88024 UNLOCKING GLOBAL OPPORTUNITIES THE AID FOR TRADE PROGRAM OF THE WORLD BANK GROUP © 2009 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org E-mail: feedback@worldbank.org All rights reserved 1 2 3 4 5 12 11 10 09 This volume is a product of the staff of the International Bank for Reconstruction and Development / The World Bank. The findings, interpretations, and conclusions expressed in this volume do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgement on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. 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Cover, clockwise from top: Domenic Sansoni, Simone D. McCourtie, Tomas Senet, Giuseppi Franchini. Interior: page 1, Domenic Sansoni; page 10, Guseppi Franchini; page 22, Yosef Hadar; page 31, Curt Carnemark; page 41, Giuseppi Franchini. CONTENTS Executive Summary v Acknowledgments vii Abbreviations ix 1. The Call for Aid for Trade and the World Bank Group Response 1 From the Hong Kong Ministerial Conference to the Financial Crisis: The Need for Aid for Trade 1 The Objective: Overcome Supply-Side Constraints 3 The Strategy of the World Bank Group 3 Looking to the Future: Will Aid for Trade Increase? 8 2. Fostering Country Competitiveness 10 Efforts to Improve Competitiveness 11 Trade Facilitation 14 Trade-Related Infrastructure 16 World Bank Group Country Programs: Distribution around the World 17 3. Supporting Regional Integration 22 Trade Facilitation and Investment in Regional Infrastructure 23 Regional Trade Agreements: Promoting Open Regionalism 28 4. Enhancing Multilateral Cooperation 31 The Doha Development Agenda 31 Trade Finance 32 Special Programs for Low-Income Countries: Grants and Trust Funds 35 Public Goods: Research, Data, and Tools 38 Programs to Build New Capabilities: Geneva-Based Training 39 iii iv Contents 5. Gauging Success: Three Questions 41 Are Countries Requesting More Aid for Trade and Are the Right Countries Receiving It? 41 Are Countries Integrating Trade into Their Development and Poverty Reduction Strategies? 44 Do Aid-for-Trade Projects Achieve Their Objectives? 47 Conclusion 51 Annex 52 References 55 List of Tables Table 1: World Bank Group Trade-Related Activities, 2007 and 2008 5 Table 2: World Bank Group Trade-Related Activities, 2002–08 7 Table 3: World Bank Group Trade-Related Activities 11 Table 4: World Bank Group Trade-Related Activities, by Region, 2008 17 Table 5: DTISs Tend to Improve Trade Inclusion in Poverty Reduction Strategies 48 Table 6: Share of Aid-for-Trade Projects with Satisfactory Outcomes—IEG Evaluation 49 List of Boxes Box 1: The World Bank Group and Aid for Trade 6 Box 2: Aid for Trade—The Search for an Adequate Definition 7 Box 3: DTISs Provide a Flavor of Diverse Aid-for-Trade Needs and Requirements 15 Box 4: North-South Corridor in Southern Africa 25 Box 5: The Almaty Programme of Action 27 Box 6: World Bank Capacity Building in Support of Regional Integration 30 Box 7: Support to the Doha Round: Trade Facilitation Negotiations 33 Box 8: Governments in Various Regions Move to Relieve the Trade Finance Constraint 36 Box 9: Examples of the Role of Country Assistance Strategies in Integrating Trade into Development Plans 45 Box 10: Evaluation of World Bank Lending Conditionality by the Independent Evaluation Group (IEG) 46 Box 11: Country Programs Must Include Social Safety Nets as Well as Aid for Trade 50 List of Figures Figure 1: Low-Income Countries Have Fared Less Well in Global Markets, in Part Because of Low Infrastructure Quality 2 Figure 2: Infrastructure, Institutions, and Incentives Can Depress or Improve Trade 4 Figure 3: The World Bank Is Providing a Steady Stream of Trade Policy Analysis 13 Figure 4: Trade Studies Deal with Many Internal Obstacles 14 Figure 5. Borders in Africa Are Much “Thicker” Than Borders in Europe Because of Barriers 23 Figure 6: Regional Trade Agreements Have Mixed Success 29 Figure 7: The Cost of Trade Shoots Up 35 Figure 8: Aid for Trade Goes to Those That Need It, on Average 42 Figure 9: Trade is Increasingly Prominent in WBG Country Assistance Strategies 43 Figure 10: Aid for Trade is Prominent in Most Regions 44 Figure 11: Trade is Increasingly Central to Poverty Reduction Strategies 47 Figure 12: Percentage of Satisfactory Projects, 2006–08 51 EXECUTIVE SUMMARY Aid for trade is a means to help developing countries, UNCTAD, UNDP, and the World Trade Organization, especially low-income countries, integrate into the to name a few. All this is to say that aid for trade is com- world economy as a way to spur growth. The recent plex and multifaceted, and the program of the World financial crisis and global recession have, if anything, Bank Group is no exception. This report aspires to made aid for trade more urgent. Trade worldwide is cover all these dimensions. likely to contract in 2009. It has become a main chan- nel through which recessionary impulses from the Trade Now Figures Prominently in World Bank United States and Europe are transmitted to developing Country Strategies countries. But these forces will sooner or later reverse: Much progress has been made in integrating trade into when growth does resume, trade is likely to be a leading development strategies, reflecting a collective effort by source of demand. Helping countries to take full advan- governments and donors, and by the trade and develop- tage of the global recovery, whenever it comes, has ment communities working together. One measure of become a priority for rekindling growth, as well as sus- this integration is the prominence given to trade and taining rising incomes into the future. competitiveness in the World Bank’s Country Assistance The aid-for-trade program of the World Bank Group, Strategies, which partner governments and the World as with other donors, is multifaceted. It goes beyond Bank forge together. Some two-thirds of these country concessional lending commitments to low-income coun- strategies now identify trade as a priority area. This tries (the conventional definition used by the OECD/ focus is part of a larger process in which governments WTO). It also involves World Bank nonconcessional are integrating trade into their national development trade-related lending to middle-income countries. Pro- programs and strategies to reduce poverty. moting trade-led growth in middle-income countries One result is that World Bank Group support for creates market opportunities for neighboring low- trade-related activities has grown significantly. The income countries, to say nothing of the benefits such World Bank’s concessional lending to low-income coun- opportunities entail for trade creation worldwide. tries has risen from US$2.3 billion annually in 2002–05 Moreover, investments by the World Bank’s private sec- to an average of US$3.9 billion in 2007–08. Investments tor arm—the International Finance Corporation through the IFC in building new productive capacity (IFC)—in private sector activities can also generate and infrastructure in low-income countries have added trade and growth by expanding productive capacity in another US$3.4 billion in private investments. Activities tradable goods. IFC private investments in the financial in Africa amount to more than one-third of the WBG’s sector have also been instrumental in overcoming crisis- total lending to low-income countries. induced constraints on trade finance. In addition, World Bank nonconcessional trade- Finally, focusing solely on financial flows would related lending to middle-income countries has risen miss the important role of policy advice and technical from US$3.7 billion in 2002–05 to US$6.6 billion in assistance embodied in studies and capacity-building 2007–08. This increase in lending is important both efforts of donors. The World Bank Group provides because there is still significant poverty in these coun- many of these services, often working with other devel- tries and, as noted above, because more rapid growth of opment partners—the International Trade Commission, middle-income countries translates into more growth in v vi Executive Summary low-income countries. The World Bank Group has com- have foreseen, are paying dividends. Countries are plemented these resources with support for trade requesting more aid for trade, donors are supplying it, finance, including a US$3 billion guarantee program and countries that need it are, in general, getting it. And and a new trade finance liquidity program that is some early evidence suggests that aid for trade is mak- expected to mobilize some US$50 billion over three ing a difference. Within the World Bank, aid for trade years in partnership with donors and participating has a somewhat higher success rate than projects not banks. related to trade. Although financial resources are an important meas- These favorable developments, however, are not ure of aid-for-trade delivery, improving institutions and cause for complacency. The financial crisis and global policies is critical for enhanced trade and growth per- recession will undoubtedly put pressure on aid for formance. To that end, providing technical assistance trade, from both the supply side, as donors turn their and building domestic capacities can contribute to attention to paring back expanded deficits in coming improvements in the competitiveness of developing years, and from the demand side, as countries cope countries’ firms and farmers. Assistance can also lead to with multiple demands on scarce development assis- more effective use of infrastructure and better manage- tance, including much-needed assistance for maintain- ment of institutions. ing social expenditures. Notwithstanding these constraints, the global recession has at the same time Efforts to Promote Aid for Trade Are Beginning increased the urgency of making investments today that to Pay Off will allow countries to take advantage of a recovery in Efforts to promote aid for trade, though perhaps taking the global economy tomorrow—or whenever it occurs. a different course from the one the negotiators at the That work must begin now. December 2005 WTO Ministerial Conference would ACKNOWLEDGMENTS This report was prepared by the staff of the International Jean-Christophe Maur (chapter 4); and Lulu Shui and Trade Department, under the direction of Bernard Hoek- Pierella Paci (chapter 5). Elisa Gamberoni prepared the man. Elisa Gamberoni and Richard Newfarmer were the data for all the chapters, with input from Arthur Karlin, principal authors of chapters 1, 2, 4, and 5. Jean-Pierre Mariem Malouche, Nisachol Mekharat, and Eric Swan- Chauffour and Mariem Malouche wrote Chapter 3. son and, as well as advice from Frans Lammerson and Contributors to the various chapters included Phil staff of the OECD. Isabelle Taylor prepared the manu- Schuler and Yolanda Strachan (chapter 1); Jean-François script, Stacey Tai Sie Chow provided useful edits, and Arvis, Paul Brenton, Ndiame Diop, Gerard McLinden, Rick Ludwick and Denise Bergeron ensured the produc- and Alina Mustra (chapter 2); Jean-Christophe Maur, tion. Mona Haddad provided valuable managerial Yolanda Strachan, Uma Subramanian, and Gianni energy and comments. Jean-Pierre Chauffour and Zanini, as well as staff in the Regions (chapter 3); Jean- Richard Newfarmer led the project. Pierre Chauffour, Mona Haddad, Aaditya Mattoo, and vii ABBREVIATIONS ADB Asian Development Bank IEG Independent Evaluation Group AfDB African Development Bank IFC International Finance Corporation ASARECA Association for Strengthening Agricultural IMF International Monetary Fund Research in Eastern and Central Africa ITC International Trade Center ASEAN Association of Southeast Asian Nations LDC least developed countries ASYCUDA Automated System for Customs Data LPI Logistics Performance Index ATI Africa Trade Insurance Agency MENA Middle East and North Africa CAREC Central Asia Regional Economic MIGA Multilateral Investment Guarantee Agency Cooperation OECD Organisation for Economic Co-operation CAS Country Assistance Strategy and Development CEFTA Central European Free Trade Area PAFTA Pan-Arab Free Trade Area CIDA Canadian International Development PRSP Poverty Reduction Strategy Paper Agency PTA preferential trade agreement CIS Commonwealth of Independent States RDB regional development bank COMESA Common Market for Eastern and RFSF Regional Financial Stability Facility Southern Africa RTA regional trade agreement CPA Country Partnership Agreement REC Regional Economic Communities DAC Development Assistance Committee SAR South Asia Region DfID UK Department for International SEE Southeastern European countries Development SMEs small and medium enterprises DTIS Diagnostic Trade Integration Study STDF Standards and Trade Development Facility EAP East Asia and the Pacific TFF Trade Facilitation Facility EBRD European Bank for Reconstruction TRIST Tariff Reform Impact Simulation Tool and Development UNCTAD United Nations Conference on Trade EPA Economic Partnership Agreement and Development ESW economic and sector work UNDP United Nations Development Programme EU European Union UNIDO United Nations Industrial Development GDLN Global Distance Learning Network Organization GMS Greater Mekong Subregion USAID U.S. Agency for International GTFP Global Trade Finance Program Development GTLP Global Trade Liquidity Program WBG World Bank Group IBRD International Bank for Reconstruction WCO World Customs Organization and Development WBI World Bank Institute IDA International Development Association WITS World Integrated Trade System IDB Inter-American Development Bank WTO World Trade Organization ix 1. THE CALL FOR AID FOR TRADE AND THE WORLD BANK GROUP RESPONSE From the Hong Kong Ministerial Conference to the Financial Crisis: The Need for Aid for Trade The declaration of World Trade Organization (WTO) ministers in Hong Kong, China, in December 2005 called for an expansion of aid for trade, with the purpose of “helping devel- oping countries, particu- larly LDCs, to build the supply-side capacity and trade-related infrastructure that they need to assist them to implement and benefit from WTO Agreements and more broadly to impulses from the United States and Europe are trans- expand their trade.”1 Indeed, while the overriding mitted to developing countries. As the global economy objective of the Doha Development Agenda has been to begins to recover, developing countries have to position create new market opportunities for countries to trade themselves to take advantage of the eventual global by reducing external barriers, ministers recognized that recovery. For low-income countries, this will not be internal constraints might prevent countries from tak- easy or automatic. For most of the last quarter century ing advantage of any new opportunities. Internal con- they have seen little improvement in their share of straints include trade-related infrastructure, such as goods and services, often because of shortcomings in ports and transport, trade-related institutions, such as infrastructure, institutions, and policies (figure 1). Aid customs or standards agencies, and policies and regula- for trade can play an important role in overcoming tions that discourage trade. these obstacles. Aid for trade has, if anything, become more urgent In a sense, this paper is a case study of aid for trade. with the financial crisis and global recession. Trade It describes aid-for-trade services available to client worldwide is likely to contract in 2009, and trade has countries from the World Bank Group. Bank programs become a main channel through which recessionary operate at three levels: country, regional, and global. Country programs span the full range of income groups in the developing world and operate in several policy 1 WTO Ministerial Declaration, December 18, 2005 (Paragraph 57, arenas: trade policy, institutions, and infrastructure. The WT/MIN(05)/DEC). instruments deployed to serve governments range from 1 2 The Call for Aid for Trade and the WBG Response Figure 1: Low-Income Countries Have Fared Less Well in Global Markets The fastest-growing countries have expanded their shares and services. of the global market for goods… 250 a. Share of 250 b. Share of merchandise exports commercial services 16 fastest-growing economies 200 in world merchandise 16 fastest-growing economies 200 exports in world commercial exports, (1985=100) services exports, (1985=100) 150 150 100 100 Middle income Middle income 50 50 Low income Low income 0 0 85 90 95 00 05 85 90 95 00 05 19 19 19 20 20 19 19 19 20 20 Year Year The quality of infrastructures and IT is higher than in the and trade-related institutions are nearly twice as efficient as fastest-growing countries… low-income countries. c. Quality of transport and IT, 2008 quintile scores (percent) d. Number of days to trade, 2009 100 40 90 35 80 30 70 1st 25 60 50 20 40 15 2nd 30 10 20 3rd 4th 5 10 5th 0 0 16 fastest- Middle Low 16 fastest- Middle Low growing income income growing income income economies economies Fast-growing countries have lower tariffs than others… and low-income countries restrict services three times more than high-income countries. e. Trade restrictiveness index, 2007 f. Service restrictiveness index, 2007 60 12 50 10 40 8 6 30 4 20 2 10 0 0 16 fastest- Middle Low Low Lower- Upper- High growing income income income middle middle income economies income income Source: Gamberoni and Newfarmer 2009. Unlocking Global Opportunities: The Aid for Trade Program of the World Bank Group 3 concessional loans and grants (the conventional Organ- tivity gain of 1 percent.5 Moreover, reductions of tariffs isation for Economic Co-operation and Development on imported inputs lead to even bigger productivity [OECD]/World Trade Organization [WTO] definition) gains: a reduction in the input tariff of 10 percentage to nonconcessional loans, to technical assistance, as well points leads to an 11 percent productivity gain for as to market-expanding investments in trade-related pri- importing firms.6 vate activities. All of these are intended to overcome These internal barriers can be as important as market internal constraints to trade and growth. access barriers in foreign markets in shackling exports from developing countries.7 Indeed, figure 2 illustrates The Objective: Overcome Supply-Side Constraints the various effects of both market access barriers abroad Following the Hong Kong, China, Ministerial Declara- and internal constraints on average level of bilateral tion, the Aid for Trade Task Force was established in trade from developing countries. The center line in 2006 to provide recommendations to the General effect is the average level of trade between any two Council of the WTO regarding the implementation of countries. Barriers abroad decrease trade substan- the aid-for-trade agenda. The WTO’s Aid for Trade tially—pointing out the importance of the Doha Round Task Force emphasized the importance of overcoming negotiations. So do internal constraints. If the quality of limitations in trade policy and regulations, institutional infrastructure were to improve by 1 percent, exports support for trade, trade-related infrastructure, and would on average increase by more than 4 percent. Sim- trade-related adjustment (WTO 2006). Several studies ilarly, much as increases in tariffs abroad depress trade have shown that these constraints at the border and below average, delays in exporting and trade restrictive- behind the border represent important obstacles to ness, along with distance, diminish exports by substan- countries’ ability to export and import. tial amounts. These findings reveal the potential impact First, consider the importance of infrastructure. of infrastructure, institution, and policy reforms. If the According to that study, an improvement in transport number of days to export could be reduced by 1 per- and communication infrastructure from the median cent, exports on average would increase by more than score on surveys to the highest 25th percentile is associ- 1.5 percent. Additionally, a 10 percent reduction of the ated with a decrease in transport costs by 12 percentage exporter share of tariff lines subject to tariff peak could points and an increase in trade volumes of 28 percent.2 lead to an increase in exports of about 2 percent. Over- Institutions also matter. The time required for exporting coming these internal constraints is essential for har- is generally a good indicator of the quality of trade- nessing the global economy for growth. related institutions. Delays in getting goods back and forth through customs constrain firms from participat- The Strategy of the World Bank Group ing in time-sensitive off-shoring of production and pro- In November 2007, at the first Global Aid for Trade duction chains.3 An additional day required for review, World Bank President Robert Zoellick exporting is equivalent to being 70 km farther away announced that the World Bank Group would intensify from the trade partner.4 Finally, incentives arising from its activities in trade to help developing countries in the the trade regime that guide private investment into global economy promote growth and reduce poverty. exports or efficient import-substitution industries are no This effort translated into a five-point strategy revolv- less important. Import tariffs create an incentive for ing around the following: firms to invest in activities that serve the domestic mar- ket rather than to invest in exports. If tariffs are high, reducing them can lead to productivity gains. A 10 per- 5 Amiti and Konings 2007. cent fall in an output tariff is associated with a produc- 6 Indeed, lower inputs tariffs allow firms to import intermediates and exploit the benefits of a greater variety of and/or higher-quality inputs. Even conceptually economists have long known that a tariff 2 Limao and Venables’ (1999) infrastructure indicator is based on four on imports is equivalent to an export tax, since the effect on relative components: the density of rail road per square kilometer, the den- prices is the same (Lerner 1936). Trade policy regimes do not consist sity of road and of paved road per square kilometer, and the number only of tariffs. Fixed cost to entry in the foreign market dictates the of telephone mainlines per capita. The indicator has been widely ability of firms to export. Moreover, high fixed costs to serve the used by other researchers to proxy for the quality of infrastructure importing market impair the pro-competition process in the import- cost and, thus, the cost of transport and communication (Carrere ing country. Greater competition drives the least productive firms 2006). out of the market and increases the average productivity of the coun- 3 Nordas 2005. try (Melitz 2003). 4 Djankov, Freund, and Pham 2006. 7 See, for example, Hoekman and Nicita (2008). 4 The Call for Aid for Trade and the WBG Response Figure 2: Infrastructure, Institutions, and Incentives Can Depress or Improve Trade Effects of 1% increase in selected variables on exports (change in exports relative to the average country) Infrastructure Quality of transport and IT Time for export/import Institutions Custom efficiency Domestic barriers Incentives Tariff peak WTO a FTA a Control variables Barriers abroad (selected) b Distance GDP imp. –3 –2 –1 0 1 2 3 4 5 Source: Gamberoni and Newfarmer 2009. Note: Marginal effects calculated at the average of the sample. a Represents the change passing from zero to one. The rest of the variables refer to change of 1 percentage point. b “Barriers abroad” represents the bilateral Trade Restrictiveness Index (OTRI) that the exporter faces, while the variable “domestic barriers” represents the average OTRI imposed by the exporter on imports from the world. All the variables are statistically significant at conventional level. • Improving competitiveness through diagnostics of design regional trade agreements around the idea of the incentive regimes, institutional shortcomings, and “open regionalism” policies. infrastructure constraints; through technical assis- • Promoting multilateral cooperation through analysis tance to help countries design comprehensive pro- and advocacy of the Doha Development Agenda, aid grams to improve their competitiveness; and through for trade, and trade finance. selected market-expanding investments in private activities. The first three of these are pillars of the World Bank • Reducing trading costs through trade facilitation country programs and are therefore elaborated in the investments and technical assistance. next chapter; the last two form the strategic thrust of • Expanding the supply of trade-related infrastructure the Bank’s regional and multilateral programs, respec- in roads, ports, and energy as well as telecommuni- tively, and are discussed in chapters 3 and 4. cations. Aid for Trade Is Multifaceted • Promoting regional integration with investments that Since the days of the Aid for Trade Task Force following speed cross-border trade, and technical assistance to the Hong Kong Ministerial Meeting, the measurement of Unlocking Global Opportunities: The Aid for Trade Program of the World Bank Group 5 Table 1: World Bank Group Trade-Related Activities, 2007 and 2008 (Commitments, US$ millions) Public sector Private sector (loans and grants) (IFC) Total 2007 Low-income countries (IDA) 4,267 3,514 7,782 Country programs 3,313 3,020 6,332 Regional activities 954 495 1,449 Middle-income countries (IBRD) 4,905 6,302 11,206 Total 2007 9,172 9,816 18,988 2008 Low-income countries (IDA) 3,520 3,304 6,824 Country programs 3,245 2,770 6,016 Regional activities 275 533 808 Middle-income countries (IBRD) 8,263 5,772 14,035 Total 2008 11,782 9,076 20,858 Source: World Bank staff. Note: This table uses the OECD/WTO definition of sectoral coverage for aid for trade (see box 2). Bold refers to subtotals. aid for trade has revolved narrowly around commit- tional 1 percent, fully 0.4 percent was added to the ments of concessional resources to developing countries. growth of neighboring low-income countries and even But public discussions, whether in the World Trade 0.7 percent in the case of a landlocked neighbor—and Organization-sponsored regional conferences, in the this occurs primarily through trade linkages.8 To empha- 2007 WTO First Global Review, or in the press, have size these linkages, it is thus worthwhile to report on explicitly incorporated many activities not captured in aid-for-trade activities in middle-income countries. flows of concessional finance. For examples, the Asian Similarly, public discussions invariably highlight the Development Bank (ADB) and the Inter-American role of private sector activities, most recently on Development Bank (IDB) have been leading actors in aid improving access to trade finance. But here, too, meas- for trade, even though their concessional financing pro- uring only concessional flows does not include multilat- grams are quite limited because they operate in the mid- eral and bilateral donors’ investments in private dle-income parts of the developing world. The same is activities or in expanding trade finance. true of the European Bank for Reconstruction and Finally, and perhaps most important, focusing Development (EBRD). The International Monetary solely on concessional aid flows misses the important Fund (IMF) provides virtually no aid for trade—in the role of technical assistance. Certainly trust funds like narrow sense of concessional long-term finance meas- the Enhanced Integrated Framework for Least Devel- ured by the OECD/WTO—yet it provides balance of oped Countries (EIF) can play a key role in achieving payments support that can offset terms of trade or other the objectives of aid for trade. Similarly, the abundant trade-related shocks. technical assistance provided by bilateral and multi- There is another reason to report nonconcessional lateral donors—including the International Trade trade-related assistance. Middle-income countries have Center (ITC), UNCTAD, UNDP, or the United direct linkage effects on neighboring low-income coun- Nations Industrial Development Organization tries. For example, Brazil’s growth creates export (UNIDO)—is no less important. Such assistance, ren- opportunities for Bolivia, Kenya’s economic perform- dered through economic studies, technical assistance ance affects neighbors throughout the East African programs in trade facilitation or infrastructure man- Community, and Thailand is an important market for agement, or policy analysis of incentive regimes that the Lao People’s Democratic Republic and Cambodia. affect private investment and trading decisions, Resource-scarce landlocked countries piggybacked on demonstrate that aid for trade is multifaceted. the growth of their neighbors—for example, one study found that if middle-income countries grew by an addi- 8 Collier 2007. 