors. The latter is crucial because with the entry and exit of intermediate goods between countries, the service component of the GVC has grown exponentially. It now surpasses trade in manufactured goods.
Failure to engage in structural transformation especially of services and deepening of production capacities could mean that our countries will continue supplying raw materials, or at best, sites for low value-added manufacturing tasks.
