I. UNDP strategy on Aid for Trade

• One of the key result areas in UNDP’s recently approved Strategic Plan 2008-2011 is inclusive globalization – globalization benefiting the poor.   In this context, UNDP's strategy to support the Aid for Trade initiative is guided by its corporate mandate and has the following specific objectives:

  - Supporting trade mainstreaming in national development/poverty reduction plans.

  - Building capacity to negotiate trade agreements that prioritize human development outcomes.

  - Enhancing competitiveness and overcoming supply side constraints.

• UNDP’s regional bureaus and country offices collaborate with its Bureau for Development Policy which maintains a Trade and Human Development Unit in Geneva to implement various trade capacity development interventions with country ownership as a guiding principle.
• Between 2008 and 2011, it is envisaged that UNDP will be supporting various aspects of Integrated Framework (IF) and Aid for Trade interventions in as many as 100 countries – most of these interventions related to private sector support - thereby also contributing to efforts to promote inclusive and pro-poor growth policies in the context of scale-up to achieve the MDGs.
• In assisting partner countries to engage and benefit from the Aid for Trade initiative, UNDP envisages three   specific strategic interventions:

  - Preparation of   trade diagnostic needs assessment

• This is crucial as a means of helping partner countries to systematically formulate a national trade strategy that prioritizes competitiveness and poverty reduction as a basis for coordinated donor support.
• In 2008-9, diagnostic support is expected to be extended to six Central Asian transition countries (with work already underway in four of these countries- Kazakhstan, Kyrgyzstan, Mongolia and Uzbekistan, also LLDCs); four Asia-Pacific countries; two Latin American countries; and eight sub-Saharan African countries. The partner countries concerned are low and middle income countries and therefore not eligible for the IF.
• The diagnostic work includes
1. Assessment of the overall competitiveness of a country’s economy.
2. review of the trade policy framework
3. Assessment of institutional capacity for policy formulation, implementation, private sector and investment support (including UNDP’s own portfolio where applicable), trade facilitation, and other behind-the-border requirements.
4. Identification of sectors with greatest export potential and high poverty reduction/human development impact utilizing International Trade Centre (ITC) trade information tools and application of a SWAT (strengths, weaknesses, opportunities and threats) assessment.
5. Preparation of a set of actionable recommendations in the form of an Action Matrix, prioritized for implementation over the medium-term (three to four years) and aimed at putting the country on the road to convergence.

- Mainstreaming the national trade strategy/Action Matrix in the government’s planning processes

• This is the process leading to the incorporation of the recommendations identified through the diagnostic work into the annual budget, medium-term economic framework, national development plan and/or poverty reduction strategy.
• Mainstreaming trade fundamentally requires national leadership and ownership with participatory processes incorporating the main stakeholders from government, the private sector, civil society and development partners. UNDP support aims to foster these partnerships.

- Brokering access to donor funding

• Diagnostic work and trade mainstreaming must lead to actual flow of funds.
• UNDP has much experience in brokering donor support through such modalities as preparation of trade sector wide approaches (SWaps) and other basket funding arrangements, as well as convening donor round tables guided by the principles of national ownership, coherence, coordination and aid effectiveness as set out in the Paris Declaration.

II. UNDP’s Aid for Trade portfolio

• UNDP provides over US110 million a year in Aid for Trade support, as much as UNIDO and also as much as ITC, UNCTAD and the WTO combined [note 1].
  
• In addition to support to diagnostic work, mainstreaming and donor coordination processes, UNDP’s substantive aid for trade portfolio including on the Integrated Framework (IF) for the most part falls under the following Aid for Trade categories: (a) trade policy and regulations (b) trade development and (c) building productive sector capacity.
  
• The remaining categories as defined by the WTO Aid for Trade Task Force in 2006 are (d) trade-related infrastructure (e) trade-related adjustment   and (f) other trade-related needs.
  
• Specific activities under trade policy and regulations include research, policy analysis and advisory services, training, and institutional development.

  - Support through global, regional and country programmes is estimated at between US$8-10 million a year for approximately 60 interventions in over 40 countries.

• Support for trade development and building productive sector capacity is mainly provided under UNDP’s private sector portfolio including through the UNDP affiliate, the UN Capital Development Fund (UNCDF).   This support seeks to foster inclusive markets and consists of two broad type of interventions:

  - Private sector developmen t aimed at increasing the contribution of micro-, small and medium sized enterprises to economic growth and poverty reduction; with approximately US$80 million of programme spending annually on over 400 projects in 101 country offices and includes support for business development services, access to micro-credit, and entrepreneurship development(57 per cent) sectoral and supply chain projects (25 per cent) as well as policy related interventions mainly in the area of improving the business environment  (11 per cent).

  - Private sector engagement aimed at fostering partnerships with a range of companies from multinationals (northern and southern), to small and medium sized enterprises (SMEs), often with a broader range of development objectives with US$20 million per year in spending through approximately 130 programmes in 75 country offices and regional centres.

• As there is as yet no agreed framework for private sector involvement in the Aid for Trade initiative, the UNDP portfolio merits close attention for establishing the main elements for such a framework.   In particular, private sector engagement interventions – incorporating the growing sustainable business initiative - are an innovative way of assisting developing country businesses move up the value chain.