6 The Call for Aid for Trade and the WBG Response BOX 1 The World Bank Group and Aid for Trade Created after World War II as the International Bank for Reconstruction and Development, the World Bank Group comprises five separate entities: the International Bank for Reconstruction and Development (IBRD), the International Development Association (IDA), the International Finance Corporation (IFC), the Multilateral Investment Guarantee Agency (MIGA), and the International Center for the Settlement of Investment Disputes (ICSID). The IBRD and IDA share the same staff and decision-making structure. The IFC and MIGA have distinct balance sheets, staffs, and procedures. Yet the IBRD and IDA staffs work closely with IFC staff in all activities. International Bank International International Multilateral International for Reconstruction Development Finance Investment Center for the and Development Association Corporation Guarantee Settlement of (IBRD) (IDA) (IFC) Agency (MIGA) Investment Disputes A T I O N L BA N VELOPME A L I N AL CE E R V ION N NA I DE AT TR N K N N T E ER F N O A TE E ER S T L T O P O R AT I L IN T FO R RNA IONA T T I M • IN IC AS R N AT I O R • E N T M U L SI WORLD BANK S O C I AT SETTL UTES T D REC EN T • OR • SP EM TE G ON N PM Y IO A DI C U L N C EN N ST O T A R FINANCE R T I N L UC E A E OF EN TIO EV N T G INV ESTM N AND D E E A • Supports middle- • Supports the world’s • Supports the private • Supports investors in • Offers mediation income countries poorest countries sector in developing developing countries and arbitration countries services for investors • Provides loans at • Provides soft loans • Provides political risk in developing AAA terms plus and grants plus • Provides loans and insurance countries cost spread debt relief equity investments • Backed by • Funded through • Replenished every • Funded through shareholder capital bonds, backed by 3 years by donors bonds, backed by shareholder capital and through IBRD shareholder capital income Aid for trade is one of the areas in which collaboration has become especially close. IBRD and IDA staff work jointly on the operational trade facilitation agenda at country and regional levels, and have formed a rapid response team. The World Bank Group is also working actively on the providing data (for example, the Logistics Performance Index [LPI] and Doing Business data) and overcoming short-term constraints in trade finance (see chapter 4). Source: The World Bank Group. This report therefore presents a comprehensive To provide an overview, table 1 lays out several review of the activities of the World Bank Group. It dimensions of World Bank Group activities, including endeavors to adhere to the OECD/WTO’s sectoral defi- assistance provided through the International Bank for nition of aid for trade,9 but distinguishes concessional Reconstruction and Development (IBRD), the Interna- assistance captured in the OECD data from nonconces- tional Development Association (IDA), and the Interna- sional and private sector investments. tional Finance Corporation (IFC; see box 1). Virtually all of the World Bank’s concessional lending10 is to low-income countries, and the Bank provided about 9 This definition includes trade policy and regulation, economic infra- US$3.5 billion in aid for trade in 2008. This included structure (ports, roads, airports, telecommunications, and energy), capacity building, and trade-related budget support. Because it is impossible to distinguish which part of a loan is for the nontradable 10 IDA credits to low-income countries have a maturity of 40 years, or tradable sector, the OECD considers the entire loan in these sec- with a principal repayable at 2 percent per year for years 11–20 and tors as aid for trade, a convention followed in this report. The excep- at 4 percent per year for years 21–40. Blend credits to low-income tion is budget support, for which we, like the OECD, have included countries have a maturity of 35 years, with a principal repayable at that portion associated with trade-related activities as defined in the 2.5 percent per year for years 11–20 and at 5 percent per year for loan itself. years 21–35. Unlocking Global Opportunities: The Aid for Trade Program of the World Bank Group 7 Table 2: World Bank Group Trade-Related Activities, 2002–08 (Commitments, US$ millions) Resources 2002–05 2006 2007 2008 Low-income countries (IDA) 3,593 4,697 7,782 6,824 Public sector 2,385 2,196 4,267 3,520 Private sector 1,208 2,501 3,514 3,304 Middle-income countries (IBRD) 6,573 10,346 11,206 14,035 Public sector 3,681 6,255 4,905 8,263 Private sector 2,891 4,090 6,302 5,772 Total 10,166 15,042 18,988 20,858 Source: World Bank. Note: This table uses the OECD/WTO definition of sectoral coverage for aid for trade (see box 2). US$194 million in grants that the Bank also administers 11 International Bank for Reconstruction and Development loans typ- through several trust funds from bilateral donors. In ically have on average a maturity of 15 years, with a first repayment occurring, in general, from the fifth year. The lending rate consists addition, the Bank provided US$$8.2 billion to govern- of a variable base rate and a spread. The lending rate is reset semi- ments of middle-income countries on quasi-market annually, on each interest payment date, and applies to interest peri- terms.11 Though these loans have a grant component, it ods beginning on those dates. The base rate is the six-month London interbank offered rate (LIBOR) for the value at the start of is usually far below the OECD Development Assistance an interest period for most currencies, and a recognized commercial Committee’s (DAC) 25 percent threshold for qualifying bank floating rate reference for others. The spread rate is fixed for as development assistance. the life of the loan and it consists of the IBRD’s projected funding cost margin relative to U.S. dollar LIBOR, a risk premium, a basis The World Bank Group, through the International swap adjustment (for non-U.S. dollar loans), and the IBRD’s stan- Finance Corporation, also makes substantial investments dard lending spread. BOX 2 Aid for Trade—The Search for an Adequate Definition The OECD defines aid for trade as all concessional development assistance related to productive capacity building, economic infra- structure, trade policy and regulations, and trade-related adjustment. In creating this definition, the OECD and WTO Aid for Trade Task Force struggled with several measurement issues. First, it is difficult to distinguish between assistance for the nontradable and tradable sectors for economic infrastructure and to capture trade adjustment assistance. For example, an investment in a road or power plant serves firms selling both domestically and on global markets. The OECD/WTO opted to include all investments in transport, energy, and telecommunications as trade related. A second difficulty concerns general budget support (what the World Bank calls development policy loans or sector loans). In the first review these were excluded; later, as numbers became refined, OECD staff were able to identify budget-support lending associated with trade, and these were also included. A third problem is with the regional development banks, as they provide very little concessional aid for trade. For example, follow- ing the OECD definition of aid for trade, the Inter-American Development Bank found that only 6 percent of its total trade-related activities were concessional in 2007. The Asian Development Bank (ADB) provides one-sixth of its overall trade lending on conces- sional terms. In other words, if nonconcessional lending to middle-income countries in sectors covered by the OECD’s definition were considered, the amounts for the ADB would be nearly 5 times greater, and for the IDB nearly 15 times greater. Commitments 2007 Concessional Nonconcessional Total (Loans and grants) (Loans and grants) World Bank 4,267 4,905 9,172 African Development Bank 1,152 849 2,001 Asian Development Bank 653 3,375 4,028 Inter-American Development Bank 195 3,135 3,330 Total 6,267 12,263 18,531 (continued) 8 The Call for Aid for Trade and the WBG Response BOX 2 Continued Finally, the OECD definition excludes donors’ investments in private companies operating in the tradable sectors. For these rea- sons, this report includes IFC activities. Like the World Bank, regional development banks would have greater investments in the tradable sectors and in trade finance. For its internal tracking purposes, the World Bank defines trade-related lending far more narrowly than the OECD/WTO definition of aid for trade used in this report. The Bank definition generally focuses on activities directly promoting exports. Not only does the Bank’s definition generally not include infrastructure, it counts only that portion of a loan amount that focuses directly on trade, usually exports. The task manager for every project selects up to five themes that characterize the expected outcome of the project, such as trade, environment, poverty reduction, and so forth. The loan amount is notionally broken down into allocation by themes using a proportional formula. Hence the trade share of an infrastructure project—whether a road, power, or even water project—depends not only on the loan amount, but also on whether the infrastructure directly supports trade as opposed to other objectives. This procedure avoids double counting between trade and the other objectives, but it means that some trade- related activities are scored internally as governance or poverty reduction. For example, the customs development project in the Russian Federation is allocated as follows: trade (25 percent), tax policy and administration (25 percent), administrative/civil reform (24 percent), legal institutions and markets (13 percent), and standards and financial reporting (13 percent). So the amount of trade-related lending is US$35 million, one-fourth of the total. On average, for its trade-related IDA projects, this internal Bank methodology allocates roughly 30 percent of total loan amounts to trade. By focusing mainly on trade promotion projects and including only narrowly focused export-related infrastructure as well as policy reforms, this internal scoring misses the effects of other infrastructure investment on import-competing activities and overall com- petitiveness. For comparative purposes, this report uses the OECD/WTO methodology rather than the Bank’s internal tracking. World Bank Group Aid-for-Trade Activities (Commitments, FY2002–08, US$ millions) Average Fiscal year FY2002–05 FY2006 FY2007 FY2008 Low-income countries (IDA) 286 537 569 591 Middle-income countries (IBRD) 525 1,074 1,001 829 Total 811 1,611 1,570 1,420 Source: World Bank staff, using World Bank definition of trade-related lending. in the tradable sectors of developing countries to help almost doubled relative to the 2002–05 average, and pioneer new activities and expand the market. Virtually concessional lending to the public sector has increased all of this investment was in infrastructure or productive by more than half (table 2). Likewise, resources associ- capacity. About one-third of this investment is in low- ated with trade in middle-income countries have more income countries—about US$3.3 billion in 2008. than doubled, both in IBRD lending to governments Finally, the WBG provides extensive technical assistance and in IFC investments in private companies in the trad- through its studies program (called economic and sector able sectors. work). In 2008 alone, the WBG produced about 100 trade-related studies for client countries. Looking to the Future: Will Aid for Trade Increase? WBG Aid for Trade Has Increased Whether aid for trade will increase in the coming years In the time since the Hong Kong Ministerial in late depends on country demand for aid-for-trade projects 2005, the World Bank Group has increased its aid-for- and the overall envelope of development assistance. In trade activities across the multidimensional spectrum this period of collapsed global demand, demand for aid just described. Resources to low-income countries have for trade would be expected to increase, since lowering Unlocking Global Opportunities: The Aid for Trade Program of the World Bank Group 9 the costs of reaching foreign markets, reducing bureau- ish lending for aid for trade. Also, as donors move from cratic and outdated border procedures, and improving stimulus to deficit reduction—as eventually they must— infrastructure or providing windows for trade finance pressures will mount on all expenditures, including for would help firms survive the downturn—and position IDA and other concessional lending. If the volume of them to take advantage of global recovery. Moreover, overall aid envelopes taper off or they decrease in size, it by improving customs efficiency or tariffs on infrastruc- is unlikely that aid for trade could increase. Finally, with ture usage, governments would have more resources for the crisis, overall economic activity is diminishing, and dealing with emerging pressures to finance additional this restricts the ability of the multilateral development spending on social safety nets (the case recently for banks to invest in the private sector; already the IFC, Afghanistan; see chapter 2). along with other private investors, has seen its portfolio That said, it is entirely possible that finance ministers, shrink. This tension between urgent investments in the worried about declining revenues and rising social real economy and imperative investments in social safety demands, will opt to request greater amounts of their aid nets can only be reconciled by expanding the overall envelopes as budget support. Such a shift would dimin- envelope of development assistance. 2. FOSTERING COUNTRY COMPETITIVENESS The World Bank Group’s activities at the country level originate in discussions with the country’s finance minis- ter and economic cabinet. Demand for services flows out of national development strategies, which in low- income countries are usually articulated in the Poverty Reduction Strategy Paper (PRSP). The government teams and World Bank staff then together assemble an indicative program in a Country Partnership Agree- ment (CPA) and Country Assistance Strategies (CAS), which are ratified by the government and the Bank’s tion, and the other half went into infrastructure. About executive directors. Not all countries may choose to use two-thirds of IFC investments in tradable sectors went WBG resources for trade—health, education, or envi- into productive capacity that improved competitiveness, ronment may be a higher priority. Increases in the Bank’s and about one-third went into economic infrastructure, aid for trade, therefore, are not decided by Bank staff, such as telecommunications and the like. Beyond this, but rather as the summation of the collective expressed the WBG provided about US$8.2 billion in loans to desire by governments around the world to use available middle-income countries, and invested about US$1.9 bil- Bank resources for trade rather than something else. lion in expanding productive capacity in the private sec- Demand has been strong for WBG services across the tor. Resources were distributed with roughly the same three areas of aid for trade in country programs: proportional allocation across the three categories in improvements in competitiveness, trade facilitation, and low-income countries. infrastructure. In 2008, concessional lending to low- The World Bank Group also administers trust funds income governments for aid for trade was US$3.2 billion from bilateral donors.1 Though most trust funds are (table 3). In addition, the IFC invested about US$2.7 bil- lion in the private tradable sectors of low-income coun- tries. As illustrated, about half of WBG lending to 1 The OECD/WTO, in its reporting on aid for trade, sometimes includes trust funds administered by multilateral entities under bilat- governments for aid for trade in low-income countries eral donor activities, giving rise to a small discrepancy between went into improving competitiveness and trade facilita- OECD numbers and reporters’ numbers. 10 Unlocking Global Opportunities: The Aid for Trade Program of the World Bank Group 11 Table 3: World Bank Group Trade-Related Activities (Commitments 2008, US$ millions) Country Programs Public sector Private sector Total Low Middle Low Middle Low Middle Country program pillar income income Income income income income Improving competitiveness 602 1,952 1,859 3,884 2,461 5,835 Trade-related budget support 596 894 — — 596 894 Trade policy and regulation — 457 — — — 457 Productive capacity 6 601 1,859 3,884 1,866 4,485 Trade facilitation 848 1,527 — — 848 1,527 Economic infrastructure 1,795 4,784 911 1,888 2,707 6,672 Total 3,245 8,263 2,770 5,772 6,016 14,035 Source: World Bank, project portfolio database and IFC internal database. Note: This table uses the OECD definition of sectoral coverage for aid for trade. Lending to low-income countries’ public sectors is IDA; lending to middle-income developing countries is IBRD; all private sector commitments are from the IFC. Dash reflects 0 or negligible activity. not designed primarily to promote trade, some 57 proj- increasing productivity and improving competitiveness. ects in 2008 met the sectoral OECD definition of aid Both policies and investments are crucial to improving for trade.2 competitiveness. The WBG provides both advice on pol- Regional projects financed in part by grants include icy options and resources for investments. the Common Market for Eastern and Southern Africa’s Policies Can Lay a Foundation for Growth… (COMESA) Technical Assistance and Capacity project Or Not for the Africa Agricultural Market Program, and the Each country’s needs are different. Each has its own con- Association for Strengthening Agricultural Research in stellation of resources, skills, market access opportuni- Eastern and Central Africa (ASARECA), a trust fund ties, constraints, and politics. Nonetheless, policies in that aims at enhancing regional collective action in agri- three domains shape productivity growth and competi- cultural research for development, agricultural exten- tiveness everywhere: incentives, services, and institutions. sion, and agricultural training and education to • Creating incentives for firms to export. Private promote economic growth, fight poverty, eradicate investors look for profits. Policies can inadvertently hunger, and enhance sustainable use of resources in discourage exports and channel private investment Eastern and Central Africa. into activities that are not internationally competi- tive. For example, high import tariffs are an export Efforts to Improve Competitiveness tax in disguise, as they are essentially borne by the Nearly all of the developing country clients of the World tradable sector, which cannot pass on the tariff to Bank Group want to use the global economy as a driver foreign consumers. Import tariffs make it more prof- of growth. This means exporting goods and services. It itable for firms to invest in activities for the local also means importing goods and services that the local market rather than for export, and thus create a bias economy cannot provide efficiently or with the same against exporting. High border barriers can prevent variety. Importing efficiently is critical to supplying firms from integrating into global supply chains, one inputs to domestic and export production at lowest of the most dynamic sectors of the global market. cost. Growth in global markets hinges critically on Several studies have shown that bringing down border barriers and reducing the disincentives to pro- 2 Many of these were from the Global Environment Facility, a fund duce for the global market can increase export created to finance energy projects that reduced C02. Examples growth. In figure 2, for example, the calculations include the Argentina Energy Efficiency project, whose objective is suggest that, on average (controlling for distances to increase efficiency in energy use by developing a sustainable and from markets, country size, and incomes), reducing growing market for energy efficiency services and equipment in Argentina. the trade restrictiveness and peak tariffs on imports 12 Fostering Country Competitiveness by 1 percent is likely to increase exports by more The challenge is to identify shortcomings in the mar- than 2 percent. However, averages do not apply to ketplace and tailor interventions to target those prob- every country, and reforms have to be calibrated to lems. For example, export promotion agencies can country circumstances. Moreover, policies that affect help remedy information deficiencies for gaining local prices include not only border barriers, but also access to new markets.3 Other import institutions are any price controls, investments incentives, and taxes. likely to be standards bodies, customs, export pro- Creating a modern incentive framework that spurs cessing zones, and the Ministry of Trade. It is impor- national competitiveness requires careful analysis to tant that these initiatives be brought together within ensure that resources—land, labor, capital, and tech- a strategy for competitiveness rather than as a series nology—are moving (i) to sectors in which the coun- of ad hoc interventions. In isolation, these agencies try has a long-term capacity to compete and (ii) to tend to be rather weak and ineffective. the most productive firms within sectors. This neces- World Bank Provides Assistance to Improve sitates a clear understanding of how trade, tax, Competitiveness through Policy Analysis and investment promotion, and labor market policies Trade Studies interact to affect investment and trade decisions. The World Bank provides services to help countries Then policy options have to be melded into a com- design comprehensive trade strategies through pro- prehensive reform program to improve competitive- grams of policy analysis and technical assistance. These ness. often culminate in lending operations (both investment • Providing access to high-quality, low-cost backbone projects and budget support for policy reforms). To services. Countries whose firms have to pay more improve national competitiveness and diversification, than their competitors for energy, telecommunica- the Bank has undertaken numerous targeted trade- tions, transport, credit, insurance, and other services related analytical economic and sector work (ESW) and compete in the global markets at a severe disadvan- technical assistance (TA) programs.4 Efforts have been tage. For example, even though firms in Ghana have made to diversify exports and promote international a huge comparative advantage in chocolate and pro- integration of services markets—encompassing cross- duce it for the global market, unreliable and high border trade in business and transport services; con- costs of electricity penalize producers and depress sumption by foreigners of tourism, health, and exports. Reducing policy barriers to competition and education services; foreign direct investment in banking, improving regulatory effectiveness in these backbone communication, and distribution; and temporary services lie at the heart of the policy challenge. In migration of doctors, teachers, and construction work- many developing countries, lack or inefficiency of ers. The WBG has worked in over 40 least developed infrastructure is a critical constraint on the availabil- and other low-income countries to provide diagnostics ity and cost of backbone services, impairing export that pinpoint obstacles to export expansion or ineffi- diversification and export growth. But often the pol- ciencies in the import process that tax consumers. The icy framework that governs use of the infrastructure World Bank has also conducted many comprehensive is the key factor in reducing costs. Diagnostic Trade Integration Studies (DTISs) that iden- • Improving trade-related institutions and adopting tify the major trade constraints and proposed areas for proactive policies to drive trade. Laissez-faire poli- technical assistance and investments. cies and low tariffs are rarely sufficient to prompt DTISs were initiated as part of the Integrated Frame- dynamic export drives. Both market and government work (now the EIF), a special multilateral program for failures tend to afflict developing countries as they least developed countries. The DTIS is a comprehensive seek to expand exports and growth. Therefore, analysis performed to identify—through research, export promotion and credit agencies, a market- analysis, and intensive dialogue with stakeholders—a oriented product standards regime, and government country’s constraints to trade and economic growth. support for innovation can help address the informa- DTIS reports include an action matrix listing proposed tion and coordination failures that often discourage reforms that the country intends to implement. It has technological change or prevent buyers from con- necting with sellers. Moreover, bureaucratic proce- dures in customs, visa offices, and port authorities 3 See Lederman, Olarreaga, and Payton 2009. can add days and therefore costs to a country’s trade. 