As discussions on the importance of trade as a driver of growth and development of developing countries moved forward around the globe, the role of Aid for Trade (AfT) has been given renewed emphasis. Since the AfT Initiative was launched at the 6th WTO Ministerial Conference held in Hong Kong, December 2005, the international community has expanded its support and assistance for developing countries, to facilitate trade by providing proper infrastructure and build productive capacity.
This study aims to provide policy implications for establishing policies or strategies regarding AfT based on analysis of recent trends and major issues in AfT. In 2012, the international community provided USD 3.87 billion in AfT, which represented an increase of approximately threefold compared to 2002 and this accounted for 26 percent of total ODA. While it is positive that the volume of AfT steadily increased, newly emerged priorities in AfT for donors and partner countries have been expanded, considering the rapidly changing trade environment. Furthermore, since the AfT initiative was launched 10 years ago, there have been increased concerns and attention on the part of the global community on the results and impact of AfT and thus OECD Development Assistance Committee (DAC) has led the discussion on establishment of monitoring and evaluation framework.
Korea, which has achieved economic growth through active participation in international trade, has supported developing countries consistently to promote their trade. Case in point, Korea provided USD 780 million in support of AfT. Korea was 16th among DAC member countries in total ODA volume, but was 8th in volume of AfT.
The report suggests following policy implications for enhancing the effectiveness of AfT programs and projects, which accounts for 40 percent of total ODA. First, Korea should improve consistency and connectivity among AfT programs and projects, implemented by diverse ODA executing agencies, based on national AfT strategies and policies. Especially, when the government establishes a Country Partnership Strategy (CPS) for priority countries, Korea should include trade as one of the priority areas where national AfT strategy should be merged with the assistance strategy, as to maintain consistency among AfT and ODA programs.
Second, when the government sets up the AfT programs, it should take care to recognize the changes in the global trade environment and have the changes reflected in the programs in a timely manner. For example, the global value chains (GVCs) has recently received significant attention among the international community. Reflecting this trend, Korea ought to develop AfT programs to help developing countries effectively take advantage of GVCs to promote their trade.
Third, the effectiveness of diverse official flows excluding ODA has also received much attention, in addition to efforts to broaden development finance. Therefore, Korea needs to develop an interest in diversification of sources of development finance such as equity investment or guarantees when it implements AfT programs. In addition, AfT could be utilized as leverage to mobilize private funds.
Lastly, one of the most urgent issues is the establishment of a performance framework for AfT programs because the AfT accounts for a significant portion among bilateral ODA of Korea. Korea should implement its AfT programs based on such performance framework. Objectives, outcomes and indicators, which are reflected into the AfT program, should be designed and included in the program identification and formulation phase. Furthermore, the performance framework should be utilized in the monitoring and evaluation, which would help to increase aid effectiveness as well as to enhance accountability and transparency of the AfT programs.