Trade and Development in the New Global Context – the Capacity Dimension

Policy Brief 2001 September Trade and Development in the New Global Context – The Capacity Dimension

Can trade and trade policy contribute to Introduction poverty reduction? Developing countries want to join in the globalisation process and Why help develop they are making major efforts to take forward their policy reforms. They realise increasingly that beneficial integration in the world capacity to trade? economy starts with appropriate policies at home – social, economic, environmental and political policies – and that these reform efforts Why guidelines? can enable trade to contribute to development. But despite major efforts, many of the poorest countries have not yet been able to inte- What is capacity grate successfully into global markets, and hence to participate in the building? growth-inducing and poverty-reducing benefits of trade.

What needs to be done to Trade is not an end in itself. But trade can enhance a country’s access build trade capacity? to a wider range of goods, services, technologies and knowledge. It stimulates the entrepreneurial activities of the private sector. It cre- ates jobs. It fosters vital “learning” processes. It attracts private capi- What are the elements of tal. It increases foreign exchange earnings. Above all, it contributes an effective trade policy to generating the resources for sustainable development and the alle- process? viation of poverty.

What donor initiatives The High Level Meeting of the OECD’s Development Assistance exist to help build Committee in April 2001 endorsed the Guidelines on capacity devel- ■ capacity for trade? Figureopment 1. for trade in the new global context.

For further reading Figure 2. This Policy Brief sets out why enhancing trade capacity in devel- Where to contact us? oping countries must complement further domestic reforms and greater access to markets in order to support their integration into the global economy. It also explains what we mean by capacity building and how the international community can contribute to these efforts in less advanced developing countries..

3 Policy Brief Trade and Development in the New Global Context – The Capacity Dimension

Can trade and trade ing human and institutional capac- the interest of all countries to help ity to accompany trade reforms – developing countries enhance their policy contribute to and of putting effective safety nets capacities to capture and exploit the poverty reduction? in place. ■ benefits of trade for sustainable development. ■ Ensuring that the multilateral trad- Why help develop ing system (MTS) is beneficial to the poor is one of the key concerns capacity to trade? Why guidelines? in current international debates. Although there is consensus that the Developing countries face enor- Many OECD countries are commit- MTS and national trade policies mous new challenges with limited ted in their assistance programmes should be conducive to maximising institutional and human resource to helping developing countries the benefits and minimising the capacities. Governments and the integrate into the world economy. negative impacts to the poor, there private sector have to overcome This commitment reflects the is no clear-cut policy prescription these capacity gaps as they seek to widely held view that expanded for how to do this. manage their integration into the trade and investment can be critical global economy. Implementation of engines of growth – and that devel- The links between trade policy and the World Trade Organisation opment co-operation can spur the poverty are complex and sometimes (WTO) agreements and obligations private sector development on quite indirect. Because trade policy is far more demanding of the insti- which trade and investment depend. is only one of many factors affect- tutional and human capacities of Many donors have already devoted ing long-term growth and poverty, developing countries than is tariff substantial resources to private sec- and trade policy reforms are under- liberalisation. Access to key export tor development initiatives over the taken at the same time as other markets can be constrained due to past few decades, some of which major macro or structural reforms, lack of information on import have helped also to generate exports it is often difficult to isolate and requirements and inadequate tech- and investment. But the marginali- trace its impact. But research is nical and financial resources to sation of the Least Developed Coun- starting to produce some conclu- comply with them. tries (LDCs), the growing sions – which need to be confirmed complexity of the MTS, and the by more detailed country analyses. There is also a strong link between competing demands of regional and the trade capacities of developing bilateral trade initiatives suggest The main conclusion for the longer countries and the sound functioning that a more ambitious response is term is that open economies are of the MTS. An inability to reap needed. The equitable integration of conducive to growth – and that benefits from trade can translate developing countries into the glo- overall economic growth is a neces- into reduced capacity to sustain bal economy may require new forms sary condition and very closely imports, less faith in the benefits of of trade-related development co- linked to income growth for the openness and continued depen- operation. poor. For the short term, trade liber- dence on foreign aid. Overcoming alisation may increase or decrease capacity gaps will help developing The guidelines on capacity develop- the welfare of the poor, depending countries become more effective ment are the product of extensive on the protection in individual and reliable negotiators, better able consultations with a wide range of countries and the sources of income to implement multilateral and stakeholders on how the interna- and patterns of consumption of the regional agreements and meet con- tional community can work poor. But in most instances, the tinuing obligations under those together to help developing coun- short-term effects are small. If there agreements. They will also be more tries increase their trade perfor- are mutually supportive policies, likely to mobilise support domesti- mance and participation in adequate infrastructure and sound cally for their trade policy reform international rule-making and insti- institutions, trade and its liberalisa- efforts, experience fewer policy tutional processes. They are not tion are more likely to promote reversals and have the tools and intended to be prescriptive but to growth and poverty reduction. That means to raise labour and environ- provide a common reference point points to the importance of build- mental standards. So it is clearly in for the aid, trade and finance com- 4 Policy Brief Trade and Development in the New Global Context – The Capacity Dimension