4 A recent example is Newfarmer, Shaw, and Walkenhorst 2009. Unlocking Global Opportunities: The Aid for Trade Program of the World Bank Group 13 Figure 3: The World Bank Is Providing a Steady Stream of Trade Policy Analysis Number of ESW and TA 120 100 Global 80 South Asia Middle East and North Africa 60 Latin America and Caribbean 40 Europe and Central Asia East Asia and Pacific 20 Africa 0 2002 2003 2004 2005 2006 2007 2008 2009 Source: World Bank. also produced freestanding trade reports, such as the In May 2008, the WBG conducted an analysis of 27 Mauritius Aid for Trade Report, or chapters in country completed DTIS reports that revealed some cross- reports.5 Altogether, the Bank conducted nearly 700 cutting problems common to nearly all countries: studies between FY02 and FY09. More than one- • Countries are often contending with or recovering quarter were in Africa (see figure 3). East and South from conflict or external shocks, raising concerns Asia also figure prominently in requesting Bank about the challenges of managing trade-related analyses. The number of studies has risen slightly from adjustments. an average of about 80 in 2002–05 to about 90 in • Export diversification is seen as critical, yet proposed 2008–09. These numbers are based on the World Bank’s diversification efforts often focus on agriculture and narrow definition of aid for trade6 and span export not value added products, and rarely on services. development, regional integration, trade and integra- • Weak human capacity is cited as a common obstacle tion, and transport and trade facilitation.7 As of May to growth. 2008, 31 countries had completed DTIS reports,8 and another 16 countries were in the process. In addition to these common factors, the matrices of proposed actions point out the complexity of the tasks facing the least developed countries (LDCs). They range 5 The government and Bank staff discuss proposed studies in each from infrastructure needs to poverty-related actions country, commonly about once a year, as part of the country pro- (figure 4). The most common needs are infrastructure, gram discussions. The government may request analysis of one or another policy issue or financial support in a particular area. The Bank and the government then agree to undertake a study. Each study is discussed at length, often at its initiation and during its 8 Countries that have completed reports are Angola, Benin, Burkina preparation, and of course always upon completion. Faso, Burundi, Cambodia, Cape Verde, the Central African Repub- 6 The World Bank’s definition of aid for trade is narrower than the lic, Chad, the Comoros, Djibouti, Ethiopia, The Gambia, Guinea, OECD/WTO’s in that it does not generally include infrastructure Lao PDR, Lesotho, Madagascar, Malawi, Maldives, Mali, Maurita- (see box 1). nia, Mozambique, Nepal, Rwanda, São Tomé and Príncipe, Senegal, 7 The costs of these studies range between US$20,000 and US$500,000. Sierra Leone, Tanzania, Uganda, Vanuatu, the Republic of Yemen, The average cost of the 31 DTISs was about US$400,000. and Zambia. 14 Fostering Country Competitiveness Figure 4: Trade Studies Deal with Many Internal Obstacles Distribution of proposed reforms across 27 DTIS action matrices Poverty-related activities Domestic policy Manufacturing Trade facilitation Tourism and and infrastructure services Fish, livestock, mining Business climate Trade policy Agriculture Source: Brady 2008. changes in policies that affect business, and agricultural At the same time, the IFC made equity and lending policies and investments (box 3). investments in private companies that had the effect of Many of the DTISs cite the need for better adminis- increasing competitiveness by adding to productive trative capacity, including enhanced training for govern- capacity, amounting to some US$5.8 billion (table 3). ment officials who are responsible for trade strategy and These investments were designed to open up new activ- policy. These needs are translated into the action matri- ities, using the IFC’s technical expertise and market ces in terms of proposed capacity-building projects. Less knowledge to help producers get into the market, and often mentioned in the DTIS, at least in the action were in tradable sectors such as mining, agriculture, matrix, is the need for increased vocational or business food processing, chemicals, and even finance. training, so that business owners and workers will be able to take advantage of improvements in the business Trade Facilitation climate and in opportunities to export. Trade facilitation is a second area of aid for trade at the World Bank Investments Can Improve country level. With the lowering of traditional market Competitiveness access barriers, high trade transaction costs have Together with its policy analysis and technical assis- become one of the most important obstacles that devel- tance, the WBG provided about US$2.6 billion in loans oping countries face in benefiting from globalization. to governments in both low- and middle-income coun- The ability to move goods and services across borders tries to help them improve their competitiveness (table rapidly, cheaply, and predictably is a critical determi- 3). Of this, some US$600 million went to governments nant of export competitiveness. Facilitating trade and in low-income countries, mainly for budget support. improving logistics performance address supply chain Projects have taken quite different forms (see examples fragmentation and sources of costs that prevent the at the end of this chapter). Lending to the public sectors delivery of reliable and affordable services to traders. In in middle-income countries was spread across budget most situations there are profound linkages between the support, trade policy, and investments in productive various dimensions: market structure of services is key capacity. but not independent of the quality of infrastructure or Unlocking Global Opportunities: The Aid for Trade Program of the World Bank Group 15 BOX 3 DTISs Provide a Flavor of Diverse Aid-for-Trade Needs and Requirements The DTISs highlight both common problems and country-specific needs that aid for trade could meet. A sampling: Trade facilitation and infrastructure. This was the category with the most frequently cited actions, noted in all 27 countries. The category had the highest number of total actions (564) and the actions with the highest urgency—some 56 percent of actions were rated as high priority. Most countries had widespread reforms, including enhanced technology, and important details such as systems to disseminate data collected at the border to government ministries. Other actions related to trade facilitation included assessing the state of trade logistics, training private sector transport operators, and managing regional transport issues. Seven countries included specific infrastructure projects, including building or improving roads between trade facilities or trading areas, airports, and railways. Business climate. Improving the business climate was a focus of 26 of the 27 countries analyzed and was one of the two largest need areas identified in the action matrices, with a total of 512 actions, or an average of nearly 19 per country. These covered investment promotion, investment security, competitiveness, export promotion, special economic zones, and access to finance. A deeper analysis of five action matrices (Angola, Benin, Burundi, Burkina Faso, and Cambodia) reveals a heavy emphasis (57 of 107 total actions) on proposed legal reforms, including improving contract enforcement, passing other judicial reform, drafting new legislation covering a wide variety of topics, and ensuring land rights. Trade policy. Actions to enhance trade policy were included in 25 of the 27 countries. The most common specific proposal (20) was to enhance capacity of government officials who create policy or manage and negotiate trade agreements. Sometimes new units within existing ministries were proposed, and improving interagency or interministerial coordination was also mentioned fre- quently. Seven countries proposed restarting, managing, or monitoring WTO accession or membership issues, and others pre- sented regional trade agreement (RTA)-related issues. Tourism. Seventeen countries included actions to enhance tourism. Several countries appear to propose starting an industry where no tourist activity or only minimal activity exists (for example, Angola, Djibouti, The Gambia, and Sierra Leone). Many coun- tries are seeking to implement a tourism master plan. Some propose developing niche markets such as ecotourism, adventure tourism (Mali, Mozambique), community-based tourism (Mozambique), or special-interest travel such as music or art festivals. Poverty-related activities. Although reducing poverty is an overarching goal of the DTIS process, six countries included a sepa- rate category in the action matrix specifically identifying actions to address poverty. Many proposed infrastructure projects that would build roads to connect economically distressed and/or remote areas with domestic markets. Other proposed reforms included promoting handicrafts through technical training and fair trade links (Lao PDR), improving price information for farmers (Mali, São Tomé and Príncipe), and improving access to finance (São Tomé and Príncipe, Vanuatu). Actions to assist small farmers were included in the action matrices for Mali (to reduce vulnerability). Vanuatu was the only country to mention women in this category (proposing a study on women entrepreneurs). Mozambique specifically included adjustment issues among 23 proposed reforms organized into five broad actions: make trade a mainstream feature in the PRS, facilitate broad-based gains from trade, mitigate the costs of adjustment, manage the risks of trade-related shocks, and monitor the impact of trade on poverty. Source: Brady 2008. procedural red tape. Hence, facilitation requires a com- increase competition). In some cases, such as land bor- mitment to investment and reform in three main areas: der trade and transit trade for landlocked countries, the trade-related infrastructure (including roads, ports, and solutions need to be comprehensive and include bilat- border stations); border processing and clearance sys- eral and/or regional cooperation on trade facilitation tems and procedures (including modernization of cus- reform. toms and other border management institutions); and In Africa, for example, nearly one-third of countries logistics services (including regulatory reform to are landlocked. In East Africa, goods bound for land- 16 Fostering Country Competitiveness locked countries face the time equivalent of at least annually in 2002–05. IDA/IBRD investment projects three clearance processes of coastal countries. The cost integrate institutional reforms with improved border of being landlocked is driven up by the interaction of management systems. Some recent examples include transport costs, logistics costs, and hedging costs the following: incurred by shippers to cope with unpredictable delivery • Cameroon and the Economic Community of Central schedules.9 More generally, on the basis of current trade African States established a new transit system to flow among the Asia Pacific Economic Cooperation facilitate the trade of landlocked Chad and the Cen- (APEC) members, bringing a member country with tral African Republic. below-average capacity halfway to the average for all • Indonesia set up a National Logistics Team and members could increase intra-APEC trade by US$254 developed an action plan to facilitate national and billion.10 Improvements in port efficiency and the cus- regional trade. toms environment, that is, across-the-border barriers, • The Greater Mekong Subregion (Cambodia, China, represent about US$117 billion of the total gain, and Lao PDR, Thailand, and Vietnam) is streamlining reducing inside-the-border barriers would lead to gains regional border procedures and automating customs of about US$116 billion. administration. The World Bank Group helps countries lower trade costs through support for effective transit regimes, Trade-Related Infrastructure improved border management, streamlined trade proce- Inadequate physical infrastructure constrains many in dures, and improved customs institutions. This assis- developing countries from exploiting the possibilities tance takes the form of policy advice and technical offered by international trade by lowering economy- assistance. Bank staff have worked closely with the wide productivity and raising trade costs. Aging trans- WTO in the Trade Facilitation negotiations and with portation systems separate the poor—many of whom other external partners, including the World Customs live in remote areas—from global markets. Cold chains Organization. The following are some recent examples and other specialized infrastructure are requirements for of those efforts: exporting many high-value agricultural and food prod- • The World Bank has helped countries conduct trade ucts. Telecommunications and energy systems must be facilitation “needs assessments” as part of the WTO upgraded to meet the demands of modern economies. Trade Facilitation negotiations (see chapter 4). These Both infrastructure and institutions matter for trade vol- have now been conducted in over 60 countries. ume—and even for the probability that trade occurs.11 • The IFC–World Bank Trade Logistics Advisory Pro- Infrastructure constitutes the largest single compo- gram is helping countries simplify and harmonize nent of World Bank Group trade-related investments trade procedures. in developing countries. In low-income and middle- • The Bank created a Logistics Performance Index to income countries alike, more than half of World Bank help countries understand their strengths and weak- loans now are going to infrastructure. More than one- nesses across five dimensions of trade facilitation (see quarter of IFC investments in trade-related activities chapter 4). have been in infrastructure (table 4). These invest- • Trade and Transport Facilitation Audits have been ments combine financial investments, diagnosis of conducted in over 40 countries over the past five infrastructure adequacy, and improved infrastructure years. planning and management policies. In the transporta- • The Bank launched a new Trade Facilitation Facility tion sector, for example, World Bank-approved invest- in May 2008, which will provide additional ment projects include Northern Delta transport resources for technical assistance and advisory work development in Vietnam, road reconstruction and to reduce trade costs. improvement in Honduras, and the future Abidjan– Lagos Transportation/Transit Project. In addition to policy analysis and technical assis- As with other areas, the Bank also helps mobilize tance, the WBG extended credits and loans of US$2.4 technical assistance for country-level infrastructure billion in 2008 to low- and middle-income countries management. For example, the Public-Private Infra- for trade facilitation (table 3), up from US$1.2 billion structure Advisory Facility provides technical assistance 9 Arvis, Raballand, and Marteau 2007. 10 Mann, Otsuky and Wilson 2003. 11 François and Manchin 2006. Unlocking Global Opportunities: The Aid for Trade Program of the World Bank Group 17 Table 4: World Bank Group Trade-Related Activities, by Region, 2008 (US$ millions) East Asia Europe Latin America Middle and the and and the East and South Africa Pacific Central Asia Caribbean North Africa Asia Total Low-income countries Improving competitiveness 938 216 250 70 — 986 2,461 Trade-related budget support 293 — 15 3 — 286 596 Trade policy and regulation — — — — — — — Productive capacity 646 216 236 67 — 700 1,866 Trade facilitation 528 251 — 50 — 18 848 Economic infrastructure 792 449 111 117 16 1,221 2,707 Total low-income countries 2,258 916 361 238 16 2,225 6,016 Middle-income countries Improving competitiveness 100 733 2,005 2,439 559 — 5,835 Trade-related budget support 10 136 100 648 — — 894 Trade policy and regulation 5 — 300 152 — — 457 Productive capacity 84 597 1,605 1,639 559 — 4,485 Trade facilitation — 54 750 650 73 — 1,527 Economic infrastructure 26 2,130 778 1,904 414 1,420 6,672 Total middle-income countries 125 2,917 3,533 4,993 1,046 1,420 14,035 Source: World Bank, project portfolio database and IFC internal database. Note: This table uses the OECD/WTO definition of sectoral coverage for aid for trade. and shares best practices on planning infrastructure investments in trade. Other large recipients were East investments. Asia (including China) and Europe and Central Asia. Of concessional lending to the public sector in low- World Bank Group Country Programs: income countries, more than half is destined for Africa. Distribution around the World The large portion of concessional aid for trade for In general, countries that need aid for trade have Africa goes to infrastructure—more than half in requested it, and donors have supplied it. In work 2007–08. The rest is about evenly divided between undertaken for the WTO’s Experts Meeting on Aid for trade facilitation, budget support, and trade policy and Trade, Gamberoni and Newfarmer (2009) created a regulation. In 2008, borrowing for trade facilitation and measure of the need for aid for trade based on 10 indi- budget support increased substantially while infrastruc- cators of poor trade performance and low trade capac- ture borrowing declined somewhat. Part of this may ity. In general, and not surprisingly, countries with the have been a reflection of increased budgetary needs in poorest performance and weakest capacities are low- light of the financial crisis, and part may have been the income countries. Among regions, Sub-Saharan Africa natural fluctuation of lumpy infrastructure investments. has the greatest need for aid for trade. Conversely, most trade-related resources in middle- As mentioned earlier, more than one-third of the income countries go to advanced regions of East Asia, WBG’s concessional lending and private investment for Latin America, and Eastern Europe; almost none goes trade goes to low-income countries in Africa, about to Africa. Here too, infrastructure accounts for about US$2.3 billion of US$6.0 billion total (table 4). South half of overall lending. Several large infrastructure Asia receives about the same amount. The rest is spread projects were launched in 2008 in East Asia, South across East Asia, and to a lesser extent in Europe and Asia, and Latin America, causing infrastructure lending Central Asia and the non-oil exporting states of the to middle-income countries to increase from US$4.9 Middle East and North Africa. Latin America gets billion in 2007 to US$8.2 billion (table 2). Several trade almost no concessional aid for trade; however, it facilitation projects in Eastern Europe and Latin Amer- receives about a fifth of the WBG’s total lending and ica pushed up lending for that category in 2008. 18 Fostering Country Competitiveness The services available from the WBG’s Aid for Trade tial people, and preferential treatment of those who Program can best be illustrated with a few examples have a nexus with political parties. The tighter controls from country programs. Each has used distinct forms of at these points have also led to some trade being support from the World Bank Group, often in combina- diverted to border crossings where systems are not yet tion and partnership with other donors and aid automated, causing loss of revenue. providers. To prevent this leakage of revenues, the World Bank is providing additional financing to extend computeri- Afghanistan zation to customs check posts at all the trade corridors Afghanistan’s domestic revenue-to-GDP ratio—exclud- in the country. For this purpose, on May 26, 2009, the ing the drug economy—is still one of the lowest in the World Bank’s Board of Executive Directors approved world. In 2007, this ratio stood at a mere 7 percent. Not additional financing of US$6.8 million to further the surprisingly, greater mobilization of revenues has been rollout of computerization and complete the ongoing one of the government’s highest priorities. As customs construction at the Jalalabad ICD. collections account for a substantial part of domestic revenues—in 2006–07 they made up about 55 percent Bangladesh of total revenues—the Afghan government, with donor At the time of appraisal in 2000, Bangladesh had one of assistance, has focused on reforming and modernizing the lowest teledensity rates in the world: 0.26 tele- the customs administration. The aim has been to phones per 100 inhabitants. The fixed-line incumbent, improve the valuation of goods, reduce leakage of rev- the Bangladesh Telephone and Telegraph Board (BTTB) enues, and decrease the waiting time at major border had only 350,000 lines in service for a population of crossings. 