Regional Aid for Trade in the Overall AFT Context: Trends and
Challengesby
Michael G. Plummer,Director, SAIS Europe
Eni Professor of International Economics,The Johns Hopkins University
Book Launch Presentation to SAIS Europe, 1 December, 2014
The Johns Hopkins University, SAIS Europe
Trade is Good for Growth and Development• Empirical work over the past two decades confirms that trade has a
highly positive effect on growth and development:Trade leads to growth; trade‐induced growth leads to improvedemployment in medium‐long run (s‐r adjustment needs to beconsidered and managed rather than avoided!).
Trade has important productivity spillovers via exports, importsand links to FDI (e.g., OECD 2012).
Trade reduces poverty (Winters, et. al, 2004)Macro environment and other policies that create greaterstability and improve the lot of the poor need to be prioritized.
In sum, while structural adjustment entails short‐term costs to beaddressed, the empirical evidence is quite solidly in favor of theimportance of trade in growth and development.
Trade, Development, and AFT
This analysis probably is nothing new to you, but it is perhaps worthemphasizing, given that trade is criticized so ubiquitously.
Moreover, what IS relatively new, is the «mainstream» realization thatmarket failures and bottlenecks render it often difficult for developingeconomies effectively to engage in trade.
For equity, efficiency, and political economy reasons, developmentassistance dedicated to overcome these integration problems can beparticularly effective.
This is logic behind the Aid for Trade Initiative, launched at the 2005Hong Kong WTO Ministerial.
Myriad studies by international organizations, multilateral andregional development banks, and independent studies have shownsignificant returns from AFT projects.
It was arguably the most significant accomplishment for developingeconomies during the Doha Development Agenda until Bali.
Regional AFT• But this book focuses on an increasingly‐important aspect of AFT with great (but, we argue, often unexploited) potential: Regional AFT.
• The trend toward regional economic integration and cooperation in developing economies perhaps was once more political than economic, but today the latter is increasingly important:– Despite many accords, realization of underperformance– Focus on FDI and trade‐FDI links – Critical role of value chains and production networks
• To be frank: New Regionalism is likely here to stay in one form or another, and developing economies will have to deal with it, for better or worse.
Challenges of Regional AFT
• Nevertheless, regional AFT projects are far more complicated than national AFT projects due to, e.g.: multiple govts, legal systems, stakeholders, cross‐
country financing problems, and the like. Problem of mainstreaming in national plans Coordination with and between donors
• From a practical point of view: how to convince governments to prioritize projects in which they do not reap all the gains? (e.g., Myanmar)
• These questions are particularly critical in an era of budgetary austerity in many economies; show the gains or show the door!
Key Objectives of Study• Better understand the stakes involved in regional economic integration and cooperation in developing economies and how regional AFT projects can best facilitate integration at subregional, regional, and multilateral levels.
• Survey trends in regional AFT projects• Delineate practical experiences and lessons with regional AFT projects to date
• Produce policy recommendations• My talk, based on the overall study, will essentially follow this format. However, it is geared more to generate discussion than merely summarize the study (though there is a good deal of that, too).
Stakes in Regional AFT
Trends in «New Regionalism»• As noted above, developing economies have been embracing
regional cooperation as a means of promoting integration and competitiveness
• Arguably the Asia‐Pacific represents the most exciting—and important—aspect of the «new regionalism».– TPP– RCEP– APEC meeting in China: New push for FTAAP
• But regional approches are being taken all over, e.g.:Cotonou agreements between EU‐ACPEU‐US (TTIP) and EU‐Japan in part driven by A‐PAU Pan‐African Continental FTA proposal FTAA: on ice since Nov 2003 (political) but countries excluded from major FTAs (e.g., Brazil) have strong incentives to hook up despite politics.
South Asia: mostly superficial accords but much interest
Implications for Developing Economies
• New Vision of global free trade? Mega‐regional accords in A‐P succeed and
EU‐US and EU‐J go forward, 86% of world GDP would be part of the new regionalism web.
The costs of staying out for the other 14% would be very high indeed!
Developing economies need to prepare for these new realities.
