AfDB, World Bank and WTO push Aid for Trade initiative at Tanzania conference

17 October 2007

Critics claim that Aid for Trade schemes could aggrevate rather than alleviate poverty, particularly in Africa.

A conference on generating “Aid for Trade” in Africa wrapped up earlier this month in Tanzania. The forum, organized by the African Development Bank (AfDB), the World Bank and the World Trade Organization (WTO), among others, focused on how to advance the Aid for Trade initiative through which developing countries receive funds from donor countries to build export-oriented infrastructure and open their markets to increased trade.

Critics of the initiative claim that the priorities of Aid for Trade schemes are misplaced in that they aim simply to facilitate trade creation, and are not geared toward poverty reduction. Some assert that the liberalization measures at the core of the Aid for Trade process, such as lowering import and export tariffs, could aggravate rather than alleviate poverty, since they eliminate an important source of tax revenues and limit governments’ capacity to foster domestic capacity. Meanwhile, the increase in imported goods as a result of trade reforms can undercut local production lead to significant job losses. As reported by Inter Press Service in March, this could particularly affect unskilled and semi-skilled workers.

Some observers, such as the Vice President of Tanzania, have also expressed their concern that donors will not actually provide new funds, but instead simply reallocate existing social development commitments. They fear this could actually result in the diversion of funds from priority sectors like health and education toward infrastructure such as ports and roads aimed at facilitating exports.

The conference was the last in a series of three discussions regarding Aid for Trade; the two previous meetings, held in September, focused on Asia and Latin America. The outcomes of the meetings are intended to feed into the World Trade Organization’s (WTO) review of plans for the Aid for Trade initiative in November.

While international financial institutions (IFIs) such as the World Bank and AfDB lent their support to the Aid for Trade process in Dar es Salaam, senior World Bank officials asked that the European Union extend its deadline for African governments to sign trade agreements with the EU beyond the end of the year. The EU has insisted that Economic Partnership Agreements (EPAs) be concluded by December 31, when their current trade agreements under the Africa-Caribbean-Pacific (ACP) arrangements in the region expire. According to an Inter Press Service (IPS) article from September 27, the Bank officials suggested that the deadline be extended to allow African governments additional time to work on the details of trade deals, and “some Bank economists also take the view that the EU should not pressure the Africans into hastily accepting clauses on investment and competition issues in the EPAs.”

While these comments by Bank officials are encouraging, some civil society advocates hope that the Bank will go a step further and use its leverage to prevent investment and competition clauses from being incorporated into the EPAs at all. These controversial clauses, which would limit governments’ ability to protect local firms or stipulate certain investment conditions, have been omitted to date from negotiations at the World Trade Organization (WTO) after intense resistance by developing countries. According to IPS, “African diplomats and anti-poverty campaigners have accused the EU of using the EPA talks to push these issues back on the international trade agenda.”

Resources

• African countries told to put trade on the front burner, African Development Bank, October 2, 2007 (AfDB website)
• World Bank asks for more time on EPAs by David Cronin, Inter Press Service, September 27, 2007 (IPS website)
• Exports should be priority for African states by Sarah McGregor, Inter Press Service, October 4, 2007 (IPS website)
• 'Aid for Trade' may cut health, education funds by David Cronin, Inter Press Service, July 20, 2007 (IPS website)
• Liberalisation may boost growth but not create jobs by Stephanie Nieuwoudt, Inter Press Service, March 21, 2007 (IPS website)