125 million. The waiting list for a fixed line totaled To assist the government in this endeavor, the World 200,000 subscribers, with a waiting time of over 10 Bank’s US$31.2 million Emergency Customs Modern- years. The challenge was to increase access to telecom- ization and Trade Facilitation Project has been helping munications services and improve the quality of service to computerize the customs processes at four major bor- being offered, and to increase connectivity to rural der crossings, through which a wide variety of essential areas, which, in turn, would promote the economic goods—including wheat, rice, sugar, tea, vegetable oil, development of rural Bangladesh. cement, scrap iron, and motor vehicles—are imported Drawing on its experience in other countries, IDA into Afghanistan. Moreover, the introduction of the support and policy dialogue focused on establishing a Automated System for Customs Data (ASYCUDA) at regulatory framework that allows competitive private these points has tightened controls and removed the wireless operators to flourish and provide rapid serv- human interface in customs transactions, thereby ices. Through the Telecommunications Technical Assis- increasing the speed of clearance and reducing the tance Project, IDA is helping the government of opportunities for corruption. Bangladesh to (i) separate the policy and operational Since 2004, when the project began, customs rev- roles of the government by restructuring the state- enues have soared from US$50 million to over US$399 owned carrier, BTTB, to operate as an independent million in 2008, an increase of over 700 percent in just commercial entity; (ii) strengthen the policy function of five years. The waiting time for trucks at the major bor- the ministry, MOPT; and (iii) strengthen the regulatory der crossings has also decreased. For example, at the capacity of the Regulatory Commission BTRC, includ- eastern border with Pakistan at Torkham, over 90 per- ing its spectrum management function. The work of the cent of trucks are now cleared in less than one and a half World Bank in all of these important areas fostered hours, down from 18 hours in 2003. At the Kabul competition, reduced the regulatory risk, and eventually Inland Clearance Depot (ICD), the average waiting time facilitated the emergence of a major competitor, for trucks is now a quarter of what it was before com- GrameenPhone. In 2000, the IFC provided an initial puterization. loan of US$16.7 million and made an equity investment Despite these gains, concerns remain that consider- of US$1.6 million in exchange for 3 percent of the com- able potential customs revenues are being lost owing to pany’s shares. This investment funded the initial instal- interference by other entities. Political interference is lation and operation of the company’s GSM 900 common, with allegations of political appointments, network. IFC provided the company with two addi- rehiring of dismissed staff under pressure from influen- tional loans in 2004 and 2007. Unlocking Global Opportunities: The Aid for Trade Program of the World Bank Group 19 Nowadays, GrameenPhone has become the leading of new initiatives. The Trade SWAp has been formu- wireless operator in Bangladesh, with a network cover- lated across three objectives: (i) enact cross-cutting ing over 90 percent of the population. The Village reforms, (ii) overcome sector-specific constraints, and Phone Program has had a significant impact, especially (iii) develop capacity. A Sub-Steering Committee on on the rural population of this low-teledensity country. Trade Development and Trade-Related Investment The Village Phone Program, operated by GrameenPhone, oversees the SWAp under the leadership of the Ministry currently provides mobile phone services to approxi- of Commerce. mately 50 million people in villages across the country. Two World Bank programs support the Trade SWAp: It leverages microloans from the Grameen Bank, (i) the Trade Development Support Program (TDSP) providing women with credit to buy cell phones from which is a multidonor trust fund managed by the World GrameenPhone. The women then provide mobile pay Bank to finance Trade SWAp activities; and (ii) the phone service in their shops, the local market, and else- Trade Facilitation and Competitiveness Project (TFCP), where, charging a markup agreed on with Grameen- which is a lending operation. The work of the TDSP and Phone. Extended cell-phone coverage in poorer areas the TFCP take place within the context of the Trade has had a tremendous social and economic impact on SWAp, which provides a framework for individual the operators—mostly rural, poor women for whom donors to focus on a particular aspect of trade-related income-generating opportunities are rare. Grameen- technical assistance without losing sight of the overall Phone has also established 500 Community Informa- trade development agenda. The World Bank’s TFCP tion Centers (CICs) where citizens in rural areas have integrates advanced information technology to border access to the Internet and information services. management, process reengineering, export promotion, GrameenPhone currently has 6,000 sites in all 64 Dis- legal and judiciary framework, capacity building, and tricts, covering approximately 95 percent of the total trade infrastructure. A central feature is the installation population and 80 percent of the country. As a result, of the ASYCUDA project, which allows Cambodia to prices have fallen considerably. practice risk management and postclearance audit. The system has been successfully installed and is operational Cambodia in Sihanoukville port, with the option to roll out this Cambodia piloted the first Diagnostic Trade Integration modernization to five other ports over this year. Study (DTIS) in 2002 as part of the Integrated Frame- work (see chapter 4). The Royal Government of Cam- Lao PDR bodia has integrated trade into its national development Before the road maintenance project started, Road 13, strategy. Along with other donors, the World Bank pro- the backbone of the road system in Lao PDR, was in vided trade-related technical assistance. It later created serious need of improvement. Its gravel surface limited two major country trust funds, with the support of the travel speeds to around 35 km per hour. Other provin- European Union, Danish International Development cial and district roads were also in a state of disrepair, Agency (DANIDA), and UNIDO. with road maintenance only rarely undertaken across The government and development partners have the network. The project upgraded a 200-km section of joined forces on the trade front by assembling the vari- Road 13 and introduced a periodic maintenance pro- ous themes of their individual assistance strategies into gram using competitive bidding. It also set out to one Trade Sector-Wide Approach (Trade SWAp). improve the government’s capacity to better manage its Through the Trade SWAp, each development partner national road assets. IDA contributed US$45.4 million contributes specific activities within its area of expertise. out of US$63.7 million and played a catalytic role in For example, the Japanese aid agency JICA contributes reforming the country’s road sector and improving the to trade investment, the U.S. Agency for International institutional capacity. In addition, IDA encouraged the Development (USAID) to legal reforms, and the ADB to development of a long-term solution to funding road technical barriers to trade. The Trade SWAp reduces the maintenance and was instrumental in bringing other duplication of efforts between development partners donors to the table. The road sections supported under and allows the government to maintain a clear view of the project were included in the government’s long-term progress across a broad range of activities. Government maintenance program, partially funded by follow-up and development partners gather on a quarterly basis to support from IDA’s Adaptable Program Loan, the Road review the progress in each area and inform each other Maintenance Program. The upgraded section of Road 20 Fostering Country Competitiveness 13 now provides all-weather access to important agri- employment growth, and established an empowerment cultural areas in southern Lao PDR. Travel time for program to help low-income unemployed workers, transportation of key commodities to markets has SMEs, and women entrepreneurs. The program was decreased from an average of five hours to less than rewarded with more rapid export and economic three, which has boosted local economic activity. growth. Although the financial crisis has hurt Mauri- Through a new cost-recovery mechanism the govern- tius, as with other countries, the island is better posi- ment is now raising close to half the annual funds tioned to withstand the global recession as a result of needed to maintain the road system. Through all- the reform program. weather access, the new roads have increased economic Mozambique activities in areas that were once hard to reach. Savings The World Bank has been supporting Mozambique in in vehicle operating costs have been estimated at US$39 its export competitiveness program. An ongoing Com- million a year. The project has helped create a sustain- petitiveness and Private Sector Development Project able framework for road maintenance. About 23,000 km of road across the country are now subject to peri- (US$25 million) is largely motivated by analytical work odic maintenance. The government embraced a compet- conducted in 2008. It benefited from the export com- itive bidding system in the roads sector. At the end of the petitiveness framework developed by the World Bank’s project, 70 percent of routine maintenance and all peri- International Trade Department. The key recommenda- odic maintenance were subject to competitive bidding. tions were that Mozambique should (i) overcome ineffi- The number of private contractors increased from 30 in ciencies in the overall incentive regime, including factor 1997 to 130 in 2003 (70 of which are well-performing market issues such as its land and labor laws; (ii) reduce and financially stable), and their capacity to undertake time and costs of transport and customs; (iii) undertake civil works has increased dramatically. proactive measures to expand its export base; (iv) The project played a key role in strengthening the improve management of megaprojects for development; government’s capacity to maintain and preserve its and (v) support business skills and services. The gov- infrastructure assets. It helped establish the Road Main- ernment picked up several of these recommendations, tenance Fund in 2001 with a road users’ funding mech- especially those directly relevant to the private sector, anism as a sustainable source of income. The fund’s and the Bank supported this program with project current estimated revenues of US$8 million in 2006 rep- finance. Mozambique is now developing comprehensive resent 40 percent of estimated annual need. The gov- programs on in-country capacity building for quality ernment has adopted the project’s monitoring approach and standards. It has taken measures to improve cus- to oversee all donor-related projects. toms procedures and transport logistics, and it is pro- viding direct enterprise support in key industries— Mauritius namely, horticulture and tourism—through a range of The World Bank helped the government of Mauritius skills development programs. define its trade reform program with a combination of analytical work, technical assistance, and a loan. In Feb- Tunisia ruary 2006, the government asked the World Bank to The World Bank has been engaged with Tunisia on work with it on aid for trade. A mission in April deliv- trade promotion and facilitation for many years. ered a report in the field and discussed it with the min- Among the various projects conducted in Tunisia in ister of finance. In June, the minister announced a new partnership with the government, the Bank introduced reform program, with key elements to improve compet- the first Export Market Access Fund (FAMEX), an itiveness. The government had asked for Bank support innovative matching grant scheme that targets emerg- with lending, which resulted in the first in a series of ing firms with export potential, firms exporting new programmatic loans, disbursed in December 2006. This products, and exporters seeking to penetrate new mar- was cofinanced by France’s Agency for International kets. It provides, on a demand-driven basis, 50 percent Development. Each loan in the three-year program has nonreimbursable cofinancing to help individual firms changed in tandem with the government’s efforts at implement investments in market research and precom- institutional reforms. The program has reduced trade petitive programs (for example, establishment of barriers, made the investment board less discretionary export service offices abroad, search for partnerships, and more efficient, aligned price incentives to export export plan-related training, and product design modi- with the government’s objectives for export and fications). The program has already surpassed its per- Unlocking Global Opportunities: The Aid for Trade Program of the World Bank Group 21 formance target of supporting 500 individual firms, regime, and increasing trade diversification through and additional financing of US$6 million is approved reduction of tariff gaps between preferential and non- by the World Bank to assist 200 additional firms and preferential partners; convergence to EU product and maintain the momentum. quality standards; and selection and streamlining of The World Bank also implemented the Preshipment technical controls of imports, computerization of Export Finance Guarantees (PEFG) program to encour- trade procedures, and more effective logistics services. age financial institutions to provide preshipment work- • Further improvement in the business climate by sim- ing capital financing to emerging exporters with viable plifying business registration requirements and export contracts. Small and medium enterprises (SMEs) improving access to industrial land, and by increas- often face a market failure resulting from an asymmetry ing competition through regulatory and assessments of information between banks and exporters regarding of competitive practices by the Competition Council. the ability of the latter to execute export orders accord- • Strengthened financial sector through stronger regu- ing to buyers’ standards of quality, cost, and delivery. lation and a higher rate of provisioning for nonper- Tunisia’s PEFG was designed to help alleviate this mar- forming loans; strengthened venture capital firms ket failure by bearing a part of the nonperformance risk through amendment of the laws that govern their while the banks learn about the abilities of the exporters functioning; deeper and more liquid stock market, by and the seriousness of the buyers. channeling more privatization of public enterprises In May 2009, the government of Tunisia signed a to the stock market and partially opening the capital Development Policy Loan (DPL) aimed at improving of state-owned enterprises to the public. the competitiveness of the country. The following are expected outcomes of the US$600 million DPL, which The DPL helped Tunisia finance its budget deficit and is jointly supported by the World Bank, the African maintain macroeconomic stability in the current diffi- Development Bank, and the European Union: cult and volatile international economic environment. • Reduced trade transaction costs and deeper integra- Tunisia has decided not to seek financing from the inter- tion by reducing tariff barriers, simplifying the tariff national bond market in 2009. 3. SUPPORTING REGIONAL INTEGRATION The WTO’s Aid for Trade Task Force in 2006 identi- fied “limited support for regional, sub-regional and cross-border trade-related programs and projects” as one gap in aid-for-trade financing. The IMF and World Bank staff, in their joint report in the fall of 2006 and again in 2007, seconded these concerns. These papers emphasized that the potential benefits of regional cooperation can be large, particularly for small, very poor, landlocked coun- tries.1 Country competitive- ness can be greatly enhanced by regional integration. tees. At the same time, weak incentives for individual Cross-border coordination of infrastructure and policy countries to initiate projects with large regional benefits, (mutual recognition and adoption of common regula- along with difficulties in securing effective coordination tory systems) can help lower trade costs, and for land- among countries, limit the introduction of regional locked countries, corridor access may be essential to transport issues into country strategies. trade. However, weaknesses in regional institutions Efforts to promote regional integration have often hamper the channeling of aid-for-trade funds for focused on the expanding scope of regional trade agree- regional concerns. Moreover, most regional bodies in ments. However, arguably more important are efforts to the developing world do not earn revenues and thus reduce administrative barriers, consolidate regulatory cannot borrow from donors without country guaran- regimes governing transport and transit, and improve logistics as well as invest in transport systems. One indi- cation of the combined effect of these tariff and nontar- 1 In the paper for the Development Committee, three options were put iff barriers is given in the map in figure 5. The thickness forward: (i) to improve existing bilateral and multilateral facilities, of the borders is calculated from an index that incorpo- (ii) to provide access to dedicated grant financing to facilitate regional coordination and support regional policy and regulatory rates transportation, trade barriers, and access to tech- reforms, and (iii) to create a dedicated fund to cover a share of the nology. As this map shows, it is much harder and more costs associated with large-scale infrastructure projects or other joint time-consuming to cross a border in Africa than in regional facilities. An appropriate balancing of the need to Europe. strengthen regional coordination and the desire to avoid the estab- lishment of a large dedicated fund that could distort country priori- The World Bank has been supporting regional inte- ties would argue for adoption of the second alternative. gration through analysis; capacity building via publica- 22 Unlocking Global Opportunities: The Aid for Trade Program of the World Bank Group 23 Figure 5: Borders in Africa Are Much “Thicker” Than Borders in Europe Because of Barriers Source: World Bank, World Development Report 2009. tions, workshops, and training on the design of RTAs; In 2007–08, the World Bank provided to low-income technical assistance to trade officials involved in negoti- countries an annual average of about US$600 million ations; and lending for trade-related infrastructure proj- for trade lending operations aimed at facilitating ects. The strategy of the World Bank is to promote regional integration (see chapter 1, table 1). The bulk regional integration thorough targeted aid-for-trade (90 percent) of these operations was concessional lend- investments in trade facilitation and transport infra- ing for IDA countries in Africa. Infrastructure projects structure and to promote “open regionalism” in (energy and transport, followed by communications) regional trade agreements (see below). accounted for more than 80 percent of total commit- ments,2 and many of the Bank’s engagements to assist Trade Facilitation and Investment in regional integration have been in partnerships with Regional Infrastructure other donors.3 However, concessional regional funds do Experience shows that collaborative governmental not allow for grants to supranational bodies, restricting efforts to reduce trade costs by improving customs pro- the Bank support for capacity development of Regional cedures and border management can minimize the trade-distorting impact of regional arrangements and facilitate regional trade. Logistical, institutional, and 2 Projects include the West Africa Power Pool Project to build an effi- regulatory barriers are often more costly than tariffs and cient power market in six countries; the East Africa Transport Proj- ect to reduce transport costs by 20–35 percent through improved generate no offsetting revenue. Moreover, reducing roads; and the Southern Africa Power Market Project (US$179 mil- transport costs may have a higher payoff than recipro- lion) to connect the electricity grid of the Democratic Republic of cal reductions in overt trade policy barriers. Through Congo to that of Zambia, with the aim of eventually integrating all southern African countries into a regional energy market. efforts to raise awareness and build analytical and 3 The African Development Bank has become a close partner, sharing administrative capacity on RTAs, the World Bank has in the development of complex infrastructure programs and cofi- been supporting regional integration through conces- nancing most large regional investments. Other significant partners sional and nonconcessional lending for trade-related include the European Union, the Islamic Development Bank, the Development Bank of Southern Africa, DfID, AfD, USAID, Ger- infrastructure projects. many, Japan, and Nordic countries. 24 Supporting Regional Integration Economic Communities. Limited support has been pro- Transmission Interconnection. It also included the vided through the Institutional Development Fund World Bank-supported West Africa Power Pool to (IDF), partnerships, and bilateral trust funds.4 This frag- establish a well-functioning, cooperative mechanism to mented and limited funding has made it somewhat dif- increase citizens’ access to stable and reliable electricity ficult for the Bank to provide assistance commensurate at affordable costs. A similar power pool project is also with the strategic importance of regional capacity devel- under way for Southern Africa. opment.5 However, the WBG was able to meet some of The World Bank also supports transit and transport these needs through the investment made by the IFC at corridor projects in the major regions of Sub-Saharan about US$500 million per annum in 2007–08. Africa. These aim to improve access of landlocked coun- Looking forward, demand for resources for regional tries to export markets and to reduce trade costs and projects is expected to be much higher than available transit times for all participants. For example, the East financing. Already, demand for regional assistance in Africa Trade and Transport Facilitation Project aims to Africa in 2007–08 was approximately US$1 billion improve the trade environment through the effective (based on requests for regional projects), of which two- elimination of tariff barriers in the East African Com- thirds was required as regional funds.6 Africa’s demand munity Customs Union Area to enhance efficiency of for regional IDA projects is estimated at over US$700 logistics services along key corridors. Bank lending and million annually (including one-third cofinancing) dur- technical assistance for the Central Africa Multimodal ing IDA15.7 A strong replenishment of regional Corridor have helped Cameroon and the other coun- resources under IDA15 should help respond to rising tries design a streamlined transit procedure—based on demand. the European Common Transit—bringing down the In May 2009, the World Bank launched the Trade number of procedures from seven documents to only Facilitation Facility (TFF) to further increase support one. The World Bank is also financing projects to for trade and to provide advisory services on (and speed improve transport services in the North-South Corridor up) the implementation of infrastructure projects that in southern Africa (see box 4). foster trade, including the design and improvement of More recently, the Bank has been engaged in policy regional trade facilitation and transit regimes, and lower dialogue on the development dimensions of the Eco- transaction costs associated with moving goods and nomic Partnership Agreements (EPAs) with the Euro- services across borders. For example, the TFF will fund pean Union, including through the publication of a technical assistance to help design a regional bond-car- major report, EPAs between Africa and the EU: What net system for use along southern Africa’s North-South to Do Now? on the extent to which EPAs will help to Corridor. The TFF aims to mobilize an initial US$40 accelerate export growth and diversification in Africa. million in trust fund resources over the next four years The report helped inform the implementation of the (2009–12; see chapter 4). interim EPAs and further negotiations of full EPAs. The The Bank has regional projects in every region. The Bank has also had a long-term dialogue with the EU and following sections describe some of the highlights. U.S. government on rules of origin in their preferential trade regimes. The Bank is advocating extending the Sub-Saharan Africa third-country fabric rule of the African Growth and In 2008, trade-related lending in infrastructure included Opportunity Act (AGOA) and pushing for reform of the regional projects in Africa, such as Central Africa Trans- EU rules of origin for clothing in the EPA negotiations. port and Transit Facilitation and Mozambique–Malawi This helped lead to the eventual adoption by the EU of 4 The Institutional Development Fund (IDF) is a World Bank grant facility designed to finance discrete, and generally innovative, upstream capacity-building activities that are identified during (and in regional infrastructure, and it is currently analyzing the major closely linked to) the Bank’s policy dialogue and ESW. The IDF is impediments for improving the business climate in the Common considered a fund of last resort, financing eligible activities for which Market for Eastern and Southern Africa (COMESA) that should be no alternative source of financing is available—including IBRD/IDA addressed at the regional level. lending, UNDP, and other loans or grants. 