Turning market access into market presence What is Aid for Trade?
Aid for Trade is a sub-set of official development assistance. In the broadest sense it refers to the flow of development finance/aid from developed countries and multilateral funding agencies to developing countries to enhance their participation in the multilateral trading system.
Why the need for a Strategy?
The Caribbean Community (CARICOM) Regional Aid for Trade Strategy is a tool for creating consensus among CARICOM Member States and the CARICOM Secretariat on priorities for ensuring a growing and more diversified regional economy. The strategy presents a coherent approach to resource mobilisation that outlines to donors, investors, and international development partners how the Regions intends to utilise existing and future resources. In this context, consolidating the Region’s AfT needs into a single strategy document provides a framework for collaboration among Member States and international development partners (IDPs) or investors with an interest in providing support for the Region’s development.
Which countries are participants?
The Caribbean Community Regional Aid for Trade Strategy covers the following Member States of CARICOM: Antigua and Barbuda, The Bahamas, Barbados, Belize, Dominica, Grenada, Guyana, Haiti, Jamaica, Montserrat, St. Kitts and Nevis, Saint Lucia, St. Vincent and the Grenadines, Suriname, and Trinidad and Tobago.
What is the next step?
The next step is for Member States to implement the strategy, harvesting its potential. Priority non-traditional sectors with high export potential need to be identified for export diversification. The private sector must play a role in the identification of these priority sectors and the creation of export strategies at both the regional and national level. The goals set out in the new strategy cannot be achieved without the private sector.
Economic diversification requires new skills, market information and capacity building of exporters and providers of trade support services alike. Small economies cannot afford to provide the trade support services required, but economies of scale can be achieved through regional cooperation. The Caribbean Export Development Agency and the International Trade Centre (ITC) are working on the development of a project to contribute to the achievement of these goals and assist Member States in the implementation of the strategy. It is the implementation of the strategy in a manner that responds to existing market needs that ensures that the outcomes are sustainable and long lasting.
VIEW FROM THE CARICOM SECRETARY-GENERAL
The ever-evolving, intensely competitive, and crisis-ridden global economy has compelled the Member States of the Caribbean Community (CARICOM) to take a hard look at how they can achieve a safe, viable, prosperous, and above all, sustainable and resilient path to development. Conventional wisdom over the past three decades has espoused that trade expansion is the only route for achieving that goal.
The CARICOM Single Market and Economy was not only intended to foster greater intra-regional trade but also, through production integration, to spur expanded trade between CARICOM and third states. The latter objective was viewed as a crucial driver for developing and improving the economic and social welfare of the Region. Consequently, for CARICOM, Aid for Trade (AfT) must take into account the creation and strengthening of supply-side capacity and strengthening trade-related infrastructure for Member States to expand their trade and reduce the adjustment costs of the changing external trade environment.
To achieve this, substantial assistance is needed to enhance competitiveness and to make optimal use of the opportunities provided in the liberalised global environment. This assistance must be focused and targeted.
It is within this context that AfT has become such a critical component of the Region’s approach to competing in the global arena. CARICOM Member States require assistance if they are to be positioned to take advantage of bilateral and multilateral trade agreements to which they are party. Substantial resources must be applied to areas such as upgrading key economic infrastructure, enhancing export competitiveness, diversifying economies, re-tooling the private sector, strengthening regional integration, and creating financial and other instruments for supporting innovation. This assistance is required to convert market access to market presence and to enable CARICOM Member States to compete equitably in the global market.
A key factor in mobilising these resources is recognising that access to concessionary loans and grants is being denied to many CARICOM Member States due to graduation and differentiation. This access is being denied at a time when the debt per capita of some CARICOM Member States is among the highest in the world. Further, the small size of many Member States reduces their capacity to attract foreign investment at the desired levels and in the relevant areas.
The extent to which AfT contributes to the growth and development of CARICOM countries depends in large measure on the willingness of the international community to accept these realities and to provide additional sources of financing, particularly in grant form and in a manner that is easily accessible. This may mean introducing innovative mechanisms for providing financial and technical support to CARICOM. Finally, it is important that priority projects financed from AfT resources be defined in within the context of the Community’s national, sub-regional, and regional development policies. Particular attention must be paid to building private sector capacity.
The Caribbean Community Regional Aid for Trade Strategy has been developed against this background. It is expected that the strategy’s rollout will produce concrete benefits to the people of the Caribbean.
