Vital Time For Free Trade

By Pascal Lamy and Haruhiko Kuroda

Published: October 2, 2007 (Issue # 1311)

For The St. Petersburg Times

We may be at the “make-or-break” moment for global free trade. Although bilateral trade deals are becoming more common, consensus on the multilateral Doha Development Round of the World Trade Organization negotiations is still elusive. Many leaders have called for progress on Doha, but rallying political support at home for dramatic trade liberalization is always challenging.

So at this critical juncture, it is most important that we continue to give special attention to those economies that can actually benefit most from the Doha round — the least developed countries and smaller states. Opening markets and expanding trading opportunities stimulate economic growth and higher living standards. But for countries still isolated from the global trading system, there are large adjustment costs to opening their markets.

And that is why the new Aid for Trade initiative — launched at the World Trade Organization ministerial meeting in Hong Kong in 2005 — is so important. The United States, European Union and Japan pledged initial contributions of about $15 billion to kickstart the initiative through 2010.

Aid for Trade will help these least-developed and smallest countries benefit from new trading opportunities by building the necessary capacity to trade effectively and efficiently — with donor support coordinated through multilateral partnerships with institutions like the WTO, the World Bank and regional development banks.

Each small and weak economy has its own specific needs. Some are isolated or landlocked, others are in a post-conflict environment, and still others enjoy limited raw materials or resource endowments. Aid for Trade will help these economies build the infrastructure to transport goods and to create new, viable and cost-effective tradable products. It will provide assistance for export promotion and trade finance. It will also fund training for customs officials and for trade negotiators to take advantage of free trade agreements. In addition, it will offer help in implementing market-oriented reforms and, yes, building the social safety nets needed for people to adjust to the changing economic environment.

Although Aid for Trade is designed to help weak economies and small states into the global trading network, it is the private sector that will ultimately drive the supply and demand for trade, as new products fit into existing or new production networks — as raw materials for processing, intermediate goods for assembly elsewhere, or as final products.

Increased trade and investment — particularly intraregional trade and foreign direct investment — has been key in driving Asia’s expansion. China’s expansion continues at over 11 percent. India’s economic growth is about 9 percent, and those countries most affected 10 years ago by the Asian financial crisis are now growing at about 6 percent. But for all the hype about the region’s growing global economic power, there remain two distinct faces of Asia and the Pacific.

One perspective emphasizes the advances made by newly industrialized economies and the rapid expansion in China and India. This has led to a tripling in their share of world exports — to nearly 21 percent from less than 7 percent in 1980 — helping bring about rapid growth and higher living standards.

The other perspective focuses on smaller developing nations in this region and their challenges. From Afghanistan to Vanuatu, there are some 37 developing economies in Asia and the Pacific — least-developed ones like Bangladesh and Cambodia, small states such as the Maldives or Marshall Islands, or the landlocked transition economies of Kyrgyzstan and Turkmenistan. These smaller countries today account for just 2.8 percent of world exports, nearly the same as in 1980.

The dichotomy between the region’s success stories and those left behind boosts the argument for Aid for Trade. One of the goals of this initiative in Asia and the Pacific is to galvanize support from the region’s successful economies to help the small and weak economies within the region. Together with regional development banks in Africa, Asia and Latin America, we will see what is needed in each of these regions at this early stage of the initiative. The results will then be presented at a global Aid for Trade review meeting, to be held at WTO head-quarters in Geneva in late November.

Aid for Trade is about giving developing countries the tools to take advantage of market-opening opportunities, especially those that would result from the successful conclusion of the WTO Doha round — to better harness trade as an engine of economic growth and development. It is a necessary complement, but not a substitute. A successful conclusion to the Doha Development Round is the most important contribution that we can make to accelerating economic growth, promoting development and reducing poverty.

Pascal Lamy is director-general of the World Trade Organization. Haruhiko Kuroda is president of the Asian Development Bank.

This comment first appeared in The Wall Street Journal Europe.