6 The emphasis remains on power, transport corridors, trade facilita- 5 Several regional organizations have approached the World Bank to tion, and support for telecommunications. Additional assistance is request assistance to strengthen regional coordination of trade also anticipated for environmental protection, management of shared issues. Although the Bank is hampered by a lack of a grant instru- natural resources, regional initiatives to raise agricultural productiv- ment to provide financing to regional bodies, it undertook several ity, combating migratory diseases, and capacity development. regional diagnostic studies in FY2006 and FY2007, including 7 IDA15 is the 15th replenishment of the International Development reviews of implementation of customs unions and analyses of gaps Association. See IDA 2007. Unlocking Global Opportunities: The Aid for Trade Program of the World Bank Group 25 BOX 4 North-South Corridor in Southern Africa The North-South Corridor is the main artery supporting international and intraregional trade in southern Africa. The corridor, broadly defined, extends from Dar es Salaam, Tanzania, to Durban in South Africa. It comprises both road and rail arteries, con- necting the landlocked countries to major regional ports. At present, around 80 percent of cargo goes by road and the remaining 20 percent goes by rail. While most of the infrastructure is in place, currently approximately 1,127 km of road and 2,000 km of rail are in poor condition and require rehabilitation. It is estimated that a total investment of US$700 million would be needed to rehabilitate road and rail infrastructure on the core corridor. The needs are greater when the interconnecting links are taken into consideration. In recognition of these challenges, the World Bank is financing projects to improve transport services in the corridor countries. Total Bank commitments to trade and transport projects in the corridor countries are US$1.6 billion, of which US$0.5 billion is directly related to the corridor when broadly defined, and US$300 million is related to the core North-South Corridor. The projects include substantial investments in road improvements in Botswana, Tanzania, and Zambia. In order to provide a comprehensive approach, the Bank is also in the early stages of preparing a major multicountry trade facilitation project for southern Africa that is similar to projects in other parts of Africa. In addition, the Bank is working with other donors to tackle issues related to policies and procedures along the North-South Corridor, especially at the border posts. By far the most problematic road border crossings where delays are experienced are those at Beit Bridge (Zimbabwe/South Africa) and Chirundu (Zambia/Zimbabwe). Crossing these borders takes altogether at least four days, or up to 50 percent of transport time between Durban and Lusaka. The Bank is therefore collaborating with other donors, including the UK Department for International Development (DfID) and Japan International Cooperation Agency (JICA) in support- ing the introduction of one-stop facilities at the main border crossings, starting at Chirundu. Chirundu is the regional pilot one- stop border post and is scheduled to open in September 2009. Recently, and at the request of the government of Zambia, the Bank reviewed the state of readiness of the Chirundu border post and offered practical guidance on making the launch a success. The review became the first TFF-related activity, executed within four weeks of the launch of the facility. The speed with which the Bank responded is intended to be typical of how future requests for TFF support will be treated. Source: World Bank staff a single-stage processing requirement for clothing in the facing agricultural input and output markets; and (iii) interim EPAs. creating a regional network for dialogue. The World Bank supports the Regional Economic The World Bank has also been supporting the Communities (RECs) through analysis and technical COMESA Secretariat team and the 16 member states to assistance (i) for COMESA, on expanding the free trade calculate the revenue losses from tariff and tax reforms area and moving toward a customs union, including by member states. The COMESA Secretariat chose to analysis of the revenue implications; (ii) for the South use the World Bank Tariff Reform Impact Simulation African Development Community (SADC) on regional Tool (TRIST) with each country’s specific tariff reform trade performance, the trade protocol, and rules of ori- scenarios. This tool has helped inform decisions regard- gin; and (iii) for the East African Community on trade ing allocations to countries under the COMESA fund. policy harmonization. There has also been sector- focused support to RECs. For example, the Africa Agri- Middle East and North Africa culture Market Program partnership with COMESA To foster regional integration, the Bank has provided has just been launched, with the core objectives of (i) knowledge and technical assistance, including in the strengthening the institutional capacity of COMESA to context of (i) the 2008 MENA Economic Developments implement a regional marketing and trade program for and Prospects and related conferences, including that food staples and inputs; (ii) enhancing knowledge of held in Muscat, Oman, in 2008 on “Strengthening the national decision makers by providing analysis on issues Pan Arab Free Trade Area”; (ii) a regional study on 26 Supporting Regional Integration export diversification that discusses the constraints to At a time when protectionist pressures are mounting, the innovation process and to diversification of exports ongoing policy dialogue has been instrumental in ame- in five MENA countries; (iii) a report on strengthening liorating pressures to raise tariff rates in response to bal- MENA’s trade and investment links with China and ance-of-payments pressures (Azerbaijan and Tajikistan). India; and (iv) a subregional report on the impact of the The Bank is advising and supporting a number of coun- Multi-Fiber Agreement (MFA) removal on Egypt, Jor- tries (Georgia, Moldova, and Ukraine) in their discus- dan, Morocco, and Tunisia, and options for maintain- sions with the EU on an enhanced trade agreement, as ing competitiveness in a post-MFA world. This study well as helping them understand the costs and benefits advocated moving up the value chain and enhancing of deeper free trade agreements with the EU. The Bank trade logistics as a way to maintain competitiveness. has promoted deeper integration among the Southeast- The Bank has also been active in the context of the ern European (SEE) countries by bringing the existing Arab World Initiative to achieve faster growth, better network of bilateral agreements into a new multilateral jobs, lower social disparities, greater social inclusion, framework (Central European Free Trade Area and better management of natural resources—especially [CEFTA] 2006). Recent analytical work has aimed at water. The Bank is supporting the Cairo-based Economic deepening further integration among these countries, Research Forum for the Arab countries, Iran, and including the free movement of labor. In Central Asia, Turkey in the design and implementation of a multiyear the Bank has supported the Central Asia Regional Eco- work program aimed at fostering greater integration of nomic Cooperation (CAREC) initiative through its ana- Arab product and factor markets. The Bank also sup- lytical work covering cross-border trade and its ported a survey of firms in nine Arab League members of implications for employment and growth. Analytical the Pan-Arab Free Trade Area (PAFTA), which indicates work on CAREC has continued analysis on the role of that PAFTA has had a positive impact as a result of tar- bazaars in foreign trade in member countries. To sup- iff liberalization and implementation of trade facilitation port Central Asian countries’ efforts to expand and actions; but nontariff measures are still significant for diversify their trade, the Bank has launched a Trade and many countries. Transport Facilitation Study covering Kazakhstan, Kyr- gyzstan, and Tajikistan. Europe and Central Asia The Bank supports regional integration in Central Although tariff rates among Europe and Central Asia Asia (and also Africa), mainly through the Almaty pro- countries are among the lowest in the world, many of gram for landlocked developing countries (box 5). For these countries, particularly those of the former Com- instance, the Bank South West Roads Project for Kaza- monwealth of Independent States (CIS) and those in the khstan, approved in April 2009, seeks to rehabilitate the Balkans, face challenges to international competitive- national road network and expand infrastructure, par- ness stemming from poor business environments. ticularly along the CAREC corridors, totaling 8,920 Across a number of these countries, Development Policy km. This project includes the corridor linking Western Loans (and PRSCs) have continued to support efforts to Europe to western China, to improve transport effi- reduce barriers to entry and lower regulatory and ciency and safety, and to promote development along administrative burdens (Armenia, Georgia, Tajikistan, one of Kazakhstan’s main strategic road transport cor- and Ukraine, for example). At a time when these coun- ridors. tries are facing severe external financing constraints and large balance-of-payments financing gaps, these quick- East Asia and the Pacific disbursing loans have provided much-needed support The World Bank has been working to support regional (including in Poland and Romania). The region is also integration in the Association of Southeast Asian providing financing to directly support export activities Nations (ASEAN) through advisory work and capacity through the provision of credit lines (Moldova). In other building, reduction of technical barriers to trade, instances, the Bank’s efforts have focused on providing improved regulations governing financial services, and financing to SMEs whose activities have been particu- assistance to the ASEAN Secretariat on services trade larly harmed by the global credit crunch (Armenia). In agreements. The Bank is working with the ASEAN Sec- addition, projects like the Customs Development Proj- retariat and AUSAID—the Australian government ect in Kazakhstan is supporting efforts to undertake cus- agency responsible for the country’s overseas aid pro- toms reform aimed at improving revenue collection and gram—to conduct needs assessment studies in the trade facilitation, among other things. ASEAN countries in the context of the ASEAN Frame- Unlocking Global Opportunities: The Aid for Trade Program of the World Bank Group 27 BOX 5 The Almaty Programme of Action The Almaty Ministerial Conference, in 2003, was the first global venue to specifically address the problems of landlocked develop- ing countries. It brought together landlocked and transit developing countries, donor countries, and international financial and development institutions. The program of action adopted at the conference addressed the access problem of these landlocked countries, with the following seven objectives: • Secure access to and from the sea by all means of transport, according to applicable rules of international law • Reduce costs and improve services to increase the competitiveness of their exports • Reduce the delivered costs of imports • Address problems of delays and uncertainties in trade routes • Develop adequate national networks; reduce loss, damage, and deterioration en route • Open the way for export expansion • Improve safety of road transport and security of people along the corridors To reach those objectives, the Almaty Programme of Action highlighted five priority policy areas for landlocked and transit coun- tries. Transit policy and regulatory frameworks. Both landlocked and transit countries could review their transport regulatory frame- works and establish regional transport corridors. Infrastructure development. Landlocked countries could develop multimodal networks (railroad, air, and pipeline infrastructure projects). Trade and transport facilitation. Landlocked countries could implement the international conventions and instruments that facilitate transit trade (including the WTO). Development assistance. The international community could assist by providing technical support, encouraging foreign direct investment, and increasing official development assistance. Implementation and review. Plans could include monitoring the implementation of transit instruments and conducting a com- prehensive review of their implementation in due course. Halfway into implementation, the program is showing results, with partners coordinating their efforts and contributing to the implementation of the various program components, notably for the improvement of the corridor infrastructure. Source: United Nations 2003. work for Services Trade Liberalization and plans to pro- port is structured as a two-phase program. The first vide technical and financial assistance to selected coun- phase will identify the constraints to seamless trade in tries to help implement the liberalization agenda. In the GMS, with a focus on three main regional transport addition, the Bank is leading a collaborative effort with corridors that have been constructed with ADB assis- the ASEAN Secretariat and the Asian Development tance. These constraints will likely differ by country, but Bank on a regional food staples market study to exam- in general they cover regional trade-related information ine options to develop regional food trade and attract issues; customs clearance and modernization at the private investment in food supply chains. country level and approaches to border management; Another development in regional integration is the standards regimes throughout the region; regional tran- Greater Mekong Subregion (GMS) Trade and Transport sit regimes; and development and harmonization of Facilitation Project, which is supported in cooperation business visa requirements, transport and logistics with the ADB and other donors and involves Cambo- issues, and issues related to the mandate and clearance dia, China, Lao PDR, Thailand, and Vietnam. This sup- procedures of all agencies involved in trade transaction. 28 Supporting Regional Integration The second phase of the work will identify the con- exports and India’s experience in information technol- straints that could be addressed in the short run and will ogy service exports. South-south cooperation is also package an assistance program, if warranted, in the being promoted in areas such as energy (between form of a Bank project. This will be followed by a series Afghanistan, Pakistan, and Central Asia), dairy farm- of follow-up projects, again if warranted, that would ing, and services-led growth. include constraints that require deeper reforms. So far, the Bank has been actively involved in terms of techni- Regional Trade Agreements: Promoting cal support and coordination among country govern- Open Regionalism ments and donors. Even though multilateral initiatives have arguably led to In response to the current financial crisis, the Bank is much greater increases in market access for developing supporting the government of Indonesia through a trade countries, the number of regional trade agreements finance diversification project to strengthen the finan- (RTAs) has been increasing (figure 6). Though many cial and technical capacity of trade agencies in the coun- arrangements can be beneficial, proliferation of RTAs try, specifically the Indonesian Export Import (EXIM) has brought concern about incoherence, confusion, bank and the export promotion agency. In addition, the unnecessary business costs, instability, and unpre- Bank is considering the establishment of a regional facil- dictability in trade relations. Also, countries have sev- ity for financial stability, which would support trade eral motives to enter into arrangements; therefore, final finance issues in the region. Finally, the Bank is working designs have varied widely in terms of scope, depth, with United Nations agencies and other donors to pro- rules, and timeline. Research has shown that RTAs can mote trade facilitation in the region through workshops have positive or negative effects on trade, depending on and forums. their design and implementation.8 Moreover, even in South Asia agreements with positive impacts on average incomes, South Asia is the least integrated region in the world, not all members are assured of increases. For these rea- the World Bank’s trade assistance program in the region sons, it is important to look at the manner in which focuses on increasing intraregional trade. The World regional agreements operate, and what effects they have Bank’s support of the South Asian Association for on trade openness and on the creation of new economic Regional Cooperation Business Conclave aims to opportunities. improve intraregional dialogue within the business com- With nearly all countries belonging to at least one munity. At the government level, the World Bank is RTA and some to a large number, the World Bank has working with Bangladesh, India, and Nepal to improve long been engaged in support of an open regionalism regional cooperation on infrastructure for water, trans- conducive to growth and economic and social develop- port, and energy. In the northwest region of South Asia, ment in developing countries. The Bank has also been the Bank is helping the governments of Afghanistan and receiving many requests from developing countries for Pakistan improve transit and trade facilitation arrange- advice on RTAs, including those currently being nego- ments through lending and analytical work. tiated, in terms of understanding of the legal obliga- In the aftermath of the global food crisis and the tions and the possible economic and development introduction of export restrictions on rice and wheat by implications of various provisions. For example, the some South Asian countries, several regional seminars Bank has an ongoing dialogue with the EU on the on the food crisis have been held in South Asia with the design and implementation of the Economic Partner- support of the World Bank to facilitate an exchange of ship Agreements, particularly with respect to restrictive views between countries and improve the understanding rules origin and sequencing of tariff reductions. The of the food crisis, such as how removing restrictions on Bank has also provided assistance to the Eastern and agricultural trade in South Asia will benefit the poor, Southern Africa group and the Caribbean group in especially in adversely affected net food importing coun- their EPA negotiations with the EU, and to the Central tries such as Afghanistan and Bangladesh, as well as American and Andean countries as they negotiated promote a regional food security agenda. The Bank also RTAs with the United States. The Bank is also assisting helps promote south-south cooperation and regional Morocco and Tunisia on the prospects for deeper programs in South Asia with the support of donors. regional integration, in particular in the context of the Examples include the facilitation of a large ministerial delegation to India to learn more about modern service 8 See, for example, Schiff and Winters 2003. Unlocking Global Opportunities: The Aid for Trade Program of the World Bank Group 29 Figure 6: Regional Trade Agreements Have Mixed Success RTAs are not major drivers of new market access… but RTAs are proliferating a. Tariff reductions 1983–2005, by motivation b. The number of PTAs exploded in the 1990s Regional 30 300 agreements Unilateral Multilateral liberalization 25 250 10% agreements 65% 25% 20 200 15 Not notified 150 Notified 10 Cumulative 100 5 50 0 0 1958 1969 1976 1984 1989 1994 1999 2004 Not all RTAs create trade… and in general open regionalism creates more trade c. Estimated Impact of regional trade agreement on trade d. Import-weighted average tariff SACU NAFTA NAFTA EC CACM AFTA ECOWAS Overall exports GCC Overall imports SADC AFTA Intra-regional trade EAC ANDEAN CEMAC MERCOSUR Mercosur SADC COMESA SAPTA CIS ECOWAS EAC WAEMU SAFTA COMESA –4 –2 0 2 4 6 8 10 0 5 10 15 20 25 Source: World Bank, Global Economic Prospects 2005. European Neighborhood Policy. Work on RTAs was transaction costs at borders. However, in practice, it is undertaken for Indonesia and China as well. often difficult for policy makers and trade negotiators, In light of these requests and growing but fragmented especially in least developed countries, to know whether knowledge on RTAs, the Bank seeks to contribute to and to what extent RTAs meet these prerequisites. Mul- bridging the gap and to provide a useful global public tilateralizing RTAs to help generate an outcome supe- good in informing the policy debate in this area. World rior to the current situation can therefore be a powerful Bank reviews of past RTAs and research conducted by complement to the Doha Round negotiations. the Bank and academia, suggests the key to making Against this background, the Bank is developing a RTAs complementary to a nondiscriminatory multilat- regional integration portal to allow trade policy mak- eral system and supportive of development is to strive ers, researchers, and practitioners, among others, to for “open regionalism”—agreements with low external better understand and navigate the world of RTAs. In barriers to trade, nonrestrictive rules of origin, liberal- particular, the Bank intends to inform and assist policy ized service markets, and a strong focus on reducing makers and trade negotiators in developing countries 30 Supporting Regional Integration BOX 6 World Bank Capacity Building in Support of Regional Integration As part of the World Bank Group’s response to the growing importance of preferential trade agreements (PTAs), the World Bank Institute (WBI) invested in a new course on Preferential Trade Agreements for Developing Countries. The course was first delivered to an audience of 50 policy makers from 27 developing countries in May 2009. The course provides original material conveying the most recent analysis on regional trade integration. An important portion of the course focuses on regulatory issues such as intellectual property rights, standards, and trade facilitation, which are more frequently included in PTAs. It aims to provide participants with the knowledge to analyze and design PTAs and ensure that entering into PTAs helps maximize the benefits from more open trade for developing countries. WBI aims to foster peer-to-peer learning and experience sharing between regions by organizing videoconferencing using the Global Distance Learning Network (GDLN). Examples include (i) a series on Regionalism in Developing Countries, connecting participants in Uruguay, Peru, India, and the Philippines with experts on selected issues related to regionalism; and (ii) a course on Trade policy and WTO accession for CIS countries reaching CIS/Central Asia provincial officials, academics, and business repre- sentatives to enhance the capacity of countries to put in place sound national trade policies and institutions and help them partici- pate effectively in multilateral and regional trade negotiations. Through the GDLN, WBI is also conducting a multiyear program to train senior government officials on a range of trade topics and promote dialogue within South Asia. WBI also contributes to courses organized by the WTO, a long-standing partner, aimed at trade ministry officials. Examples include: a WTO workshop aimed at African negotiators covering country and regional experiences with services trade reform, and a course on regional trade policy targeted at African policy makers. In partnership with UN–IDEP, an awareness raising event on “Regional Integration in Africa and the Economic Partnership Agree- ments,” was delivered in Dakar, Senegal, for mid-level trade officials from various African countries and RECs. WBI also provided support to the consensus-building workshops on Trade in Services, EPA Negotiations, and Development in Africa and Trade Negotiations and pro-poor services reforms: Focus on EPAs organized by ILEAP to assist in the formulation of negotiation positions in services in the proposed EPAs. WBI launched the work program Regional Integration and Agricultural Trade Pol- icy: Learning Program for the Africa and MENA Regions. It aims at contributing to a better understanding of the agricultural aspects of regional integration in developing countries and entails (i) skills building for local researchers, (ii) encouraging a network of researchers, (iii) establishing a link between research and policy makers, and (iv) capacity building for policy makers. on the legal, economic, and development implications support, including under the aid-for-trade agenda, and of different approaches for provisions in RTAs. The to mainstream trade into country development strate- ultimate objective of this project is to help developing gies. In parallel, WBI has developed a new course on countries use RTAs as instruments to bolster trade RTAs for Developing Countries. The course was first competitiveness and leverage the global economy. A delivered to an audience of 50 policy makers from 27 secondary objective of this project is to help identify developing countries in May 2009 (box 6). potential areas for technical assistance and financial 4. ENHANCING MULTILATERAL COOPERATION Trade is one of the most important arenas where countries can do more col- lectively than they do indi- vidually. If countries reduce trade barriers and in so doing create an incentive for their partners to do so at the same time, the gains are multiplied. Similarly, aid for trade is an area in which multilateral cooperation can produce synergies— through consensus building on aid for trade as a prior- ity, through investments and reforms on both sides of a border at the same time, and through better coordination of donor activi- The Doha Development Agenda ties at the country level. Beyond this, multilateral coop- The collapse of the mini-ministerial of Doha Round eration in the provision of “public goods” such as data, negotiators in July 2008 led to a hiatus in multilateral analytical tools, research, and capacity building can pay negotiations that has lasted well into 2009. This is large dividends in providing negotiators and trade pol- despite the fact that the negotiating texts for agriculture icy makers better information, analysis, and policy and nonagricultural market access are nearly complete options. The financial crisis and global recession have and contain the promise of a robust arrangement. As created a new set of multilateral activities associated Bank staff wrote on the eve of the ministerial, “The with the G-20—monitoring trade policy to avoid a headline conclusion is that the Doha round, though per- downward protectionist cycle and creating new global haps not as ambitious as Ministers had hoped . . . com- mechanisms to reactivate trade finance. pares favorably with the Uruguay round in terms of This chapter reviews WBG activities in support of the market access and surpasses it in terms of breadth of Doha Development Agenda, means of reviving trade coverage and tangible benefits for developing coun- finance, special programs for low-income countries, and tries.”1 Even so, contentious issues remain, including the provision of public goods that benefit the whole caps on sensitive products, special products, the special international community. safeguard mechanism, domestic support, cotton, and 1 See Hoekman, et al. 2008. 