Post-Brexit aid policy: what is aid for trade? And what is it not?
4 August 2016
The new secretary of state for international development, Priti Patel, has stated her interest in using aid to unlock the potential of global trade for development.
However recent media articles, including in the Telegraph, have gone further to suggest that UK aid might be used as a tool in negotiating favourable trade deals for Britain – this would not be a correct use of aid, nor constitute aid for trade.
The references to aid for trade as well as references to leveraging aid could cause some confusion about what counts as aid for trade and what does not. Here, we seek to clarify the terms, and what we believe would be appropriate use of the UK’s aid budget, and what is not.
What is aid for trade?
The World Trade Organisation (WTO) states that aid for trade is...
...about helping developing countries, in particular the least developed, to build the trade capacity and infrastructure they need to benefit from trade opening. It is part of overall Official Development Assistance (ODA) — grants and concessional loans — targeted at trade-related programmes and projects.
In 2015 the Department for International Development (DFID) stated that aid for trade was one of their top priorities; it contributed half a million pounds to the WTO Trade Facilitation Agreement Facility.
Global aid for trade
A total of US $264.5bn has been disbursed for financing aid for trade programmes and projects since the Aid for Trade initiative was launched in 2006.
Aid for trade can and should help to deliver the Sustainable Development Goals (SDGs); it has the potential to enable countries to grow sustainably and help fulfil the SDGs promise of social, economic and environmental development. Goal 17 calls on wealthier nations to achieve or maintain 0.7% gross national income for overseas development assistance (of which 0.2% should go to least developed countries). Goal 8 explicitly calls for an increase in aid for trade, again, particularly targeted to least developed countries.
Aid for trade works best when:
- It is seeks out the poorest people and communities to have a positive impact.
- There is a joined up government approach which is based on poverty reduction and encouraging economic growth.
- It has a strong impact assessment; so that donors can measure its effectiveness.
Donors cannot and should not use aid to sweeten trade deals in their own national interests
While aid for trade covers a variety of legitimate policy and programmatic interventions aimed at facilitating poorer countries’ ability to negotiate trade deals and unlock barriers to achieving faster progress in tackling poverty and promoting development through trade, there are clear parameters on what can and cannot be counted as aid for trade.
The article in the Telegraph is clear that ODA cannot be used to tie trade deals to aid.
ODA should not be used as a bargaining tool to encourage countries to open up markets for the UK. It should never be tied to securing contracts for UK businesses or be pursued to benefit the UK economy alone.
The UK has signed on to the Busan aid effectiveness principles, which means that it commits to 100% of untied aid to deliver the most value for money. UK aid channelled by DFID, and other aid spending departments, needs to comply with these principles and the International Development Act, which requires UK aid to be focused on eradicating extreme poverty. This of course also applies to aid that is used to advance trade.
There is a lot of research about the effectiveness of aid for trade and targeting it to achieve genuinely pro-poor and sustainable development outcomes. Some charities and think tanks question the purpose and results of aid for trade, whereas others see it as a logical investment to develop a countries' economy.
All Bond members, however, would argue strongly that there is significant research and experience to suggest that when aid is used as a bargaining tool for securing trade and contracts, and works primarily in the interests of the donor, it results in profoundly detrimental experiences for those living in poverty.
As the new secretary of state and her department consider their options, Bond and our members are ready to work together to ensure the best possible policy for the world’s poorest countries.