TWN Info Service on WTO and Trade Issues (Oct22/09)
17 October 2022
Third World Network

WTO: Systemic implications of DG's "reflections" on investment for trade
Published in SUNS #9668 dated 17 October 2022

Geneva, 14 Oct (D. Ravi Kanth) -- The World Trade Organization's Director-General Ms Ngozi Okonjo-Iweala has suggested modernizing the Aid for Trade (AfT) initiative into "Invest for Trade (IfT)" that seeks to accord a pivotal role for the private sector and private investments, in what appears to be a systemic shift that goes against the 2005 Hong Kong ministerial mandate, said people who asked not to be quoted.

In her statement at the WTO's General Council (GC) meeting on 7 October, the DG touted the AfT initiative, saying that it "has played a very important part in helping build trade-related infrastructure and supply side capacity, but it's also time to update and modernize the initiative."

In her statement, released as a restricted document (Job/GC/321), seen by the SUNS, Ms Okonjo-Iweala underscored the need for a switch in the AfT approach, saying that it "has emerged strongly from the 8th Global Review of Aid for Trade which was held in late July."

The DG said that "there is a clear desire that is already translating into action to move global initiatives towards sustainable development models of growth and trade."

In what appears to be an attempt to promote "green and digital technologies", the DG highlighted "models that are inclusive, sustainable and that capture the economic diversification possibilities offered by both green and digital technologies." However, it is unclear as to which models she was referring to.

The DG said, "I feel we have an opportunity to capture these new insights in a new Aid-for-Trade Work Programme," adding that "more than that I think we also have an opportunity to recast and reinvigorate the great work undertaken through this Initiative."

Therefore, according to the DG, "it's time to move to an Invest for Trade approach" ostensibly "for the least developed countries - a fact recognized in the MC12 Outcome Document."

Her emphasis on the need to "go on the journey to sustainable development" without adequate infrastructure in the least-developed countries (LDCs) and also denying them policy space for "climbing the ladder" of development may enhance their dependency, said a member, who asked not to be quoted.

In her GC statement, the DG argued that "official development assistance needs to work in tandem with and mobilize other sources of finance," emphasizing that "one part of the solution is international investment flows."

According to Ms Okonjo-Iweala, while public funds "are coming on-stream in the form of climate finance and financial sector initiatives such as the Glasgow Financial Alliance for Net Zero, there is also a growing stock of private financing chasing environmental, social and governance returns."

Several major industrialized countries, including the United States and the European Union, had made some rather bold claims at the Glasgow climate meeting late last year that private investment flows will enable climate finance. However, indications are that such claims remained only on paper.

"If we put these elements together," said the DG in her statement, "it is clear to me that a re-positioning of the Initiative is needed. A realignment that ensures that we capture the opportunities for sustainable trade and export diversification."

She further elaborated that "moving to an "invest for trade" approach recognizes that developing countries are of course the authors of their own development. Ownership of the development process by developing countries is of course an essential starting point."

As part of the new work program, she insisted that this change "in the narrative is empowering and inclusive, both themes that should of course appear in the new Work Programme."

"And ranking highly either as a donor, South-South partner or recipient of "invest for trade" flows seems more meaningful as a measure than a purely aid-based calculus," the DG argued.

She claimed that these are merely her "reflections", conceding that "you the Members are in the driving seat to set the new course for the next biennium of Aid-for-Trade activities."

These issues were discussed during the last two days at the Committee on Trade and Development (CTD).

Further, other issues, including a workshop "on maximizing the economic diversification impact of Aid for Trade," a theme that appears to square well with the DG's perspectives, and how to carry the work forward, were also discussed.

In her GC statement, the DG expressed hope that members "will seize the opportunity to provide a sound future basis for this much-needed Initiative."

SERIOUS QUESTIONS ON "INVEST FOR TRADE"

The DG's approach is being seen as a somewhat radical departure from the original mandate of the AfT initiative that was approved by trade ministers at the WTO's sixth ministerial conference in Hong Kong, in December 2005.