31 32 Enhancing Multilateral Cooperation the nonagricultural market access (NAMA) coefficients area. Data on applied policies are also needed to and flexibilities. leverage recent investments in improved analytical With the sudden onset of the financial crisis, atten- modeling techniques that require information on for- tion turned away from cutting existing protection to eign direct investment and services policies. With the avoiding more protection. The G-20, in November world decline in tariff barriers, countries are more 2008 and again in April 2009, issued a standstill pledge. concerned with streamlining NTMs to facilitate The Bank contributed an early analysis to monitoring of trade. Work on NTMs aims to improve the collection those pledges, and the WTO began doing regular of information from firms and governments, and to detailed monitoring reports.2 Moreover, the members provide guidance on how to address measures that themselves gathered in May 2009 to explore ways of have been identified as barriers to trade. orchestrating a binding standstill for all WTO members. • Regulation, trade costs, and trade performance. This From the inception of the Doha Development work focuses on how regulatory policies—such as Agenda in 2001, the World Bank Group has worked product standards and their enforcement, or internal intensively in the provision of analysis on various trade costs associated with bureaucratic red tape— aspects of the trade round. The Bank staff have pro- affect trade performance. The focus of the analysis is duced numerous books and articles on Doha-related to identify policy reforms to facilitate trade, enhance topics.3 This work was instrumental in contributing to export competitiveness and diversification, as well as the policy discussion by putting forward fact-based measure the effects of product standards and compli- analysis of timely policy issues. ance systems on exports. That work continues. The major elements of the cur- • Trade and poverty. Assessing the impacts of trade rent program on Doha—as well as other aspects of and trade policy on poverty and on inequality trade policy—include work on the following: requires using a mix of microeconometric techniques • Distortions of agricultural incentives. Because most and general equilibrium modeling. Research is focus- of the poor are located in rural areas and are heavily ing on domestic complementarities to trade policy dependent on agriculture, large-scale poverty reduc- (the effects of so-called behind-the-border factors tion requires increasing profitability in farming in such as market structure and competition in distribu- addition to the creation of alternative employment tion services, as well as access to—and quality of— opportunities. Earnings from farming are depressed infrastructure) and on household-farm-enterprise in many low-income countries partly because adjustments to trade shocks. national policies have an anti-agricultural bias, • Trade agreements. In addition to assessments of the and/or because richer countries assist their farmers Doha Round, in the spirit of promoting an early with import barriers and subsidies. This project is ambitious conclusion, work here centers on the study measuring the changing extent of policy bias against of RTAs and their implementation. agricultural production, the effects of current and alternative policy regimes, and the political economy Trade Finance forces explaining reforms and resistance to reforms. As the financial crisis unfolded after September 2008, • Services trade policies and nontariff measures the availability of trade finance decreased and its cost (NTMs). The objective of this project is to develop a increased because of growing liquidity pressure in better picture of services policy, and eventually mar- mature markets and the general scarcity of capital, ket structure and performance across sectors and unprecedented increases in the cost of funding, and a time. A cross-country survey is being used to collect perception of heightened country and counterparty information on impediments to international integra- risks. The contraction in trade finance was also fueled tion. Better data on services trade and investment by the loss of critical market participants such as policies are a precondition for policy advice in this Lehman Brothers, a drying up of the secondary market for short-term exposure (as banks and other financial institutions deleveraged),4 and the volatility of com- 2 See Gamberoni and Newfarmer 2009b. modity prices. Implementation of the Basel II Accord 3 These include, for example, Hertel and Winters; Anderson and Mar- tin 2006; Mattoo, Stern, and Zanini 2007; Finger and Schuler 2004; Newfarmer 2006; and the synthesis analyses in the Global Economic 4 The secondary market plays a key role in helping banks undertake Prospects series (2002–07) and in the Global Monitoring Reports transactions that are larger than their current credit and cross- (2005–09). border limits. Unlocking Global Opportunities: The Aid for Trade Program of the World Bank Group 33 BOX 7 Support to the Doha Round: Trade Facilitation Negotiations The World Bank Group, working closely with other international organizations, has supported the Doha Round negotiations on trade facilitation in three key areas: analyzing the potential benefits of a positive outcome on trade facilitation for developing countries; sharing relevant tools, instruments, and international standards so countries have a concrete understanding of any obli- gations and can mobilize technical assistance to ensure implementation; and providing assistance to members to determine their individual needs and priorities for technical assistance. After consultations with least developed countries, the Bank launched the Trade Facilitation Negotiations Support Program in Feb- ruary 2005. The first phase developed a Trade Facilitation Negotiations Support Guide to assist low-income developing countries with small missions in Geneva to establish networks of specialists in their own capitals who could provide real-time advice and support to Geneva-based negotiators. This was followed by several in-country workshops to link experts in home countries with the Geneva-based negotiators. In addition, the Bank organized regional workshops so that Geneva-based negotiators and capital- based specialists could discuss needs, priorities, and implementation issues. In spite of positive progress in the negotiations, negotiators continued to be hampered by concerns about the potential difficulties they would face in implementing new commitments in a Trade Facilitation Agreement. To assess these challenges, the Bank, work- ing with the IMF and World Customs Organization (WCO), undertook a study in 2006 to determine the implementation difficul- ties that developing country members were likely to encounter. The study reviewed experience in Egypt, Paraguay, the Philippines, Rwanda, Senegal, and Sri Lanka. A team of customs and trade facilitation specialists visited each of the countries to examine the systems and procedures currently employed and to compare these with the range of measures under consideration in the WTO negotiations. The results of the study, later published as a World Bank working paper, were presented to WTO members at a spe- cial information session hosted by the Bank in Geneva in early 2007. The report led other developing countries to request similar studies in their own countries. In response, the Bank team, working with partner international organizations, created a needs assessment tool that could be used by any developing country to assess its readiness to implement the range of measures under negotiation. The tool has since been used in 65 countries and has under- pinned the WTO Secretariat’s trade facilitation-related technical assistance program. Moreover, the Bank participated in 14 of the national needs assessments conducted as part of the program. Finally, the Bank hosted a seminar to compare information from the studies across countries in Geneva in September 2008. Developing country members have recently indicated that they would like assistance to prepare strategic action plans to guide implementation of new trade facilitation commitments. The Bank is developing a new guide to help countries develop their imple- mentation action plans. The aim is to ensure that, regardless of the countries involved and/or which donor or donors ultimately provide support, the action plans would be comprehensive, based on a broadly common approach, and presented in a common format. The preparation of a common approach and reporting template would also provide an opportunity for bilateral and multi- lateral donors to contribute to implementation in ways that complement rather than replace or duplicate existing bilateral and multilateral mechanisms for implementing reforms of trade-related institutions. The development of the guide is benefitting from input from the WCO, IMF, UNCTAD, the United Nations Economic Commission for Europe (UNECE), OECD and the WTO Secre- tariat. It is scheduled to be completed and ready for testing in a least developed country by October 2009. Source: World Bank staff. on banking laws and regulations, with its increased and to some degree amenable to policy intervention.5 In capital requirements, also generally put additional pres- a World Bank survey of 60 global buyers and suppliers sure on banks to hold back on trade finance. The con- in early 2009, 40 percent of companies indicated that traction of trade finance in late 2008 probably foreign sales have been delayed or cancelled owing to contributed only in small measure to the decline in world trade but was clearly important at the margin— 5 Chauffour and Farole 2009. 34 Enhancing Multilateral Cooperation drops in new orders and 30 percent owing to difficul- ters of credit was reported to have doubled or tripled for ties in obtaining trade finance. buyers in emerging countries, including Argentina, Findings from two other World Bank surveys of Bangladesh, China, Pakistan, and Turkey. firms and banks in 14 developing countries across six The International Community and World Bank regions6 indicate that, although a drop in demand Group Respond played a central role in explaining the decrease in trade The international community has recognized the impor- finance flows, a number of firms, especially SMEs, tance of dealing with trade finance concerns in a coor- reported to be also constrained by lack of trade finance dinated fashion. In early November 2008, the or pre-export finance. Most affected are firms that are director-general of the WTO, Pascal Lamy, organized generally highly exposed to the international financial meetings of the multilateral development banks, the market (e.g., Brazil); SMEs that are being crowded out Berne Union, and several private banks at the WTO to by large firms in accessing trade finance (e.g., Chile and call attention to the looming problem. This was fol- the Philippines); and firms that are highly integrated in lowed by a second meeting in March 2009. At the G-20 global supply chains (e.g., India, Indonesia, Tunisia, meeting in London in April 2009, leaders reached agree- and Turkey). Firms that are least affected are those in ment to ensure US$250 billion of support for trade low-income countries with underdeveloped domestic finance. This was to come from programs launched by banking system, especially in Sub-Saharan Africa (e.g., multilateral development banks as well as additional Ghana). Trade finance access and costs are more bind- funds from national governments to support domestic ing for capital goods exporters and intermediary banks and export credit agencies (ECAs). G-20 leaders suppliers within a global supply chain, and in com- also asked their regulators to make use of available flex- modity-exporting economies where foreign exchange ibility in capital requirements for trade finance under reserves have dropped. The top concern of most firms Basel II. surveyed is the global economic slowdown and poor Along with other development institutions, the export prospects for 2009, delays in payments, and World Bank Group has contributed to mitigating the pressure on cash flows, all of which weaken firms’ crisis and helping to ease access to trade finance. Since financial position with banks.7 the beginning of the financial crisis, the IFC was author- At the same time, the price of trade finance has sky- ized to double its Global Trade Finance Program rocketed, especially in emerging markets (figure 7). (GTFP) to US$3 billion to facilitate trade by providing Tight credit conditions have allowed lenders to drive up guarantees that cover the payment risk in trade transac- interest rates for their loans in many countries, espe- tions with local banks in emerging markets. To deal cially in emerging markets. When banks are under pres- with the liquidity constraint, the IFC has also intro- sure, the capital needed for trade finance may be duced a Global Trade Liquidity Program (GTLP), allocated elsewhere on balance sheets. With no second- which, in collaboration with official and private part- ary market to offload loans, balance sheets have been ners, is expected to provide up to US$50 billion of trade constrained. In addition, global currency volatility and liquidity support over the next three years. In addition, more rigorous counterparty risk assessment has con- IFC is exploring possible modalities for a comprehen- tributed to higher cost of trade finance for importers, sive ECA initiative to complement the strengths of the exporters, and financial intermediaries. By the end of ECAs in long-term export finance. The principal com- 2008, trade finance deals were offered at 300–400 basis ponents of this initiative are mechanisms to (i) promote points over interbank refinance rates—two to three local bank participation in ECA-backed financing, (ii) times more than the rate a year earlier. The cost of let- fund emerging-market ECAs, (iii) develop a program for export credit reinsurance, and (iv) offer assistance for 6 Indonesia and the Philippines; Turkey and Ukraine; Brazil, Chile, the smaller developing countries that do not have their and Peru; Egypt and Tunisia; India; and Ghana, Kenya, Sierra Leone, own ECAs. and South Africa. 7 Evidence of liquidity pressure on trade finance has also been WBG Activities in the Regions reported by the banks participating in the IFC’s Global Trade These worldwide efforts were complemented with Finance Program. Major international banks participating in the program have been unwilling to assume a portion of the risk in a increased IBRD and IDA lending through quick- particular transaction, leaving the underlying risk to the IFC alone. disbursement budget support operations. Though not Unlocking Global Opportunities: The Aid for Trade Program of the World Bank Group 35 Figure 7: The Cost of Trade Shoots Up 250 200 Trade credit spreads (bp) 150 100 50 0 2003 2004 2005 2006 2007 2008 est Brazil Indonesia Korea, Rep. of China India Russian Federation Turkey Source: Data collected by staff from private banks. targeted specifically at trade finance, these operations credit with a focus on the small transactions in low- have the effect of relaxing the financial constraints and income countries that have little access to international bolstering foreign exchange reserves of recipient coun- markets and no or low international ratings. tries, including for trade finance purposes. Bank opera- tions specifically targeted at trade finance are Special Programs for Low-Income Countries: predominantly located in East Asia, Europe and Central Grants and Trust Funds Asia, and Africa. Various activities were initiated in the The WBG participates in or manages a number of trust Regions (see box 8). funds that are designed to help low-income countries Partnerships have become increasingly important in link to the global market. While most are not strictly to the response to the trade finance problems. In addition promote trade, grants meeting the general OECD defini- to working with the WTO, the World Bank Group is tion of aid for trade included some 57 projects in 2008, continuing to liaise with regional development banks, mainly through the Global Environment Facility. Two the export credit agencies, and other trade finance examples of regional projects that are financed in part by actors to identify areas of possible synergies. To mobi- grants are the COMESA Technical Assistance and lize funds for the Global Trade Liquidity Program, IFC Capacity Project for the Africa Agricultural Market Pro- is partnering with a number of potential bilateral and gram and the Association for Strengthening Agricultural multilateral private and official contributors. Beyond Research in Eastern and Central Africa (ASARECA) this, regional development banks such as the African Trust Fund, which aims at enhancing regional collective Development Bank, the European Bank for Reconstruc- action in agricultural research for development, exten- tion and Development, and the Inter-American Devel- sion, and agricultural training and education to promote opment Bank have also launched or expanded their economic growth, fight poverty, eradicate hunger, and trade finance programs to extend guarantee facilities to enhance sustainable use of resources in Eastern and Cen- international banks confirming local banks’ letters of tral Africa. 36 Enhancing Multilateral Cooperation BOX 8 Governments in Various Regions Move to Relieve the Trade Finance Constraint Several countries have taken unilateral measures to provide access to trade finance, as in the following examples. East Asia. In Indonesia, the US$2 billion Public Expenditure Supplemental Facility DPL approved in March 2009 will help open a rediscount window for trade finance through Bank Indonesia and create an export financing agency. The Bank is also contemplat- ing a US$200 million trade finance project with the objectives of (i) recapitalizing the EXIM bank and providing a backstop facility to enhance underwriting capacity of the Export Insurance Agency; and (ii) putting in place marketing schemes for emerging exporters and preshipment guarantees to help diversify the export base and trade finance instruments. South Asia. In India, the Bank has in place a US$120 million line of credit for SMEs and a small guarantee fund. This project was set to close in June 2009, but as a crisis response, the Bank negotiated a US$400 million Additional Financing project extending the original project by four years. In Bangladesh, the Bank has a smaller line of credit (US$10 million) for SME funding through Bangladesh Bank, under a larger US$200 million Enterprise Growth and Bank Restructuring Project. The line is exhausted, but dis- cussions are ongoing with the government to substantially increase this line of credit (up to US$50 million), in particular to the benefit of the ready-made garment industry. Europe and Central Asia. In Turkey, the Bank is implementing a US$300 million loan with Turkish EXIM bank and another US$300 million loan with the local development bank (TSKB) to finance working capital as well as investment for exporters. In addition, the Bank implemented a € 200 million SME credit line mostly in support of exporters’ working capital or trade finance. A second SME credit in the amount of US$400 million is confirmed for fiscal year 2010 (starting in July 2009). Similar credit lines for SMEs were approved or are under preparation for Armenia (US$50 million), Bosnia (€ 100 million), Bulgaria (US$500 million), Croatia (€ 100 million), and Poland (US$500 million). In Ukraine, the Bank is implementing a US$150 million export development project with Ukraine Eximbank, and discussions are under way with Ukrexim bank for a follow-up export development project in the next fiscal year. A US$250 million export devel- opment facility to augment financing support for exporters is also confirmed for the fiscal year starting July 2009. Africa. A US$65 million Regional Trade Facilitation Project is being prepared to strengthen the Africa Trade Insurance Agency (ATI) to facilitate the provision of insurance guarantees, including coinsurance and reinsurance, and other financial instruments and services to promote regional integration, trade, and investment. In Tunisia, the ongoing export development project (US$40 million) has two trade finance components: an Export Market Access Fund in the form of a matching grant program that provides cofinancing to firms, and a Preshipment Export Finance Guarantees Facility. Source: World Bank Group staff. Aside from these activities with ancillary trade- International Trade Center, UNCTAD, and the WTO).8 related components, the Bank participates in two trust The new EIF governance structure will emphasize funds designed to help least developed countries: the country ownership by reinforcing and enlarging the Enhanced Integrated Framework for Least Developed involvement of the EIF national bodies at the country Countries (EIF) and the Standards and Trade Develop- level, linking the WTO-based EIF Secretariat to in- ment Forum. country processes, and encouraging recipient countries to lead projects. In September 2007, a pledging confer- The Enhanced Integrated Framework. The successor to the Integrated Framework, the EIF is a special program for trade-related technical assistance 8 The enhancement of the IF was recommended by a WTO task force for least developed countries. Housed in the WTO, it is to improve governance as well as communication and coordination among the Geneva-based trade representatives, country-based trade a partnership that brings together donors, LDCs, and and customs officials; private sector stakeholders; and officials within six agencies (the World Bank, the IMF, UNDP, the the finance development and planning ministries. Unlocking Global Opportunities: The Aid for Trade Program of the World Bank Group 37 ence was held for the EIF Trust Fund in Stockholm, conduct international trade on time and at lower costs. with 22 donors pledging US$170 million over a five- The TFF will bring together expertise from across the year period. With the selections of the trust fund man- World Bank Group and external partners to scale up the ager and head of the EIF Executive Secretariat, the EIF institution’s trade facilitation-related activities to sup- is now fully operational. It is intended have a size of port trade for development. The TFF will also play an about US$240 million over five years. The program important role in helping developing countries imple- continues to oversee the Diagnostic Trade Integration ment trade facilitation provisions of international trade Studies discussed in chapters 2 and 5. agreements, including a WTO Trade Facilitation Agree- ment, and in supporting regional trade institutions The Standards and Trade Development Facility (STDF). across the world. This new program makes an impor- Meeting tough safety and food standards is a key tant contribution to assisting developing countries in obstacle for many countries seeking broader participa- this time of economic crisis. tion in global markets. For that reason, the World Bank, together with the WTO, World Health Organi- The Multidonor Trust Fund for Trade and zation, World Bank, World Organization for Animal Development (MDTF-TD) Health, and Food and Agriculture Organization of the This trust fund was launched in November 2007 and United Nations, set up a program in Geneva to help supports global, regional, and country-level activities developing countries learn about standards and ways that help to mainstream trade into country policies. The to satisfy them. The STDF funds small technical assis- fund is financed by contributions from the governments tance projects in specific countries and commodities, of Finland, Norway, Sweden, and the United Kingdom, and it links clients to other sources of technical assis- who are contributing US$28 million over three years. tance. The World Bank is a member of the STDF board, The program supports work on a wide range of trade which also includes representatives from the donors topics, including issues such as trade policy and agree- and developing countries’ communities. The board ments, export competitiveness, trade facilitation, meets three times a year to discuss project proposals, behind-the-border constraints on international trade, project preparation grants, and ways to increase coor- and distributional effects of trade and trade policy dination in the provision of sanitary and phytosanitary- reform. Eligible activities include technical assistance, related assistance. Total funds for SPS projects, capacity building, diagnostics, research, and project including projects related to SPS evaluation and plan- preparation. The bulk of the fund’s resources—70 per- ning tools plus capacity-building projects, amounts to cent—are devoted to activities at the country and US$5 million per year. regional levels (the majority of which is earmarked for In addition to participating in these global partner- Sub-Saharan Africa), and the balance focuses on global ships, the World Bank also collaborates with other analytical and capacity-building activities. development partners by managing donor trust funds. Trade Data for Low-Income Countries Trust funds have played a vital role in expanding the This grant was established in 2008 for three years and World Bank’s trade assistance programs during the past aims to improve the quality and availability of global decade, funding projects ranging from upstream trade and FDI data and indicators for decision makers research to downstream technical assistance. and researchers in developing countries. A lack of The Trade Facilitation Facility (TFF) access to trade data and market information has con- The TFF is a multidonor trust fund that was launched sistently proved to rank among the most commonly in April 2009 and will begin disbursing funds in July cited challenges faced by trade policy makers, trade 2009. The TFF will help developing countries improve support institutions, and exporting enterprises in devel- their competitiveness through concrete improvements in oping countries. This project will make such relevant their trade facilitation systems and reductions in trade data available to all countries free of charge. The pro- costs. Lead donors include the Netherlands, Sweden, gram is managed by the ITC in close coordination with and the United Kingdom, with a projected initial size of strategic partners, with guidance by an Advisory Coun- US$40 million. The TFF will respond rapidly to gov- cil comprising representatives from internationally ernment requests for assistance in improving infrastruc- acknowledged experts from the WTO, UNCTAD, the ture, institutions, services, policies, procedures, and World Bank, UNSD, partner countries, and academia. market-oriented regulatory systems that enable