Back in 2005, Aid for Trade (AfT) had been proposed unilaterally by G7 in 2005 at the World Trade Organisation (WTO) Hong Kong Ministerial meeting.
Ostensibly launched in reaction to the growing gap in exploiting the opportunities in trade opened up by globalisation, the AfT regime is intended to assist developing countries with building their trade capabilities in line with their own development plans. The catchphrase was that “market access must be converted into market presence”. The initiative was adopted by Caricom eight years ago, but it appears to have died on the vine. Part of the reason is that, as WTO members heard in an Aid-for-Trade session of the Committee on Trade Development on May 25 of this year, contributions from G20 had flattened since 2014.
But capacity building in trade is critical since with the freezing of the Doha Round of the WTO, the developed world has focused on 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 in to 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, especially the latter, to boost their trade capacity. However, only Britain and one other EU nation followed through with their commitment – and this to five of the smallest states.
The WTO has 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 its manufacturing capacities, how developed its services sectors are, the size of its enterprises, its managerial expertise and its 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 has to be deepening the production capacities of developing countries so that they can garner a bigger share of the value added. We suggest that the impetus must be more directed 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 services 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. Caricom has to lobby harder for our AfT share.