EXECUTIVE SUMMARY OF AfT STRATEGY
The Caribbean Community (CARICOM) Regional Aid for Trade Strategy is a tool for creating consensus among CARICOM Member States and the CARICOM Secretariat on priorities for ensuring a growing and more diversified regional economy. Once completed, the strategy will present a coherent approach to resource mobilisation that will send a strong signal to donors, investors, and international development partners that the region has a clear sense of how it can best utilise existing and future resources.
Despite regional efforts to deepen integration through the CARICOM Single Market and Economy and strengthen trade relations with existing and non-traditional partners, the Region’s competitiveness remains constrained by poor infrastructure and connectivity, weak institutions, undiversified export markets, and low levels of private sector innovation. According to a recent study, CARICOM is operating on average 46 percent below its trade potential. In addition, intra-regional trade in the Caribbean stands at a relatively low 13 percent of total trade; this increases to just over 20 percent if exports to Latin America are included.
CARICOM’s ability to realize its trade potential and coherently diminish these capacity constraints has been limited by the lack of financial resources, particularly since many Member States are carrying debt-to- GDP ratios in excess of 100 percent and have economies that are struggling to recover from the spillover effects of the 2008 global economic and financial crisis. Increasing trade and investment through collaboration can raise potential GDP, which will lower debt-to-GDP ratios and help realise economies of scale. An additional factor is the expansion of the Panama Canal, which will change the global trade scenario as larger ships displace smaller ones and create new shipping patterns. The Caribbean must reposition itself in this new economic geography.
With a view towards capturing a share of new, dynamic sources of demand, the Twenty-Seventh Meeting of the CARICOM Council for Trade and Economic Development, held May 14-15, 2009, declared that “as a matter of urgency, the Region should craft a Caribbean Aid for Trade Strategy, which includes a holistic and comprehensive approach towards competitiveness, adjustment and trade development.”
The resulting goals and priorities identified in the Regional Strategy are the product of extensive stakeholder consultations held with public and private sectors, civil society, and non-governmental organizations within CARICOM. While CARICOM Heads of Government clearly identified Maritime Transport and Information and Communication Technology (ICT) as the two key areas for the development of transformational AfT project proposals, the goals and priorities in this strategy were also guided by areas of consensus that emerged from the broad-based national consultations and the results of the analyses undertaken.
CARICOM Member States have set three strategic goals to guide the development of remedial programs and projects for increasing their competitiveness, reducing inefficiencies, and deepening global and regional economic integration, as follows: (1) upgrading key economic infrastructure, (2) enhancing competitiveness and facilitating trade expansion and diversification, and (3) deepening regional integration and maximising gains from external trade agreements.
In order to achieve these goals, the strategy proposes that actions be taken in the following key areas: (1) for goal one, maritime transport, ICT, and energy; (2) for goal two, trade facilitation, sanitary and phytosanitary measures, quality infrastructure, services, and private sector development; and (3) for goal three, strengthening regional integration and the capacity of regional institutions, increasing the transparency and reliability of AfT flows, increasing negotiation and implementation of trade agreements, and increasing knowledge of the impact of trade liberalization. These areas were chosen because the Member States considered them to be the most critical for realising the goals set out in the strategy.
Activities identified by stakeholders were grouped in three categories as follows: (1) regional activities that serve a regional objective, (2) national activities that serve a regional objective; and (3) national activities that serve a national objective. The activities range from legal drafting and training to information technology software and infrastructure investment, thereby providing a large number of options for donors, investors, and development partners. These activities also call for different types of investments, including sovereign or non-sovereign lending, public-private partnerships, and grants.
The strategy proposes five “anchor” projects for early implementation in the areas of maritime transport, ICT, energy, and private sector development. These are relatively large, bankable, and implementable projects that respond to both the mandate set by the Heads of Government and the consensus by Member States. These projects are as follows:
1) Modernisation of Caribbean Freight Logistics, Maritime Transport, and Trade Facilitation: Upgrading port infrastructure and services, establishing innovative maritime transport networks, and implementing customs and trade facilitation reforms.
2) Modernisation of Maritime Cargo and Passenger Services in the OECS: Establishing fast-ferry services in the Southern Caribbean, developing a common shipping policy, and modernising the fleet.
3) Caribbean Broadband Transformation Strategy: Creating a single ICT space, developing a broadband strategy and a roadmap for analog switchover, and creating a mechanism for public-private partnerships in the telecom sector.
4) Caribbean Renewable and Alternative Energy Roadmap: Developing a regional bio-energy strategy, implementing a strategy for promoting solar cooling technology, and establishing a financing mechanism for micro-, small and medium-size enterprises.
5) Private Sector Innovation in the Caribbean: Promoting and financing innovation and establishing a trade financing mechanism. Other regional and national AfT activities, which complement the anchor projects, are smaller, discrete projects that can attract the interest of donors, international development partners, the private sector, and investors.
