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Aid for more trade
06/2006
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[ Trade policy ]
Aid for more trade
The two economists Joseph Stiglitz from Columbia University and Andrew Charlton from the London School of Economics demand giving developing countries more and better coordinated trade related assistance. Especially the poorest countries need support – on the one hand to cope with adjustment costs which are incurred through further trade liberalisation, and on the other hand to build up the necessary infrastructure and productive capacity to enable them to benefit from better access to the markets of rich countries.
To this end, in a report for the Commonwealth Secretariat titled “Aid for Trade”, Stiglitz and Charlton propose setting up a new Global Trade Facility (GTF) where donors can pool their funds and coordinate distribution. Donors should not offer additional aid simply as compensation for concessions made by the developing countries in the current Doha Round, the economists argue. Rather, support should be directed towards improving poor countries’ chances in world trade.
On the one hand, poor countries must receive assistance to cope with adjustment costs. These costs are incurred, for example, through the loss of customs revenue owing to further liberalisation measures, or through aligning laws to new international trade regulations. On the other hand, poor countries must be given targeted assistance to expand their range of export products. To achieve this, the private sector must be promoted above all, and investment conditions and access to capital must be improved (which is on topic the German government is focussing on in their efforts to increase their profile in Africa; see article on p. 248 in this edition). The infrastructure of many countries must also be improved; in this respect, Stiglitz and Charlton refer to the World Bank’s plans to significantly increase their spending on infrastructure by 2010 (see D+C/E+Z 5/2006, p. 216).
According to Stiglitz and Charlton, the GTF should be housed at the World Bank; while the donors’ commitment obligations should be enforceable through the WTO. The two authors suggest that donors pay 0.05% of their gross domestic product into the new facility. In addition, they should contribute a small percentage of their revenue from exports to the least developed countries – effectively to offset decreasing revenue from import duties in the poor countries. And finally, they should pay five percent of their agricultural subsidies into the GTF. Stiglitz and Charlton hope this kind of fee would also serve as an incentive for rich countries to change their trade-distorting agricultural policies. (ell)
On the internet:
http://www.globalpolicy.org/socecon/trade/2006/03tradeaid.pdf
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