Paragraph 57 of the Hong Kong ministerial declaration, under the sub-heading of Aid for Trade, states somewhat unambiguously: "We welcome the discussions of Finance and Development Ministers in various fora, including the Development Committee of the World Bank and IMF, that have taken place this year on expanding Aid for Trade. Aid for Trade should aim to help developing countries, particularly LDCs, 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 expand their trade. Aid for Trade cannot be a substitute for the development benefits that will result from a successful conclusion to the DDA, particularly on market access. However, it can be a valuable complement to the DDA ..."

However, at a time when the Doha Development Agenda (DDA) is being almost "erased" by the current dispensation at the WTO in tandem with the major developed countries, any change in the AfT mandate or for transforming it into "Invest for Trade" will require a ministerial mandate.

While the DG maintains that "it's time to move to an Invest for Trade approach" ostensibly "for the least developed countries - a fact recognized in the MC12 Outcome Document," the language proposed in paragraph eight of the MC12 outcome document merely states: "We recognize the importance of Aid for Trade initiatives in trade-related capacity building for the LDCs. We recommend that such programmes prioritize the objectives identified by the LDCs."

Nowhere in the MC12 outcome document, is it suggested that the "Invest for Trade" approach is ostensibly for the LDCs.

SYSTEMIC CHANGE

Also, the DG's approach could constitute a major systemic change in the AfT initiative, which was first conceived at the WTO's sixth ministerial conference in Hong Kong, in December 2005. Further, AfT was never seen as a substitute for the development benefits that will result from a successful conclusion to the DDA, particularly on market access.

Yet, the DDA is being sought to be "erased" without delivering on the AfT.

More importantly, expanding the AfT initiative to include private sector flows or private finance seems to raise several questions, as the WTO is a Member-driven organization where Members agree on the rules between governments.

The problem with the private sector is that it is not bound by the principles laid out in the Paris Declaration on Aid Effectiveness. In a similar vein, there are also measurement issues like how could one ensure that private finance was not mobilized without official assistance, said people, who asked not to be quoted.

It is well known that investments come with some form of sovereign guarantees under which international investors could challenge sovereign governments in global investment tribunals. Some of these guarantees, if known, could be quantified and should actually be subtracted to obtain the net private flow.

Further, the United Nations Sustainable Development Goals (SDGs) such as SDG 17.11 and even SDG 11.2 and SDG 9.2 seem to be aligned to the Aid for Trade initiative.

The UN SDG 17.11 calls for significantly increasing "the exports of developing countries, in particular with a view to doubling the least-developed countries' share of global exports by 2020."

Yet, the LDCs seem to be pushed into poly-crises due to the worsening debt trap, the COVID-19 pandemic, and now the unilateral inflation-pivot policies adopted by the US Federal Reserve.

In a similar vein, the UN SDG 9.2 states, "promote inclusive and sustainable industrialization and, by 2030, significantly raise industry's share of employment and gross domestic product, in line with national circumstances, and double its share in the least developed countries."

Further, SDG 9.2 underscores the need for safe, affordable, accessible, and sustainable transport systems.

The DG seems to have glossed over the fact that investment flows are fundamentally different from aid.

Interestingly, at a meeting on Aid for Trade on 11 October, the chair of the Committee on Trade and Development, Ambassador Usha Canabady of Mauritius, apparently presented the ideas by the DG as a fait accompli.

Ambassador Canabady suggested that Members are now expected to re-negotiate the new AfT work program by changing its nomenclature to "Invest for Trade", including revising the Task Force Recommendations, said people familiar with the meeting.

Without fulfilling the objectives of Aid for Trade, including the SDGs, the DG's ideas to expand the Aid for Trade initiative to include private finance raises fundamental questions about the Member-driven nature of the organization and the role the private sector is expected to play.

This is another illustration of the so-called reform that is taking place incrementally across the board in the WTO when developing country missions are spread too thin on the ground to cover all the meetings and represent their views.

Therefore, the LDCs must remain vigilant about the dangerous implications of the DG's new game plan to bring about investment for trade by replacing the Aid for Trade initiative, said people, who preferred not to be quoted. +