In order to ensure successful implementation of the strategy at the regional and national level, the Council for Trade and Economic Development will provide oversight and responsibility for policy guidance in implementing the Strategy. The CARICOM Secretariat, in collaboration with the OECS Secretariat, the Caribbean Export Development Agency, and the Caribbean Development Bank, would be charged with implementing and monitoring at the project and activity level.
While the Caribbean Community Aid for Trade Strategy reflects the current priorities identified by Heads of Government and Member States, the strategy will be periodically updated to reflect new mandates, points of intervention, and the changing trade landscape. The dialogue between international development partners, investors, and the region is constantly evolving; the strategy is a dynamic document.
A GUIDE TO THE STRATEGY
Trade can be a powerful engine for economic growth, poverty reduction, and development. However, a consensus is emerging that in the absence of certain conditions, trade liberalisation may not result in greater welfare, economic growth, and development.
Domestic constraints reduce the equalising impact of trade expansion, such as among small, vulnerable economies, advanced developing countries, and fully developed countries. The recognition that developing countries, particularly least developed countries (LDCs) and small vulnerable economies (SVEs) need support to build capacity to engage in trade1 has brought Aid for Trade (AfT)2 to the forefront of not only multilateral trade negotiations but also the dialogue amongst the donor community. Given the role that trade can play in fostering economic development, multilateral development financing agencies and developed countries are increasingly providing trade-related assistance. The mandate on AfT therefore results from the recognition that developing countries need support to build the capacity that will enable them to benefit from trade and avoid marginalization in the global trading system.
For CARICOM, expanding trade and enhancing competitiveness are seen as crucial for improving the economic welfare of the Region. This notwithstanding, trade liberalisation initiatives, which have been a common feature of the reform process in Member States, have not yielded the robust broad-based growth and development that the Region anticipated. This can be partially attributed to a combination of poor economic infrastructure, deficiencies in trade-related capacity, and the frequent inability of small vulnerable economies to tie liberalisation initiatives to policies and a regulatory framework that would optimise the gains from trade policy reform.
As the pace of regional and multilateral economic integration quickens, it becomes increasingly urgent to develop a holistic strategy for ensuring that private sector development, trade, and trade reform in the Caribbean become tools of development and catalysts for stimulating economic growth and reducing poverty. Consequently, the decision to develop a Caribbean Community Regional Aid for Trade Strategy is guided by the realisation that national efforts to mainstream AfT needs to be complemented by a comprehensive regional framework. Such a framework should create a fundamental link between aid and trade priorities and the long-term economic development objectives of the Region and its individual States.
In this context, consolidating the Region’s AfT needs into a single strategy document provides a framework for collaboration among Member States and international development partners (IDPs) or investors with an interest in providing support for the Region’s development.
Similarly, if the Region is to attain its integration objectives, achieve sustained economic expansion, and integrate into the global trading system, it must address its systemic constraints in a systematic and integrated manner. Further, the Caribbean Region’s responses to the 2008 Partner Country Questionnaire on Aid for Trade, which was sponsored by the WTO and Organisation for Economic Co-operation and Development (OECD),3 revealed a disconnect between the priorities established by governments and those set by the IDPs. The results of the national AfT consultations4 in 2012 conducted pursuant to the formulation of the strategy further support this view.
Additionally, preliminary estimates by the CARICOM Secretariat suggest a significant disparity between the amount of resources needed by the Region and AfT commitments by its IDPs. Furthermore, while the share of AfT resources for Latin America and the Caribbean generally has increased over the years, the Caribbean has not received its commensurate share. Data from the CARICOM Secretariat for the period 2006 – 2010 put regionally disbursed AfT flows at about US$310 million, with approximately US$220 million already in the pipeline for the next five years. Many CARICOM countries are grappling with high indebtedness and hence are not in a position to use their own finances to plug resource gaps for building trade capacity.
This present strategy will provide the trade and macro-economic context (Section 2) for the priorities identified in Section 3. Section 4 will elaborate on mainstreaming the strategy while sections 5 and 6 will detail implementation and monitoring and evaluation mechanisms needed to ensure that the objectives of the strategy are met.
EARLY HARVEST FROM THE REGION’S AID FOR TRADE STRATEGY
The mere crafting of an Aid for Trade Strategy and engaging international development partners in strategy would not be enough to guarantee a deluge of financial, technical, and technological resources. The Region must package its most pressing trade-related capacity building needs into five relatively large, bankable and implementable projects that can immediately engage the attention of IDPs