Benefits• But this need not be merely due to what’s going on elsewhere in the global economy: regional cooperation could generate substantial gains to developing economies – Underperformance of regional integration in many regions and subregions
– Economics of regionalism, particularly relevant to developing economies due to dynamic, policy effects
– Rising importance of regional production networks and value chains
Regionalism in Asia‐Pacific
Slide 11
India
CambodiaChinaLaosMyanmar
AustraliaBruneiJapanMalaysiaNew ZealandSingaporeVietnam
CanadaChileMexicoPeruUnited States
IndonesiaKoreaPhilippinesThailand
TPP 12TPP 16
FTAAPRCEP Russia Taiwan
Income effects of TPP, RCEP and FTAAPGDP 2025(bill. 2007
dollars)
Income gains (bill. 2007 dollars) Percent change from baseline
Economy TPP12 TPP16 RCEP FTAAPX TPP12 TPP16 RCEPFTAAPX
Americas 24,867 101.7 160.8 2.5 412.4 0.41 0.65 0.01 1.66
United States 20,273 76.6 108.2 ‐0.1 295.2 0.38 0.53 0.00 1.46
Asia 34,901 125.2 299.8 627.0 1658.6 0.36 0.86 1.80 4.75
China 17,249 ‐34.8 ‐82.4 249.7 699.9 ‐0.20 ‐0.48 1.45 4.06
Japan 5,338 104.6 128.8 95.8 227.9 1.96 2.41 1.79 4.27
India 5,233 ‐2.7 ‐6.9 91.3 226.2 ‐0.05 ‐0.13 1.74 4.32
ASEAN 3,718 62.2 217.8 77.5 230.7 1.67 5.86 2.08 6.20
Indonesia 1,549 ‐2.2 62.2 17.7 41.3 ‐0.14 4.02 1.14 2.67
Europe 22,714 ‐3.7 ‐4.9 5.1 ‐36.4 ‐0.02 ‐0.02 0.02 ‐0.16
WORLD 103,223 223.4 450.9 644.4 2279.6 0.22 0.44 0.62 2.21
Global Value Chains• WTO priority (see, for example, last year’s WTO‐OECD Aid for Trade At a Glance: Connecting to Value Chains publication, prepared for the 4°Global Review of Aid for Trade).
• Briefly, our main highlights:– Regional production networks have been extremely successful in promoting integration
– They facilitate movement along value chains– They are particularly promising for LDCs– Impediments to these networks include bureaucratic bottlenecks, infrastr. shortcomings, etc.
– Addressing these issues fall under the «comparative advantage» of AFT
Examples• Southeast Asia:
• Value chains in electronics • ASEAN Infrastructure Fund• Greater Mekong Subregion projects
• Africa:• Value chains: New priority of AU• WTO‐AU‐UNECA survey: Underscored importance of
regional projects for donors and host, donors report that regional projects were highly successful, key importance of regional AFT
• Latin America:• Caribbean has been particularly active• CARICOM has been especially effective in using regional AFT
• Last 3 chapters of the book deal with these regions.
Regional AFT by the Numbers
Highlights and Lessons
Lessons• Analysis in the book strongly supports the strong potential of AFT and
regional AFT as catalysts for integration, growth, and development.• Globalization and regional cooperation initiatives render the importance of
AFT even more critical (e.g., «endogenous tariff» logic).• However, it requires careful, effective development planning and
mainstreaming of AFT projects, which is particularly challlenging in the context of regional projects.
• Challenges are akin to «public choice problems»; we under‐invest in controlling greenhouse gases due to medium/long term returns; same for regional projects.
• Highlighting experiences from regional AFT projects and devising lessons and «best practices» constitute key objectives of the book.
• Below, I include lessons from the regional AFT projects undertaken as part of the OECD‐WTO «case stories» in 2011 and the case studies in the book: – Africa (ECOWAS)– Asia (ASEAN)– Latin America (Mesoamerica)
Highlights: Econ Infrastructure
• Economic Infrastructure– Key impediment, particularly in Africa– Salient reason why intra‐regional trade is underdeveloped
– Fitting that it gets more resources in overall AFT but inherent cross‐country challenges explain why it is second most important in regional AFT
– They are among the most difficult projects due to, inter alia, coordination problems across countries, incentives, financing issues, internal‐external shareholders, «trust», and the like
– Idea of «honest broker» in successful ADB projects
Highlights: Building Productive Capacity
• Building Productive Capacity– Engaging and mobilizing the private sector appears to be greatest challenge in many projects
– Critical importance of «ownership» for all stakeholders
– Need to emphasize the potential benefits from the projects to promote private‐sector engagement and «buy in»
– Need flexibility (timing, approaches) during project implementation but focus on outcomes; not always consistent!
Highlights: Trade Policy and Regulations
• Trade Policy and Regulations– As noted, relatively small part of regional AFT– «soft» infrastructure (e.g., trade policy and admin management; trade facilitation; regional trading agreements; multilateral trade negotiations)
– Very important these days! (trade increasingly complex at multilateral, regional levels)
– Not much in terms of experiences from case stories (some training, capacity building, barrier monitoring), but economic research underscores importance of potential benefits
Some Lessons from Case Studies
1. Emphasize ownership for all stakeholders2. Focus on «buy in»3. Project design: need yardsticks for progress
and means to remedy problems4. Projects need clear, realistic goals, timing5. Focus on sustainability, esp. econ. Infra. 6. Engage private sector and non‐gov partners
Thank You!
