How we are helping
Aid for trade is about helping developing countries address their internal constraints to trade such as cumbersome regulations, poor infrastructure and lack of workforce skills. This might include training of customs officials to facilitate trade, investing in ports and storage facilities, connecting farmers to overseas buyers, and helping women entrepreneurs to export. Aid for trade supports developing countries’ efforts to better integrate into and benefit from the global rules-based trading system, implement domestic reform, and make a real economic impact on the lives of their citizens.
Aid for trade supports the 2017 Foreign Policy White Paper goal of maintaining open and rules-based international trade and investment. Australia is a strong advocate of the rules-based international order, in recognition of the mutual benefits accruing to Australia and developing countries.
The Australian Government set a target in 2014 to increase Australia’s aid for trade investments to 20 per cent of the aid budget by 2020. The target was met ahead of schedule, when Australia’s aid for trade investments reached 23.3 per cent of the total aid budget in 2016-17.
Achieving this target reflects the commitment to aid for trade as a mechanism for meeting the aid program’s key objectives of reducing poverty and lifting living standards through sustainable economic growth.
The Strategy for Australia’s Aid for Trade Investments, launched in July 2015, establishes a framework to ensure Australian aid for trade investments are well-planned and effective, meet the needs of our developing country partners, and aligned with Australian interests.
Australia’s priority areas for aid for trade investments include:
- trade and investment policy and trade facilitation
- global value chains
- private sector development
- economic empowerment of women
- knowledge and skills development
- agriculture; and
A 2016 review of Australia’s support for trade facilitation programs by the Office of Development Effectiveness found that investments in trade facilitation have been effective in addressing capacity issues, and have the potential to make significant impacts to poverty reduction. Investments were found to have assisted partner countries in Asia and the Pacific to better integrate with regional and global economies.
Why we give aid for trade
No country has achieved high and lasting growth without participating in international trade. There is evidence also that trade has an impact on incomes — an increase in the volume of trade of 10 per cent can raise per capita income by over 5 per cent.
Trade can boost employment, incomes and government revenue, because (among other things) trade translates to:
- access to larger markets;
- higher returns on unskilled labour;
- greater competition, innovation and entrepreneurship;
- improved savings and capital flows;
- more discipline on and transparency from governments; and
- reductions in rent-seeking activities.
Trade alone, however, is not sufficient to achieve sustainable economic growth. Trade will need to be complemented by other factors, such as macro-economic stability, rule of law and developed financial systems.
There is also the additional challenge of ensuring that the benefits from trade are distributed equitably. Developing country governments will need to address inequality directly, including through tax reform and appropriate social policy initiatives.
Australia’s development policy places greater emphasis on aid as a catalyst for sustainable economic growth and poverty reduction in developing countries in the Indo-Pacific region. Aid for trade is a key element to give effect to this policy focus.
Australia has been a strong supporter of the global Aid for Trade Initiative since it was launched at the 2005 Hong Kong World Trade Organization (WTO) Ministerial Conference. This recognises the importance of trade in driving economic growth, and the need to assist developing countries to improve their capacity to trade. This set in motion a two track process:
- donors committed to scale up their aid for trade, but without setting a target, and
- the Organisation for Economic Co-operation and Development (OECD) established the Global Aid for Trade Review — a global monitoring exercise conducted every two years.
How we give aid for trade
Australia’s aid for trade investments are made through multilateral, regional and bilateral channels. The bulk of aid for trade funding is provided through bilateral country and regional program areas.
Australia has a strong record of effective aid for trade investments. Aid for trade investments can help achieve other development objectives, including the economic empowerment of women, financial inclusion, health and disability.
Also, aid for trade can drive innovative approaches, especially when new technologies are utilised, private sector resources and expertise are leveraged, and market-oriented solutions are applied.
Examples of Australia’s innovative aid for trade investments