munities. Their purpose is to help Capacity development for trade able to achieve substantial gains in to situate trade capacity building in today is about mobilising participa- trade without an effective trade pol- the context of comprehensive tory approaches to deal with com- icy framework. The collective approaches to development and plex trade agendas. Trade capacity efforts of donors and developing poverty reduction. They review and building enhances the ability of countries should be guided by a analyse the strategic importance of partner country policy-makers, vision of a trade policy process trade capacity development. And enterprises and civil society actors capable of implementing a trade they identify key principles and pro- to: development strategy rooted in an cesses that shape the design and overall national development and delivery of trade capacity building • Collaborate in formulating and poverty reduction strategy. activities. ■ implementing a trade development strategy that is embedded in a This approach has several things to broader national development commend it. A sound trade policy What is capacity strategy. framework will: building? • Strengthen trade policy and • help developing countries address institutions as a basis for reforming a wide range of trade-related import regimes, increasing the challenges and opportunities – For a long time, capacity building volume and value-added of including those that cannot be was synonymous with institution exports, diversifying export anticipated – over an extended building, or technical assistance, products and markets and period with a focus on one institution or a increasing foreign investment to few individuals. Today it is synony- generate jobs and exports. • facilitate genuine local mous with building systems or net- “ownership” of trade development works – across institutions and • Participate in – and benefit from – efforts individuals, often across borders, to the institutions, negotiations and • reduce the risk that the trade achieve common objectives. The processes that shape national trade policy priorities of donors will network promotes a critical mass of policy and the rules and practices influence developing country human and institutional resources of international commerce. ■ that can overcome the limits inher- trade policies; and enable ent in the old approach. A key role developing countries to sustain for donors in capacity development What needs to be and upgrade trade-related is to facilitate the processes and capacities after donors have ■ mobilise indigenous resources that done to build trade departed. contribute to this critical mass. capacity? What are the Findings from evaluations suggest Capacity gaps need to be addressed that past efforts in trade-related in a wide range of areas from policy- elements of an activities have been insufficient and making and implementation to sup- too dispersed or isolated to help the ply side responses. Stakeholders effective trade policy developing countries benefit from need to be engaged from both the process? new trade and investment opportu- public and private sector, as well as nities. Technical co-operation, often academia and civil society. The Although it is not possible to rec- based on outside expertise, has fre- breadth, complexity and continuing ommend a single policy framework quently involved costly overheads, evolution of trade development that is ideally suited to promoting limited local ownership and paid challenges have led towards a con- trade, recent capacity-building insufficient attention to the macro- sensus that a key objective of trade efforts point to several features or economic environment. There is a capacity building is to help develop- arrangements that have been suc- strong and growing demand for ing countries put in place a trade cessful. Donors and developing more comprehensive (but well-tar- policy framework and sustainable countries should seek to construct geted) assistance in the area of consultation processes. The record trade policy frameworks with, inter capacity development for trade. suggests that no country has been alia, the following elements: 5 Policy Brief Trade and Development in the New Global Context – The Capacity Dimension

