Does more Aid for Trade mean less Aid for Climate Change?

Two years have gone by since Aid for Trade was launched at the WTO. Pascal Lamy has just completed the first Global Aid for Trade Review. The picture does not look good. There is still no clearly accepted definition of what counts as an Aid for Trade initiative, no guidelines for accessing funds, and no effective monitoring and evaluation mechanisms.

But the big question on everyone’s lips is what about the money? When Aid for Trade was launched, WTO members asked Pascal Lamy to find appropriate mechanisms to securing additional financial resources for Aid for Trade. No funding is secured. It is now confirmed that there will be no additional money over and above existing aid, formerly known as Overseas Development Assistance (ODA), pledges. Instead, the Director-General must seek to get a bigger share of aid for trade initiatives. The OECD-WTO data estimates that trade initiatives currently soak up 40 percent of existing aid money. If no additional money is found, there is a serious risk that other sectors, like health and education, may find they receive a much smaller share of the pie in the future.  Overall development aid declined in 2006.

Worse, other global issues are desperately in need of a massive boost of funds. Perhaps most importantly, steps to mitigate the devastating effects of climate change. The UN Development Program (UNDP) recently issued their annual Human Development Report which accuses rich nations of failing to do their bit to curb greenhouse gas emissions and to help developing countries cope with climate change. To date, only $26 million has been delivered under the UN Framework Convention on Climate Change. The UNDP says developed countries need to provide US$86 billion a year by 2015. US$44 billion would go for climate-related infrastructure. US$40 billion would help the poor cope with climate-related risks. The other US$2 billion would go to strengthening responses to natural disasters.

Going ahead with the Aid for Trade agenda in the current climate at the WTO would be disastrous. For now, donors and recipients should invest their energy in improving the effectiveness of existing aid schemes. WTO members should get back to the task of creating a better multilateral trading system. If WTO members are able to build a better framework for the multilateral trading system then Aid for Trade could be a useful and important addition.