firms to The US$600,000 annual funding provided by the Bank 38 Enhancing Multilateral Cooperation has been supplemented with US$2 million in annual increases, foreign direct investment and growth, funding from the ITC. export diversification, and trade in services and trade agreements, and both multilateral and regional inte- The Bank Netherlands Partnership Program (BNPP) gration. Research work falls into various areas includ- This program was established in June 1998 to promote ing poverty impacts of trade and adjustment policies; a more coordinated and prioritized approach in the use country competitiveness analyses; analysis of pro- of Dutch trust fund resources for non-country-specific active policies to enhance export supply response; activities. The BNPP Trade Window delivers supports analysis of national trade policies; the ongoing Doha for the Bank’s work on trade and has the overall objec- Round of WTO negotiations; and the design and tive of advancing the state of knowledge and capacity impact of regional trade agreements. building to allow developing countries to use trade as For example, the Bank’s analysis of agricultural trade an effective lever for growth and poverty reduction. barriers has highlighted the importance of market access The trust fund supports global and regional activities relative to domestic support or export subsidies in the with an emphasis on upstream research and analysis. WTO Doha Round. In 2009, Bank research on trade The BNPP Trade Window has allocated US$16 million covered, for example, agriculture, services, trade and since 2005. poverty, WTO/Doha, the overall trade restrictiveness UK DfID Trade Trust Funds index (OTRI), and investment and technology transfer. DfID has supported the World Bank’s trade assistance Recent research on regional arrangements has high- programs through a number of bilateral trust funds. lighted a stronger tendency for members of regional The Trade Policy Development Project played a major trade agreements (RTAs) to continue reducing their tar- role in generating policy-relevant research output on the iffs after joining the agreement. Doha Development Agenda as well as analytical outputs In conducting its research programs, the Bank is col- to help mainstream trade into country programs. The laborating with research networks and institutes based Global Trade and Financial Architecture Project sup- in developing countries, such as the African Economic ports policy-oriented research programs and interna- Research Consortium (AERC) and the Economic tional events that advance dialogue on global trade and Research Forum (ERF) for the Arab countries, Iran, financial architecture by offering concrete policy advice and Turkey. that can be translated into political action and reform. Data and Tools The Trade Costs and Facilitation and the Transparency Knowledge and access to information are two ingredi- and Competitiveness projects are expanding the fron- ents to good policy and two prerequisites for successful, tiers of knowledge about the relationships between enduring negotiated agreements. Absence of data trade costs, private sector growth, and export competi- impairs policy makers’ ability to provide policy insight tiveness in developing countries. These funds have pro- and recommendations. An example is the current cli- vided over US$15 million in recent years. mate during the financial crisis, where up-to-date infor- mation is essential to monitor implemented trade Public Goods: Research, Data, and Tools measures worldwide. The World Bank has been engaged The World Bank undertakes research to better under- in the development of critical databases, including the stand the role of international trade in development and following: poverty reduction. It is also a major developer and • Working in partnership with the ITC, UNCTAD, and provider of databases and policy tools for analyzing the the WTO, the World Bank has been working for a impact of trade policy reforms. full modernization of the World Integrated Trade Research System (WITS). When it becomes available in 2010, The World Bank invests in developing research and this software and data improvement exercise will knowledge on how to harness globalization for growth make a wider array of online integrated data sets and poverty reduction. The Bank’s trade-related available to policy makers all over the world. research is an important source of information and • The World Bank is part of a multi-agency effort to analysis, helping to inform developing countries of the define a new classification for nontariff measures and implications of trade policy choices and options—on collect more comprehensive and timely data on such such themes as trade and poverty, trade costs and facil- measures. This initiative will enable governments to itation, agriculture and impacts of food price discuss with each other ways to make trade regula- Unlocking Global Opportunities: The Aid for Trade Program of the World Bank Group 39 tions less discriminatory and more uniform where bases, but also including new indicators constructed by appropriate, ways to dismantle barriers to trade that the World Bank Institute. The indicators are organized may be overly restrictive, and assess costs and bene- into five categories: trade policy, external environment, fits of particular restrictions. institutional environment, trade facilitation, and trade • A recent trade-related database, developed in con- outcome. Countries’ trade performance can be exam- junction with Brandeis University, includes a global ined individually as well as over time and in relation to data set on safeguards and antidumping. The infor- other countries or country groupings. The accompany- mation provided in this detailed database will cover ing Country Briefs and Trade-at-a-Glance tables cap- over 95 percent of the global use of these particular ture the key insights from both the WTI database and import-restricting trade instruments. country-level trade-related analytical work. An • The forthcoming Service Restrictiveness database, overview report summarizes the global patterns in which provides a comprehensive repository of regu- trade policy and trade outcomes, focusing mainly on latory barriers to international trade in selected serv- regional and income-level variations. ices sectors and covers services trade policies of 76 Logistics Performance Index (LPI) developing countries and 24 OECD countries in The LPI is an interactive benchmarking tool that meas- 2007–08. ures performance of countries’ trade logistics. The logis- • The Bank also calculates and provides detailed data tics supply chain performance is measured by scoring on an overall trade restrictiveness index. This data- countries according to key indicators of trade facilita- base also makes available 377,000 import demand tion: the efficiency of the clearance process by customs elasticities for 4,900 products across 117 countries, and other border agencies, the quality of transport and with a summary measure of the trade policy stance of information technology infrastructure for logistics, the some 100 countries broken down by product category ease and affordability of arranging international ship- and type of policy (tariffs and nontariff measures). ments, the competence of the local logistics industry • The World Bank provides analytical software, such (transport operators, customs brokers), the ability to as the Tariff Reform Impact Simulation Tool (TRIST) track and trace international shipments, the domestic to equip policy makers, negotiators, and researchers logistics costs (local transportation, terminal handling, with the tools they need to develop negotiating warehousing), and the timeliness of shipments in reach- strategies and evaluate their implications. The Bank ing their destination. also produces practical guides and handbooks on negotiating in areas such as global trade, customs Doing Business reform, and services trade and standards. This database offers a collection of quantitative indica- tors representative of a country’s business regulatory Finally, The Bank also provides global benchmark- environments. The quantitative indicators cover the reg- ing data, including the World Trade Indicators, the ulatory framework of key stages in the life of a business, Logistics Performance Indicators, and the Doing Busi- including dealing with construction permits, employing ness database.9 workers, registering property, getting credit, protecting investors, paying taxes, enforcing contracts, and closing World Trade Indicators a business. Of particular relevance to trade is the indi- The WTI database is an interactive online tool man- cator on the cost of trading across borders aged by the World Bank Institute. It is designed to benchmark a country’s trade policy and institutions Programs to Build New Capabilities: and to help policy makers, advisers, and analysts iden- Geneva-Based Training tify the main border and behind-the-border constraints Knowledge programs in Geneva are an important com- to trade integration in both goods and services. The ponent of the World Bank’s trade assistance. In the database contains 305 performance indicators, mostly November 2007 Global Aid for Trade review meeting, drawn from ITC, UNCTAD, and World Bank data- President Robert Zoellick reaffirmed the World Bank’s commitment to expanding its Geneva-based training in cooperation with the WTO.10 The World Bank Institute 9 The WTI database can be accessed at http://www.worldbank.org/ wti2008; the Logistics Performance Indicators database is at has expanded its efforts in Geneva and around the world http://www.worldbank.org/lpi; and the Doing Business database can to offer new training, capacity building, and knowledge be accessed at http://www.doingbusiness.org. 40 Enhancing Multilateral Cooperation exchanges. The interventions span a varied array of con- by many offers means that there is no single and sim- tents and delivery modes, aiming chiefly at offering a tai- ple answer to the challenge of trade capacity building lored proposition to a diverse community dealing with in Geneva. numerous and sophisticated trade policy issues. WBI’s engagement in Geneva is the continuation of The WBI has focused on low-income countries to several years of presence in Geneva with a focus on further empower them in the trade negotiations and in interventions in areas where the World Bank can pro- their own policy making at home. The range of trade vide specific added value: policy issues handled by country delegations and • Economics-based content, including growth and Geneva-based experts goes well beyond the already poverty linkages heavy content of the Doha Round negotiations, but it • Capacity to respond rapidly to emerging issues also includes diverse trade topics such as environment, • Areas in which the Bank is generating new knowl- intellectual property, or labor, as well as regional and edge (e.g., trade facilitation) national trade policies and complementary policies. • General ability to draw on the vast pool of expertise The multidimensionality of trade-related problems, and experience (internal and external). the number of actors, and a limited demand saturated Partnerships are an essential dimension of all pro- grams, along with close dialogue with client countries. Working in partnership with the several Geneva-based 10 Remarks of World Bank President Robert B. Zoellick at the WTO Ministerial Meeting—Global Review for Aid for Trade, November organizations allows the Bank to tap into the expertise 20, 2007. http://go.worldbank.org/UZU3FDQEJ0. of each. 5. GAUGING SUCCESS: THREE QUESTIONS Assessing progress in aid for trade can involve multi- ple metrics: Are countries demanding more aid for trade, are donors supplying it, and is aid for trade there- fore increasing? And are the countries that need aid for trade receiving it? Are coun- tries incorporating trade concerns into their national development strategies? Are aid-for-trade projects effec- tive in achieving their stated goals? Is the portfolio of aid-for-trade projects help- ing countries to harness globalization for more rapid growth and, ultimately, poverty reduction? Simi- on Aid for Trade created a measure of potential demand lar questions can be asked for regional and multilateral for aid for trade based on 10 indicators of trade per- levels. Although this chapter cannot aspire to answer all formance and trade capacity.1 It went on to examine of these questions, it does assemble some evidence, sum- whether the countries with the highest potential demand marizing recent studies and using the rather narrow lens for aid were actually receiving it. The good news is that, of the WBG’s programs to answer three questions. controlling for other factors, countries with the greatest potential demand are those that, in general, need it the Are Countries Requesting More Aid for Trade most (figure 8). and Are the Right Countries Receiving It? Examining the overall trends as well as their reflection in changing country programs of the World Bank Group 1 See Gamberoni and Newfarmer 2009. The 10 indicators included trade performance and trade capacity variables. Trade performance can provide some insight into these questions. variables include five dimensions: rate of growth of exports (1995–2005); change in global market share; change in competitive- Overall Trends Suggest the Answer Is Yes, But… ness; location in slow- or fast-growing products; and an index of The OECD’s Second Global Aid for Trade Review in diversification. Trade capacity variables included those that were sta- 2009 found that aid for trade was indeed increasing rel- tistically significant in predicting trade performance in a gravity model, and included measures of infrastructure adequacy, two meas- ative to the pre-Hong Kong Ministerial period of ures of institutions, and two measures of policy (controlling for 2002–05. But is aid flowing to countries that need it the other factors, such as country size and distance, and conditions of most? A paper presented to the WTO’s Experts Meeting market access). 41 42 Gauging Success: Three Questions Figure 8: Aid for Trade Goes to Those That Need It, on Average Supply versus demand for aid for trade for oow-income countries, 2006 Supply of aid for trade ARM VUT GEO SLB BIH NIC DMA MNG TMP STP MRT LCA BOL LAO CAF CMR AZE KGZ BEN GUY KHM HTI ZMB TON CPV VNM MDA LKA COG COM PNG TJK SENKEN BTN GRD GNB HND GIN LBR MOZ AGO SDN LSO BFA KIR YEM GMB NPL GHA ETH RWA BDI PAK MLI MWI UZB BGD TZADJI MDG CIV NGA NER SLE ZAR UGA MDV IND ERI TGO TCD Source: Gamberoni and Newfarmer 2009. S However, even though aid for trade correlated years, the Bank has worked with clients to introduce broadly with potential demand, the match was far from trade and competitiveness into their aid-for-trade strate- exact: some countries received far less aid for trade than gies. For the World Bank Group, these concerns find their potential demand would otherwise indicate, based expression in Country Assistance Strategies (CASs), on their trade performance and capacity. In some cases, Country Partnership Agreements, and interim strategy the gap occurs because the countries are receiving little notes and sectoral strategies. total development assistance because of macroeconomic A recent review of trade in World Bank CASs found and/or political instability; in other cases, countries may that trade—using the World Bank’s narrow definition need to use scarce development assistance for other pri- that excludes most basic infrastructure (see box 2 in orities. However, it seems likely that a significant minor- chapter 1)—is now on the agenda of the majority of the ity of potential aid-for-trade demand still goes Bank’s clients, some two-thirds of CASs. Though cover- unsatisfied. Whatever the reasons, these findings suggest age and intensity vary (see figure 9), CASs generally that both governments and donors in countries where identify trade as an important priority and present assis- the need is high but underserved may wish to review tance programs in one or more thematic areas: regional their programs to see whether the balance is appropri- integration, export diversification, trade facilitation, ate to country needs. and market access. The country strategies are translat- ing into increased operational support through eco- Trade Is Increasingly Central to nomic and sector work (ESW), aid-for-trade lending, World Bank Group Country Programs and, in some cases, technical assistance to help countries The OECD/WTO global report noted that the World achieve their medium-term objectives. If the broader Bank has been a leading contributor to aid for trade. As definition were used, the inclusion of infrastructure discussed throughout this report, over the past several would likely produce a similar conclusion. Unlocking Global Opportunities: The Aid for Trade Program of the World Bank Group 43 Figure 9: Trade is Increasingly Prominent in WBG Country Assistance Strategies Intensity of Trade Coverage in CASs Trade program has some ESW but no lending support 17% No clearly articulated trade programs 14% Trade program has ESW and lending support 69% Source: World Bank staff. Trade programs in CASs, narrowly defined, have pri- engage on trade issues through the standard CAS. marily focused on trade facilitation and export promo- In addition to recognizing trade as a priority, most tion. Few CASs present activities focusing on core trade CASs (65 percent) include plans for operational work policy, in the traditional sense of tariffs and other mar- on trade to support the country’s development objec- ket access barriers. International trade agreements do tives. At a minimum, these plans involve economic and seem to play a catalytic role, however, by focusing atten- sector work; however, CASs with more intensive trade tion on broader economic policy and on institutional programs often contain a number of planned policy reforms that increasingly accompany modern trade notes on specialized topics that are specifically tailored agreements. to meet clients’ needs. Just under half of CASs with Despite these improvements, there is still some varia- operational trade programs include plans for trade- tion across and within Bank Regions (see figure 10). related lending (both policy-based and investment lend- CASs in Europe and Central Asia and in East Asia and ing). A smaller number of CASs (18 percent) also the Pacific tend to have more comprehensive opera- contain technical assistance activities that range from tional programs than other Regions, including plans for macro-level competitiveness and private sector develop- lending and technical assistance, in addition to eco- ment programs to targeted activities on transport and nomic and sector work. Within the South Asia Region agriculture. Box 9 summarizes recent CASs representa- (SAR), CASs tend either to have minimal attention to tive of those that have articulated a comprehensive trade trade or to present very comprehensive operational pro- program that is directly influenced by the government’s grams. The Europe and Central Asia Region stands out Poverty Reduction Strategy. in the attention given to regional integration in opera- tional programs. More than 66 percent of African CASs Trade Programs in CASs Are Tailored to recognize trade as a policy priority and have supported Country Priorities this vision with an operational trade program, although Some notable examples of CASs in the Africa Region to varying degrees. Across all regions, there was less include the strategies for Burkina Faso, Lesotho, Nige- trade engagement for countries covered by interim strat- ria, and Rwanda. For these countries, trade is clearly egy notes compared with countries with a full CAS. In identified as an element of one of the CAS pillars, countries such as Comoros, Eritrea, Timor-Leste, Soma- which are based on each government’s own priorities. lia, and Zimbabwe, the Bank has not been able to fully The rationale for supporting trade is provided through 44 Gauging Success: Three Questions Figure 10: Aid for Trade is Prominent in Most Regions Intensity of trade programs in CASs by region (percent) 90 80 70 60 50 40 30 20 10 0 Trade program has No clearly articulated Trade program has some ESW and lending trade programs ESW but no lending Africa Eastern Asia and Pacific Europe and Central Asia Latin America and the Caribbean Middle East and North Africa South Asia Source: World Bank staff. a discussion of trade and growth linkages as well as of tion Strategies. Needless to say, success by this measure challenges and risks to competitiveness. Programming belongs equally to the countries themselves as they of new trade activities is assessed according to their become aware of the importance of trade to their growth potential for achieving the outcomes sought. In con- performance (the demand side) and to the international trast, some African CASs give little attention to trade community of aid providers for making resources avail- issues, particularly the smaller African countries such able to countries for trade (the supply side). as São Tomé and Príncipe and Swaziland, but also Cape The UNDP has conducted the most comprehensive Verde, Gabon, Liberia, and Sierra Leone. In these coun- survey of PRSs.2 The study reviewed 72 PRSs and found tries, there seems to be a dearth of analytical work that that 50 included a section devoted exclusively to trade could identify issues for an operational trade program. (see figure 11). Moreover, trade appears with increasing frequency in PRSPs. In 2000, for example, only about 25 Are Countries Integrating Trade into Their percent of completed PRSPs had a section relating to Development and Poverty Reduction Strategies? trade; by 2007 and early 2008, more than 85 percent of Beyond simple demand for services, the next question is the eight completed PRSPs did. PRSPs as a group are whether countries are incorporating the policy and insti- tutional advice into national development strategies—or In the case of low-income countries, into Poverty Reduc- 2 Kosack 2008. Unlocking Global Opportunities: The Aid for Trade Program of the World Bank Group 45 BOX 9 Examples of the Role of Country Assistance Strategies in Integrating Trade into Development Plans Ukraine. Ukraine’s CAS presents a comprehensive trade program to improve competitiveness. As a recently acceded member of the WTO, Ukraine’s agenda has a strong focus on both regional and multilateral integration through export diversification and capitalization on Ukraine’s status as a transit country. Export development and infrastructure improvement projects, in addition to DPLs, form the Bank’s support for these goals. Mali. Mali’s CAS articulates a comprehensive trade program as part of the government’s Growth and Poverty Reduction Strategy. The focus is on regional integration efforts, transit and trade facilitation, and exports. The CAS has a strong component of planned analytical work on export competitiveness in the form of growth policy notes on agriculture, mining, and tourism sectors. There is also ongoing and planned investment lending for the West African Power Pool, West Africa Trade and Transport Facilita- tion Project, transport corridors improvement, regional airports, and agriculture competitiveness and diversification, among others. There will also be support for trade in the Poverty Reduction Strategy Credits (PRSC) series. Lao PDR. The Bank’s 2005–08 strategy for engaging with Lao PDR is firmly grounded in the government’s National Growth and Poverty Eradication Strategy. One of the four key objectives of the CAS is to use regional integration as a driver for sustained eco- nomic growth. The Bank has supported the government’s desire to join the WTO and its membership in the ASEAN and the ASEAN Free Trade Area (AFTA) by providing analytical work and policy lending. The analytical cornerstone was the DTIS, which developed an integrated strategy and action plan to enhance Lao PDR’s global integration. Budget support facilitated critical policy and institutional reforms related to adoption of AFTA tariffs, WTO accession, and regional integration. Investment lending in GMS power and infrastructure projects provided further support to deepening regional integration. Bangladesh. The government’s CAS is closely aligned with its Poverty Reduction Strategy. It focuses on trade policies to improve the investment climate and accelerate growth. The CAS outlines a program of dialogue about lowering trade protection and barri- ers and enhancing the competitiveness of the textile and garment sectors. The PRSCs support liberalization by phasing out supple- mentary duties. The World Bank will also help the government through activities related to trade logistics, trade transport infrastructure, revenue administration, and a program aimed at building negotiation skills for handling trade agreements and the related trade negotiations. Dominican Republic. The CAS identifies activities aimed at fostering competitiveness and facilitating the implementation of WTO agreements, including adjustment of the free trade zone tax regime, the elimination of export subsidies by 2010, and the Multi- Fiber Agreement phaseout. The Bank completed reviews of trade and labor competitiveness issues and the implications for agri- culture of CAFTA-DR. A country economic memorandum assessing the implications of the CAFTA-DR and the phaseout of the MFA was under way at the time of CAS publication. A series of just-in-time policy notes was programmed to follow up on specific findings and recommendations of core economic and sector work, including the memorandum. Egypt. The Egypt CAS includes a detailed discussion of trade-related reforms for maximizing the advantages of free trade and partnership agreements through simplification of customs procedures, standards compliance, improved transport infrastructure, assistance