National Development Strategy and The Trade Policy Process

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• A coherent trade strategy that is strengthen local capacities, as stake- lished in 1996 (by WTO, UNCTAD, closely integrated with a country’s holders “learn by doing” and learn ITC, World Bank, IMF and UNDP) overall development strategy. from each other. By helping devel- to increase the effectiveness and effi- oping countries build such a pro- ciency of trade-related technical • Effective mechanisms for cess, donors will take a major step assistance, in part by strengthening consultation within and among toward ensuring that development the co-ordination of participating three key sets of stakeholders; co-operation initiatives are locally- government, the enterprise sector, owned and driven by demand. ■ agencies and ensuring that technical and civil society. assistance is demand-driven. Its suc- cess will depend on a sustained • A strategy for the enhanced What donor initiatives commitment of all its stakeholders collection, dissemination and analysis of trade-related exist to help build including bilateral and multilateral information. capacity for trade? donors. • Trade policy networks, supported A number of bilateral donors have Both the IF and JITAP serve as mod- by indigenous research programmes to build trade capacity. els for trade capacity building institutions, and trade support One multilateral initiative that has through their emphasis on local institutions. successfully brought key stakehold- ownership and on comprehensive • Outward-oriented regional ers together through donor support and integrated approaches. Assem- strategies. is the Joint Integrated Technical bling viable trade policy frameworks Assistance Programme (JITAP) in will require action in many areas An important first step for develop- eight African countries managed by and efforts in one area must comple- ing countries is to integrate their the WTO, ITC and UNCTAD ment efforts in others. That will trade strategies into the broader (www.jitap.org/). A key component framework of national development of this programme is the develop- help partner countries to assess pri- and poverty reduction strategies. ment of national networks of per- ority needs – and donors to identify The priority that each country sons having substantive knowledge and co-ordinate policy interven- accords to trade depends on the of MTS issues. tions. The challenges are beyond the conditions specific to the economy means of any single donor. The Another instrument to address the and should come about through a complexity of the agenda demands a needs of the LDCs is the Integrated national dialogue over development significant measure of donor agree- priorities and appropriate responses. Framework for Trade-Related Tech- nical Assistance for Least Devel- ment on objectives, sequencing of The participatory character of effec- oped Countries (IF). The IF activities, a division of labour and tive trade policy-making will help (www.ldcs.org) was originally estab- sharing of information. ■ Related publications For more information about the Development Assistant Committee (DAC) Guidelines please visit our web site www.oecd.org/dac/

ISBN: 92-64-17112-6 Euros 19 ISBN: 92-64-19001-5 Euros 47 ISBN: 92-64-19504-1 Euros 20 8 Policy Brief Trade and Development in the New Global Context – The Capacity Dimension

For further reading

■ The DAC Guidelines: Strengthening Trade ■ Trade, Investment and Development: Policy Capacity for Development, 2001 Coherence Matters, 1999 ISBN: 92-64-19504-1, Euros20, 62p. ISBN: 92-64-17112-6, Euros19, 84p.

■ Building Trade Policy Capacity ■ Trade, Investment and Development: Reaping in Developing Countries and Transition the Full Benefits of Open Markets, 1999 Economies - A Practical Guide to Planning ISBN: 92-64-17111-8, Euros19, 52p. Technical Co-operation Programmes, DFID, United Kingdom, 2001 Available on the OECD online Bookshop at: ■ Trade and Development Issues www.oecd.org/bookshop in Non-OECD Countries (forthcoming)

■ Shaping the 21st century: ■ Trading Competitively: The Contribution A Study of Trade Capacity Building of Development Co-operation, 1996 in Sub-Saharan Africa (forthcoming)

OECD publications can be securely purchased from the OECD Online Bookshop www.oecd.org/bookshop

The OECD Policy Briefs are prepared by the Public Affairs Division, Public Affairs and Communications Directorate. They are published under the responsibility of the Secretary-General.

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