III. UNDP’s capacity to provide Aid for Trade Support

• Currently, approximately 40 staff are actively engaged either full or part-time in supporting diagnostic, mainstreaming, donor coordination   and   trade policy and capacity issues with the support of UNDP’s poverty reduction practice community which includes over 300 economic development/poverty reduction specialists and maintains an e-knowledge network to facilitate information exchange and capacity building.   The Geneva Trade and Human Development Unit spearhead UNDP’s Aid for Trade work within the Poverty Group’s Inclusive Globalization Cluster.  
• UNDP is also committed to strengthening the Resident Coordinator system including through the ‘one UN initiative’ and the Chief Executives Board (CEB)’s Trade and Productive Sectors Cluster to focus more systematically on trade and inclusive growth issues at country and regional levels.
• While the main focus of UNDP’s support is at the country level,  addressing cross-border issues is emerging as an important part of UNDP’s regional trade programmes in Africa, Asia and the Pacific, Arab States and the countries in transition with the support of BDP/Poverty Group regional trade advisers.
• Cross-border interventions include regional diagnostic work to identify regional public goods as well as policy advisory and capacity building services.

IV. Aid for Trade Monitoring and Evaluation

• In establishing the Aid for trade initiative, there was no appetite among donor countries for setting up a dedicated Aid for Trade fund.   Donors resisted this approach which was proposed by developing countries.   Indeed, donors took the view that money is not the issue and that there is enough money, but that the real challenge is to focus on national ownership and aid effectiveness.

• The compromise that was reached by the WTO Task Force was that the established bilateral and multilateral procedures for accessing ODA resources should also be utilized for Aid for Trade.   Efforts will however be made to make bilateral and multilateral funding more effective through improved mechanisms for coordination at country, regional and global levels based on the Paris Declaration on Aid Effectiveness.
• Incentives to enhance effectiveness were to be provided through a global monitoring process which will work to highlight and address the gaps on both the demand and supply sides, thereby building a more responsive relationship between demand from developing countries and response from the donor community with the WTO serving as an information clearing house.
• UNDP serves as a member of the WTO Aid for Trade Advisory Body and the OECD Technical Working Group on Aid for Trade Monitoring and Evaluation.   From this engagement with the issues, as well as participation at in the three Regional reviews and the November 2007 Global Review, among the current concerns that UNDP has identified are the following:

  - The Joint WTO/OECD Database which tracks Aid for Trade flows based on the OECD creditor reporting system represents an indispensable source of information but remains essentially an inventory of trade related technical assistance and capacity building initiatives and falls short of providing an assessment of Aid for Trade quality, effectiveness and on-the-ground impact and results.

  - The limitation of the Database is compounded by the fact that there are no common benchmarks, criteria or indicators to determine the adequacy or additionality of Aid for Trade flows.  For 2005, a US$25 billion baseline of Aid for Trade ODA funding has been established by the WTO/OECD 2007 Aid for Trade at a Glance report. But it remains unclear as to what extent funds that have been pledged for Aid for Trade are additional.   The G7 commitment is for a total of $4 billion in additional funds (including for the Enhanced Integrated Framework) annually. Individual G7 countries and clusters such as Japan and the EU also made well-publicized commitments.

  -  The overall amount of ODA fell by 8 per cent in 2007 as conclusion to the recent spate of debt write-offs is approached.

  - The monitoring framework adopted by the OECD Technical Working Group on the Monitoring of Aid for Trade only requires donors and agencies to undertake self-assessments.   As each donor will provide its own year-on-year financial and other reporting, this is unlikely to shed much light on additionality let alone on impact and results.

  - There is as yet no provision for independent assessments of the impact of Aid for Trade flows though in-depth country case studies of how effectively they contributed towards integration into the global trading system.   This also requires assessing the performance of donors and the capacity of recipient countries, together with identifying what categories of Aid for Trade and modes of financing - concessional, non-concessional and other combinations including private sector and private/public partnerships – were most effective.

  - There is a need for regular analysis of specific thematic issues to enhance understanding of the complexity of trade capacity building on the ground.   Examples of such issues are the institutional capacity of national trade ministries, coordination across government departments or impact of pro-poor trade policies.

  - With the inclusion of regional initiatives in Aid for Trade, it is not clear how regional flows will be measured and evaluated.   It is also not clear how private sector support is to be monitored.

  - Overall, the three Aid for Trade Regional Reviews and the November Global review that were held during the autumn of 2007 turned the spotlight on Aid for Trade but provided no clear indication of how to address issues of additionality, measurement, regional and private sector flows, impact, and results.

  - The 2008 Aid for Trade work programme that has been adopted by the WTO Committee on Trade and Development highlights the challenge of implementation and provides for two technical level meetings.   But the programme falls short of providing a comprehensive strategy.

  - For 2008, the OECD has also prioritized the setting up an e-knowledge aid for trade network for which UNDP is providing support and insights from its own e-knowledge poverty reduction network and MDG network experience.

  - This means that if Aid for Trade is to work, partner countries, bilateral and multilateral agencies such as UNDP must take the initiative to ensure that the benefits that are promised are actually delivered.

Note 1: This comparison takes into account the annual technical assistance budgets of these agencies. (return to text)