to SMEs in foreign marketing, and insurance against export risks. The expected outcomes are an increase of the export growth rate and a reduction in cargo dwell times and in the number of days to clear customs. The Bank support to this agenda includes a planned Development Policy Review, programmatic ESW on free zones, and a Ports Sector Development Project. Source: World Bank staff. consistent with the World Bank’s Sourcebook chapter on in most cases in the second-generation PRSPs, the biggest trade (Klugman 2002), and 52 of the 72 PRSs relate their measured difference between the two was that the sec- trade policies in some way to their analysis of their ond was far more likely to include nonincome poverty, nation’s poverty profile, a trend that became even more “a trend that suggests that at least some countries are common in later PRSs. Perhaps most encouraging in the developing a deeper sense of the subtler linkages between countries that have completed two PRSs (18 of the 54), trade and poverty reduction.” These findings are similar 46 Gauging Success: Three Questions BOX 10 Evaluation of World Bank Lending Conditionality by the Independent Evaluation Group (IEG) According to the IEG, the focus of Bank trade conditionality has varied over time and across regions, but some general patterns can be discerned: • The average number of trade-related conditions per loan and the incidence of trade conditionality have fallen significantly since 1987. • Trade conditions have focused on four main areas: imports, exports, exchange rates, and supporting policies. • The actual path of trade reform was less frequently prescriptive than is commonly perceived. • Evidence suggests that while the Bank did not follow a one-size-fits-all approach for all countries, a sizable number of projects focused on import liberalization over export promotion. • The most difficult recent areas of compliance concern regulatory framework. • Countries largely met trade conditions, which were better implemented than other adjustment loans. • Despite above-average project implementation, economic outcomes were mixed. The IEG also noted that the record of the appropriateness of Bank conditionality on core trade issues was mixed. Conditionality may be neither necessary nor sufficient. In Indonesia, four trade policy loans implemented between 1987 and 1996 were devoid of legally binding conditionality. They were given by the Bank in general support of Indonesia’s ongoing trade and investment reform program, reflected the Bank’s confidence in the credibility of the authorities, and were informal precursors of what is now known as “expost conditionality.” In Zambia, despite conditions repeated in three successive loans, the government procrastinated on the privatization of the mining parastatal, the Zambia Consolidated Copper Mines, because of political concerns. The phenomenon of Zambia continuing to receive high levels of assistance in the absence of reform has been dubbed “the nonreform” paradox: more and more conditions lead to less and less effective conditionality. Source: World Bank Independent Evaluation Group 2006. to other studies.3 This increased acceptance of the impor- PRSPs exhibit some understanding that trade can grow tance of trade policy for achieving higher economic the economy and a belief that this growth will in turn growth was also found in the EIG’s evaluation of World reduce poverty. But there is far less understanding of the Bank lending conditionality (box 10). direct connections between trade and poverty.” In fact, Even with these relatively positive findings, it is most of the PRSPs, as the UNDP study notes, “seem to important that both governments and aid providers be view trade like a pill—medication that must be swal- aware of a few caveats. Trade and poverty reduction lowed whole, and that will eventually strengthen the interact in sophisticated ways, and the standard economy, but the side-effects of which must simply be employed in the study was necessarily minimal. “Most accepted” (Kosak 2008). For LDCs, the Enhanced Integrated Framework pro- 3 A recent review of PRSPs indicated an improvement in the percent- gram also seems to be gaining some traction for trade in age of PRSPs (from 71 percent to 85 percent) that contain a well PRSs. Since April 2005, 11 PRSPs were published for articulated growth strategy. Similarly, PRSPs with growth strategies countries that had already completed DTISs. Seven of that include trade have increased from 67 percent to 93 percent. Compared with earlier PRSPs, newer PRSPs (published between the nine strategies (Benin, Ethiopia, Lao PDR, Lesotho, April 2005 and September 2008) have increased their attention to Malawi, Maldives, and Zambia) incorporated DTIS trade facilitation, export promotion, and regional integration. findings and recommendations into the development Among new PRSPs, trade reform continues to be an issue that is sel- agenda. Among earlier PRSPs, four of eight integrated dom addressed in the strategies. For an analysis of trade in earlier PRSPs, see Diop, Gust, and Khandelwal 2005. the findings from the DTISs (table 5). Unlocking Global Opportunities: The Aid for Trade Program of the World Bank Group 47 Figure 11: Trade is Increasingly Central to Poverty Reduction Strategies Evolution of PRSPs for selected questions, 2000–08 (percent) 100 Identifiable trade section 80 Trade discussion related to poverty 60 Trade discussion related to nonincome poverty 40 20 0 2000 2001 2002 2003 2004 2005 2006 2007–08 Source: Kosack 2008. Do Aid-for-Trade Projects Achieve Their Objectives? trade strategy or development program, weak links to poverty reduction, inadequate donor coordination, and Evaluating Aid for Trade inadequate communication to, and expertise in, field Evaluation is critical to discovering ways to improve the missions. Ensuring country ownership of trade pro- effectiveness of development assistance, and aid for grams as a key to economic development remains an trade is no exception. The OECD undertook a compre- important challenge in designing effective aid-for-trade hensive evaluation of concessional aid for trade (2006a programs. and 2006b). Researchers were hampered by unclear The World Bank undertook an impact evaluation for project documents, many with insufficiently clear meas- export development projects targeted on specific export urable objectives, and by an absence of quantitative products.4 On average, the evaluation found that these links to overall trade performance. However, the report projects (i) have coincided with, or predated, stronger concluded that, in half of the evaluations, trade-related export performance in the targeted commodities; (ii) assistance contributed to raising awareness of the have had a greater impact on export growth for products importance of trade and knowledge of trade issues, with initially high export levels than on products with while helping to strengthen country dialogues on trade low export levels (although this may be because techni- policy. But the effectiveness of projects depended criti- cal assistance is directed toward industries that are cally on the overall investment climate and the determi- already set to take off); and (iii) were likely to be more nation of political leaders to promote trade. successful if they addressed specific market failures or Major project weaknesses included inadequate needs assessments, weak project management and gover- nance, projects that were not integrated into an overall 4 Brenton and von Uexkull 2007. 48 Gauging Success: Three Questions Table 5: DTISs Tend to Improve Trade Inclusion in Poverty Reduction Strategies Measured Change in Trade Content (net change in First Second “yes” responses, excluding Country PRSP PRSP DTIS process questions) Countries that undertook a DTIS Benin 2002 2007 2006 Improved (+5) Burkina Faso 2000 2004 2007 Improved (+3) Cambodia 2002 2005 2001 (updated 2007) Madagascar 2003 2007 2003 Malawi 2002 2006 2003 Improved (+2) Mali 2002 2006 2004 Improved (+1) Mauritania 2000 2006 2001 Mozambique 2001 2006 2004 No Change (0) Rwanda 2002 2008 2004 Improved (+8) Senegal 2002 2006 2002 (updated 2005) Improved (+1) Tanzania 2000 2005 2005 Improved (+1) Uganda 2000 2005 2006 Improved (+13) Zambia 2002 2006 2006 Improved (+3) Proportion that Improved 9/13 (69%) Countries that did not undertake a DTIS Guinea 2002 2007 Improved (+3) Nicaragua 2001 2005 Improved (+5) Vietnam 2003 2006 The Gambia 2002 2006 Improved (+6) Ghana 2003 2005 Proportion that Improved 3/5 (60%) Notes: *”Process questions” are Questions 6 and its subsidiary questions: “Is there any discussion of how the content of any trade policy in the PRSP was formed?”; “If so, who participated in, or was consulted, in drafting the text?”; Who was responsible for the final draft text?; and “To what extent does it reflect the content and direc- tion of the World Bank Sourcebook chapter on trade?” **The impacts of DTISs on PRSPs were provided by the UNDP. Source: Kosack, 2008. policy shortcomings in activities in which the country the export development program in 2003, exports of had a long-run capacity for global competitiveness (as wool products entered a steady growth path, outper- was the case in Rwanda’s donor-supported strategy to forming overall export growth in 2005. move into the high-quality, specialty end of the coffee This literature tends to validate central Paris Princi- market). The evaluators concluded that, done well, ples: aid for trade can be effective, provided that coun- export development programs can succeed: cut flowers tries own the programs and incorporate them had been a growing export industry in Uganda for a thoroughly into their development strategies. Nearly all decade when an export development program was bilateral and multilateral organizations are working to started in 2003. Following the program, export value improve effectiveness, but not all have recent, compre- almost tripled within one year. Although other Ugandan hensive evaluations of their programs.5 With more than exports also rose strongly at this time, cut flowers signif- icantly increased their export share. Furthermore, Mon- golia had traditionally been an exporter of wool 5 Six important donors have undertaken evaluations relatively recently: U.S. Agency for International Development, DfID, Cana- products, but exports had declined and lost share in the dian International Development Agency (CIDA), the Netherlands, export portfolio in the late 1990s and early 2000s. After the World Bank, and the IMF. Unlocking Global Opportunities: The Aid for Trade Program of the World Bank Group 49 Table 6: Share of Aid-for-Trade Projects with Satisfactory Outcomes—IEG Evaluation Total number of projects Weighted by loan size Unweighted Average 2002–05 99 80.9% 79.4% 2006 74 89.8% 86.5% 2007 74 91.3% 86.5% 2008 19 95.0% 78.9% Source: World Bank, IEG evaluation. Note: Percentages are calculated excluding unrated projects. Projects considered satisfactory include all projects whose outcome was considered as highly satisfac- tory, satisfactory, and moderately satisfactory. 40 bilateral and multilateral agencies involved in trade- grate activities that support workers and the poor by, related technical assistance, the scope for learning from among other things, helping governments to strengthen each other is presumably great.6 social safety nets, provide resources to SMEs, and invest in infrastructure (see box 11). Evaluating World Bank Group Programs More recent evaluations are also insightful. The IEG and Projects completed its comprehensive review of trade promotion The Independent Evaluation Group’s 2006 evaluation projects and programs in 2007. Because projects take of World Bank support for trade called on the Bank to several years to implement, virtually all of projects that focus the attention of its trade work on mainstreaming are now closed were begun a few years before 2005. trade and competitiveness into operations at the coun- This review of recently completed investment projects try level.7 shows an improvement compared with the 2002–05 Regarding project outcomes, the IEG report found average. In 2007, more than 85 percent of projects were that, in general, trade-related adjustment loans per- evaluated to have had moderately satisfactory, satisfac- formed better than other adjustment loans (86 percent tory, or highly satisfactory outcomes (table 6). More- satisfactory versus 78 percent for nontrade loans), while over, these trade-related projects generally performed trade-related investment loans performed slightly worse better than projects that were not aid-for-trade projects (69 percent versus 72 percent satisfactory). First, the (figure 12). report recommended that projects incorporate system- Governments and task managers also rate their proj- atic treatment of cross-sectoral issues such as economic ects at closing. Projects that closed in 2006–08 also policy, gender, and private sector development so as to were generally rated higher than non-aid-for-trade proj- place trade in a broader context. It recommended fur- ects. The World Bank estimates the economic rate of ther that the Bank put in place at the institutional level return for a sample of projects.8 The importance of the a program to cope with trade-related shocks. Second, it economic rate of return in the public sector can be recommended rebalancing the global and country agen- explained better with an example. In the period das, to strengthen emphasis on country programs. 2002–08, the average economic rate of return for aid- Third, it emphasized strengthening the knowledge man- for-trade projects at completion was about 32.4 percent agement of trade within the Bank. The Bank has acted compared with the average 23.7 percent for projects not on these concerns, including moving vigorously to inte- related to trade. 6 Donors involved in providing assistance for trade-related analysis or Evaluating the Usefulness of Trade Studies programs include the International Monetary Fund, the Interna- Until 2007 the World Bank was the principal imple- tional Trade Commission, the United Nations Conference on Trade and Development, the United Nations Development Programme, the menting agent for the Diagnostic Trade Integration World Bank, the World Trade Organization, the Bank for Interna- Studies. A review commissioned by the World Bank, tional Settlements, the Food and Agriculture Organization, the Inter- though favorable, also found shortcomings.9 Perhaps national Organization for Standardization, the United Nations Industrial Development Organization, the World Customs Organi- zation, the World Intellectual Property Organization, several 8 The economic rate of return represents the discounted interest rate regional groups, and many bilateral donors. See Suwa-Eisanmann that would keep an agent indifferent between the choice of either and Verdier 2007. undertaking or not undertaking the projects. 7 World Bank Independent Evaluation Group 2006. 9 Brady 2008. 50 Gauging Success: Three Questions BOX 11 Country Programs Must Include Social Safety Nets as Well as Aid for Trade With the financial crisis, incomes in low-income countries have declined, and the fiscal squeeze resulting from reduced fiscal rev- enue threatens social services. Sound macroeconomic policies and a favorable investment climate are essential to mitigating the impact of the crisis on household vulnerability. But they are not enough. Even as they design programs to improve competitive- ness, governments and donors have to ensure the capacity of low-income countries to maintain basic services and existing social programs. Low-income countries have fewer policy options than middle-income countries and must rely on less administratively intensive approaches that contain an important self-targeting component. In response to the crisis, households may be forced into pulling children out of school and investing less in health and nutrition. In general, the poorer the country, the more likely an economic shock will lead to adverse impacts on human capital accumulation. Therefore, maintaining access, quality, and affordability of pub- lic services and providing incentives for their use are therefore essential to avoid severe long-term consequences. The reduction or abolition of school and health care fees, for example, could keep children in school and support family health, potentially mitigat- ing the long-term impacts of sudden income declines. However, how pro-poor such measures are depends on the extent to which the most vulnerable households draw on the relevant public services, and on the extent to which these services are able to respond to potential increases in demand caused by increases in their affordability. Providing cash transfers conditional on use of services may be a more effective way of reaching the poor. Supporting household income through public transfers is often the first line of defense. Direct cash transfer programs are the sin- gle best option, provided they have adequate coverage and generosity. They generally have low administrative costs and do not distort prices. Conditional cash transfer programs may improve on the performance of unconditional cash transfers in channeling help to the most vulnerable, that is, children and women, who often bear the brunt of economic crises. Another major line of defense to boost employment and earnings of the most vulnerable workers in low-income countries is through direct public work programs. The World Bank is mobilizing up to US$3.1 billion in health financing in 2009 to help poor countries battle threats to their social services during the global economic crisis. This effectively triples Bank support from US$1.0 billion last year and will be used to strengthen health systems in poor countries; boost their performance in preventing and treating communicable diseases; and improve child and maternal health, hygiene, and sanitation. The Bank is also doubling its education financing in low- and middle- income countries to US$4.1 billion. The new health and education numbers follow the Bank’s announcement that its investments in social protection programs, including social safety nets, are expected to rise dramatically for 2009–10 to US$12 billion. The World Bank is also contributing to a major effort by the largest multilateral investors and lenders in Africa to provide at least an additional US$15 billion to Africa to promote trade; strengthen the financial sector; and increase lending for infrastructure, agribusiness, and small and medium enterprises in the region. The IFC will contribute at least US$1 billion to facilitate trade, strengthen the capital base of banks, improve infrastructure, increase microfinance lending, and promote agribusiness companies. The Multilateral Investment Guarantee Agency will provide up to US$2 billion of investment guarantees to prioritize investor demand for African infrastructure investment, support for small and medium investments, and support for the African financial sector, including banks and microfinance institutions. Source: World Bank Group. the most important criticism was the lack of adequate matrix, whereas 9 of the 14 that were written beginning prioritization of actions. Only 11 of the 27 DTISs set in 2005 included clear priorities. The 2007 Aid for clear priorities in the actions listed in the matrix. Trade review described prioritization as an important Nonetheless, explicit prioritization recently has aspect of the DTIS. In his summary, the director general improved. Of the 13 DTISs that were finalized before of the WTO, Pascal Lamy, put it well when summariz- 2005, only 2 prioritized the reforms within the action ing the First Aid for Trade Review Meeting in 2007: Unlocking Global Opportunities: The Aid for Trade Program of the World Bank Group 51 “The need to focus on key priorities was a recurring Figure 12: Percentage of Satisfactory Projects, 2006–08 theme. Having a hundred priorities means having no priorities.”10 Percent Conclusion Efforts to promote aid for trade, though perhaps taking 100 a different course from that of the negotiators in Hong Kong, China, would have foreseen, are nonetheless pay- 80 ing dividends. Countries—at least until the onset of Aid for Not aid global recession—were demanding more aid for trade, 60 trade for trade projects projects donors were supplying it, and countries that needed it were, in general, getting it. Moreover, countries were, 40 with increasing frequency, making trade a central com- ponent of their development strategies. Finally, some 20 partial evidence suggests that aid for trade is producing results. As evident from this report, the World Bank Group Source: World Bank staff. has been actively participating in this aid-for-trade process. One measure of the extent to which aid for trade has been integrated into national development both the supply side, as donors turn their attention to strategies is the prominence given to trade and compet- paring back deficits, and the demand side, as countries itiveness in the Country Assistance Strategies developed use scarce development assistance for maintaining social by the World Bank and partner countries: some two- expenditures. Yet, if anything, the global recession has thirds of CASs now identify trade as a priority area. increased the urgency of positioning countries to take This is one reason why trade-related lending and other advantage of a recovery in the global economy—when- services to countries have grown significantly. ever it occurs. That work must begin now. These favorable developments should not lead to complacency. The financial crisis and global recession will undoubtedly put pressure on aid for trade, from 10 WTO Aid for Trade Review, Africa Regional Report, 2007. ANNEX Aid for Trade and other Trade-Related Resource Commitments: World Bank Group, 2008, by Country Improving competitiveness Private Trade Public sector sector facilitation Infrastructure Trade Budget policy and Productive Productive Public Public Private Country support regulation capacity capacity sector sector sector Total Afghanistan 0 0 0 1 18 36 0 56 Albania 0 0 0 41 0 49 0 91 Algeria 0 0 0 15 0 0 0 15 Angola 0 0 0 50 0 0 0 50 Argentina 0 128 300 144 0 60 0 631 Armenia 0 0 0 4 0 0 0 4 Azerbaijan 0 0 0 38 750 11 0 800 Bangladesh 286 0 0 45 0 325 0 656 Belarus 0 0 0 3 0 12 0 15 Benin 0 0 0 4 25 19 0 48 Bolivia 0 0 0 1 0 1 30 32 Bosnia and Herzegovina 0 0 0 34 0 0 0 34 Botswana 0 0 0 0 0 0 0 0 Brazil 0 0 0 485 0 959 97 1541 Bulgaria 0 0 0 25 0 0 52 76 Burkina Faso 32 0 0 0 0 0 11 43 Burundi 0 0 0 2 0 33 0 35 Cambodia 0 0 0 1 0 29 40 70 Cameroon 0 0 0 0 0 50 0 50 Cape Verde 0 0 0 0 5 0 0 5 Chile 0 24 0 25 0 0 100 149 China 0 0 0 404 0 1,363 7 1774 Colombia 30 0 0 73 550 30 66 749 Congo, Democratic Republic of 0 0 0 2 0 56 0 58 Congo, Republic of 0 0 0 0 0 0 0 0 Costa Rica 0 0 0 0 0 5 0 5 Cote d’Ivoire 77 0 0 0 0 28 0 105 52 Unlocking Global Opportunities: The Aid for Trade Program of the World Bank Group 53 Improving competitiveness Private Trade Public sector sector facilitation Infrastructure Trade Budget policy and Productive Productive Public Public Private Country support regulation capacity capacity sector sector sector Total Croatia 0 0 0 63 0 110 0 173 Djibouti 0 0 0 0 0 1 4 5 Dominican Republic 0 0 1 33 0 80 0 114 Ecuador 0 0 0 46 0 0 0 46 Egypt, Arab Republic of 0 0 0 262 40 0 0 302 Eritrea 0 0 0 0 0 16 0 16 Ethiopia 0 0 0 55 0 34 0 89 Fiji 0 0 0 0 0 0 23 23 Gambia, The 0 0 0 9 0 0 0 9 Georgia 13 0 0 122 0 28 0 163 Ghana 6 0 0 26 0 9 0 40 Grenada 0 0 0 0 2 0 0 2 Guatemala 0 0 0 70 0 0 0 70 Guinea 0 0 0 0 0 5 0 5 Guyana 0 0 0 0 0 3 0 3 Haiti 3 0 0 0 0 12 0 15 Honduras 0 0 0 34 49 0 70 153 India 0 0 0 352 0 1,250 652 2254 Indonesia 136 0 0 189 54 97 29 506 Iraq 0 0 0 0 0 6 0 6 Jamaica 0 0 0 0 0 0 5 5 Jordan 0 0 0 52 33 5 19 109 Kazakhstan 0 0 0 145 0 0 0 145 Kenya 0 0 0 75 0 0 0 75 Kiribati 0 0 0 0 0 0 2 2 Kyrgyz Republic 0 0 0 7 0 15 0 22 Lao People’s Democratic Republic 0 0 0 0 16 5 0 21 Lebanon 0 0 0 113 0 0 0 113 Lesotho 0 0 0 0 16 0 0 16 Liberia 0 0 0 12 0 0 0 12 Macedonia, former Yugoslav Republic of 0 0 0 0 0 102 55 157 Madagascar 0 0 6 4 0 16 0 26 Malawi 0 0 0 5 0 0 0 5 Maldives 0 0 0 5 0 0 0 5 Mali 1 0 0 18 42 35 0 96 Mauritania 0 0 0 15 0 3 0 18 Mauritius 10 5 0 0 0 26 0 41 Mexico 310 0 0 95 0 93 0 498 Moldova 2 0 0 10 0 1 0 13 Mongolia 0 0 0 1 0 0 0 1 Montenegro 0 0 0 0 0 9 0 9 54 Annex Improving competitiveness Private Trade Public sector sector facilitation Infrastructure Trade Budget policy and Productive Productive Public Public Private Country support regulation capacity capacity sector sector sector Total Morocco 0 0 0 105 0 150 21 276 Mozambique 6 0 0 28 0 0 0 34 Namibia 0 0 0 10 0 0 0 10 Nepal 0 0 0 2 0 0 10 12 Nicaragua 0 0 0 10 0 0 2 12 Niger 0 0 0 4 0 32 0 36 Nigeria 0 0 0 288 250 389 4 932 Pakistan 0 0 0 203 0 257 13 473 Panama 0 0 0 16 100 0 350 466 Papua New Guinea 0 0 0 0 0 0 40 40 Paraguay 0 0 0 3 0 0 60 63 Peru 308 0 0 334 0 0 0 642 Philippines 0 0 0 0 0 224 459 683 Poland 0 0 0 8 0 0 0 8 Romania 0 0 0 73 0 0 16 89 Russian Federation 0 0 0 527 0 104 0 631 Samoa 0 0 0 0 0 0 10 10 Senegal 68 0 0 13 0 2 0 82 Serbia 0 0 0 37 0 0 0 37 Sierra Leone 0 0 0 3 0 11 0 14 Solomon Islands 0 0 0 0 0 4 0 4 South Africa 0 0 0 74 0 0 0 74 Sri Lanka 0 0 0 92 0 98 0 190 St. Lucia 0 0 0 21 0 0 0 21 Tajikistan 0 0 0 17 0 6 0 23 Tanzania 35 0 0 21 190 0 0 247 Thailand 0 0 0 4 0 0 0 4 Togo 67 0 0 0 0 1 0 67 Tonga 0 0 0 0 5 0 7 12 Tunisia 0 0 0 13 0 0 213 226 Turkey 0 300 300 141 0 0 317 1058 Uganda 0 0 0 5 0 1 0 6 Ukraine 100 0 0 242 0 0 0 342 Uruguay 0 0 0 14 0 0 0 14 Uzbekistan 0 0 0 3 0 0 0 3 Vanuatu 0 0 0 0 0 0 9 9 Vietnam 0 0 0 214 230 223 7 674 Yemen, Republic of 0 0 0 0 0 11 0 12 Zambia 1 0 0 0 0 36 0 37 TOTAL 1,490 457 607 5,743 2,375 6,579 2,799 20,050 Note: Countries not listed received no aid for trade. 54 REFERENCES Amiti, M., and J. 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