Public Information Notice No. 08/14

Public Information Notice: IMF Executive Board Discusses Aid for Trade

February 13, 2008

On September 24, 2007, the Executive Board of the International Monetary Fund (IMF) discussed the paper Aid for Trade-Harnessing Globalization for Economic Development, jointly prepared by the staffs of the IMF and the World Bank. The paper was discussed by the World Bank Executive Board on September 18, 2007.

Background

This paper follows up on the joint paper on the Doha Development Agenda and Aid for Trade submitted to the Development Committee (DC) at the time of the 2006 Annual Meetings.¹ It provides further information on the efforts of the multilateral community to support the integration of developing countries into the global economy with the aim of contributing to the debates on the measurement and effective implementation of aid for trade.

The paper begins with a brief update on the World Trade Organization (WTO) negotiations underway in the Doha Round, with more detail on Doha Round negotiations in an annex. It then provides a discussion of the scope for global markets to support growth, and discusses some of the challenges faced by many poor countries in taking advantage of new trade opportunities, underlining the importance of both aid for trade to address weak infrastructure and institutions and of a comprehensive national strategy to improve competitiveness. The paper provides an overview of selected multilateral activities in aid for trade, including new efforts at monitoring and the Enhanced Integrated Framework (activities of the Work Bank and IMF are discussed in an annex). A final section of the paper outlines challenges for aid for trade.

Executive Board Assessment

Executive Directors welcomed the joint Bank and Fund staff paper surveying recent developments on aid for trade and providing an update on the WTO Doha Round negotiations. They welcomed the resumption of Doha Round negotiations in late 2006, but regretted the uneven progress since then. Directors underscored the importance of a prompt and ambitious conclusion of the Doha Round, entailing cuts in agricultural tariffs and subsidies by developed countries and reduced non-agricultural tariffs by both developed and large developing countries, as well as advances in the multilateral agenda in areas such as rules, services, and trade facilitation. In this context, Directors pointed to the critical role that all key players in the Doha Round negotiations could play. Overall, Directors emphasized the importance of multilateral trade reforms in supporting a smooth functioning of the international economy, enhancing global growth prospects, and securing market access for developing country exports.

Some Directors expressed concern that the Doha Round might be drawn out extensively or even fail outright. Such an eventuality, against the background of a weaker global economic outlook, would risk increasing further protectionist pressures. Some Directors were also concerned that protracted Doha Round negotiations could lead to a further proliferation in regional preferential trade arrangements that, if not properly designed, could weaken the multilateral trading system.

Directors welcomed the ongoing initiatives by the WTO and other institutions toward enhancing aid for trade and improving its coordination and delivery, independent of the pace of the Doha Round negotiations. While regretting that trade in products of interest to least-developed countries continues to be subject to many obstacles in developed and developing economies, Directors pointed out that many existing trade opportunities remain unexploited because of infrastructural and other domestic supply constraints as well as policy weaknesses and governance issues, and that aid for trade could help the least-developed countries to take further advantage of existing and new trade opportunities. Directors also noted that benefits from aid for trade could be magnified if accompanied by strengthened policy frameworks, including further trade reforms.

Directors agreed that, to maximize the gains from aid for trade, critical actions are needed at both the country level and by the international donor community. At the level of individual countries, the country priorities for trade-related reforms and for strengthening competitiveness need to be properly identified with support from the trade diagnostic studies provided under the Enhanced Integrated Framework (EIF), and integrated in the national development and poverty reduction strategies. The useful role of the Fund in supporting these efforts was noted, and several Directors saw scope for enhancing this role. Several Directors also noted that country ownership and commitment are key to a comprehensive national trade strategy and to the efficient utilization of aid for trade. This would allow adequate, and hopefully expanded, mobilization of aid for trade support from the international donor community, in line with the Paris principles on aid effectiveness. Directors also stressed the importance of securing increased financing of the EIF, and urged donors to fulfill their pledges on all trade-related aid resources. Several Directors considered that monitoring and evaluation should also be an important element of the aid for trade process. Several Directors welcomed the World Bank's role in facilitating the sharing of best practices in aid for trade by major donors.

Some Directors saw merit in exploring the mobilization of additional concessional assistance for aid for trade in low-income countries that are not least-developed countries and in small and vulnerable middle-income countries.

Directors supported the Fund's ongoing and selective involvement in the EIF and the aid for trade initiative. In line with the existing policy guidelines on the Fund's work on trade, these activities focus on the Fund's areas of core expertise—namely, technical assistance in customs and tax reforms; policy advice; and if needed, financial assistance in support of adjustment efforts—as well as close collaboration with other relevant institutions. Several Directors also called for further recognition in both the Fund's and Bank's work of the importance of trade for poverty reduction—the benefits for growth and living standards—as well as the need for any safety nets to mitigate possible short-term adverse impacts on affected groups.

¹ See http://0-www-imf-org.library.svsu.edu/external/np/sec/pn/2006/pn06105.htm