With the Doha Round of WTO trade policy negotiations on hold, increasing trade under existing rules is doubly important. One initiative by developed countries to help low income developing countries increase trade is trade capacity building or aid for trade. The WTO defines this as “helping developing countries, in particular the least developed, to build the trade capacity and infrastructure they need to benefit from trade opening.”

According to information from the U.S. Trade Representative, the U.S. is the largest single-country provider of trade-related assistance including physical infrastructure. U.S. aid is focused on grants rather than loans and is based on needs as identified by recipient countries. The two largest programs are the U.S. Agency for International Development (USAID) and the Millennium Challenge Corporation. U.S. funding in fiscal year (FY) 2008 was $2.3 billion, an increase of 60 percent over FY2007, with a FY2010 goal of $2.7 billion.

Funding is provided one-on-one from donor countries to recipient countries, but the WTO has provided some overall guidance. The WTO Ministerial meeting in Hong Kong in December 2005 asked the Director General of the WTO to create a task force to develop recommendations “to help developing countries, particularly Less Developed Countries, to build the supply-side capacity and trade-related infrastructure that they need to assist them to implement and benefit from WTO Agreements and more broadly to expand their trade.” A 13 member group was created in February 2006 and issued a report in July that was approved by the General Council in October of 2006.

The recommendations from the Task Force focused on recipient countries fully mainstreaming trade into their economic development programs. Donor countries were called upon to integrate trade into their overall development programs and make specific funds available for infrastructure development. Developing countries were encouraged to work together to build trade capacity, particularly across common borders and regionally. The WTO was urged to do periodic reviews of programs which was done in 2008.

According to estimates from the Organization for Economic Cooperation and Development, broadly defined trade-related development assistance is about $25-30 billion per year in four main categories. Trade policy and regulation to build local capacities for national trade policies, participation in trade negotiations and implementing trade agreements receive about $1 billion per year. Building productive capacity is roughly $10 billion to help enterprises trade and to create a favorable business environment. Infrastructure spending for transport and storage, communications and energy is $12 billion per year. Trade-related structural adjustment is $3-6 billion per year.
USAID run by the State Department has been the biggest contributor for the U.S. at $1.4 billion per year for FY2005-2007, with physical infrastructure the largest category at $550 million obligated each year. Trade facilitation to improve the administrative flow of goods was the second biggest at $325 million per year. Other commitments of over $100 million per year included business services, agriculture, financial and human resources. The top three countries for funds obligated in FY2007 were El Salvador at $389 million, Ghana $248 million and Mali at $138 million. Major recipients of obligations in FY 2005 and 2006 included Benin, Georgia, Honduras and Nicaragua.

The Millennium Challenge Corporation was created in 2004 to work with the poorest countries and operates on yearly funding from Congress. Its board of directors is chaired by the Secretary of State with the Secretary of the Treasury as Vice-Chairman. Other board members include the USTR and the Administrator of USAID. To qualify for programs, countries must be committed to good governance, economic freedom and investment in their citizens. Twenty five countries have received or qualify for five-year grants and another 14 countries can participate in smaller threshold programs.

Some countries are benefiting from USAID and Millennium Challenge programs. Benin in West Africa qualified in FY2006 for a $189 million USAID program and in February of 2008 signed a $307 million Millennium compact that included funds for the Port of Cotonou to improve operations and infrastructure, reduce delays and increase trade volumes.

Measuring the benefits of trade capacity building is not an easy task. The Government Accountability Office (GAO) in a 2005 report titled “Trade Capacity Building Extensive, but Its Effectiveness Has Yet to be Evaluated” noted that trade capacity building is a combination of activities spread throughout the federal government. Exact benefits are often hard to quantify. The report recommended that USAID and USTR systematically monitor and measure results. With the recent expansion in funding, there should be enough actual case histories to begin judging what works best.

The U.S. Chamber of Commerce position on International Engagement given to the Obama Administration stated, “As a critical part of U.S. development assistance, trade capacity building programs should be funded at a significant level to help U.S. workers and companies tap the full benefits of international business opportunities.” They also recommended that, “The successful efforts within APEC to advance trade facilitation should continue and serve as a model for other world regions, such as Latin America, the Caribbean, and Central Asia, where trade transaction costs are relatively high.”

The worldwide economic slowdown will undoubtedly put increased economic pressures on low income countries. Trade capacity building should increase two-way U.S. trade and reduce the need for emergency assistance programs. These efforts are consistent with Doha Round goals of improving economic development through increased trade.