Kiichiro Fukasaku OECD Development Centre

Thailand-OECD Seminar on Aid for Trade: Meeting New Challenges, Bangkok, 24 September 2007

ASEAN Economic Integration and Trade-Related Assistance

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Key Messages

1. The greater integration of CLMV countries into the regional and global markets is an important process for narrowing the development gap with ASEAN-6.

2. For CLMV to reap the full benefits of integration, it is important to strengthen the private sector’s production capacity.

3. “Aid for trade” can complement CLMV’s own efforts to address supply-side constraints and strengthen policy formulation and implementation capacities.

4. Monitoring and evaluation can help support various initiatives undertaken at both bilateral and regional levels and improve their effectiveness.

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Managing the integration of CLMV into the regional and global markets poses

a major challenge...

• Realising expected benefits:– Better access to markets, FDI and knowledge– Gains from more efficient resource allocation

and larger economies of scale– Greater incentives to sustain domestic reform

• Addressing concerns over:– Adjustment of domestic firms to greater

competition (weak supply response, limited diversification)

– Economies in transition (non-competitive SOE sector, structural unemployment, social safety nets)

– Impact on government revenues

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…because the development gap remains large between ASEAN-6 and CLMV…

• The aggregated population of CLMV corresponded to almost 40 % of ASEAN-6 in 2006, but their trade share amounted to only 7 % in the same year.

• Per-capita incomes in CLMV are much lower than most of ASEAN-6; for instance, the per-capita income in Vietnam was still roughly a fourth of Thailand’s at the 2005 exchange rate and nearly 40% in PPP terms.

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The need to narrow the development gap has been increasingly recognised…

• ASEAN Vision 2020 (1997)– the ASEAN Economic Community (AEC) to

be realised by 2020 (brought forward to 2015) with free trade in goods and services, free flow of skilled labour and freer flow of capital

– ASEAN implemented AFTA in 1992, AFAS in 1995 and AIA in 1998, with longer time frames for fulfilling obligations granted to CLMV

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ASEAN’s own efforts to narrow the development gap have recently

attracted more political attention…

• The launch of the Initiative for ASEAN Integration (IAI, 2000)

• The Hanoi Declaration on Narrowing the Development Gap for Closer ASEAN Integration (2001)

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ASEAN’s own efforts are also supported by donors…

• The IAI Work Plan was approved in 2002 for the six-year period of July 2002 – June 2008, with focus on 4 priority areas, namely, – Infrastructure development (transport and

energy);– Human resource development (public sector

capacity building, labour & employment and higher education);

– Information and communications technology; and– Promoting regional economic integration (trade in

goods and services, customs, standards and investment) in CLMV countries

• In addition to ASEAN-6, 11 donor countries and agencies have also supported IAI Work Plan projects by providing financial assistance.

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ASEAN has further strengthenedits own efforts…

• Declaration of ASEAN Concord II (2003)– “Deepening and broadening the integration

of ASEAN states shall be accompanied by technical and development co-operation in order to address the development divide …”

– The Vientiane Action Programme (VAP, 2004-2010)

– The IAI Work Plan has been broadened under the VAP to include the poorer sub-regions in ASEAN-6.

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Other measures includes…

• The ASEAN Integrated System of Preferences (ASIP, 2005)– Preferential market access targeted for

exports originating from CLMV and provided by ASEAN-6 on voluntary and bilateral basis

• Mekong Basin Development – ASEAN Mekong Basin Development

Cooperation (AMBDC, 1995)– ADB Greater Mekong Sub-region (ADB-GMS,

1992)

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In a nutshell, trade-related development assistance is critical for

• Promoting ASEAN economic community building

• Supporting CLMV’s own efforts to reap the full benefits of integration

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“Aid for Trade” Objectives

• Make trade more effective for development• Help build supply-side capacity and trade-

related infrastructure• Help facilitate, implement and adjust to

trade reform and liberalisation• Assist regional integration• Assist smooth integration into the world

trading system; and • Assist in implementation of trade

agreementsSource: WTO Aid for Trade Task Force Recommendations (WT/AFT/1, 27/07/2006)

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Aid for Trade as defined by the WTO Task Force

Trade-Related Infrastructure

Building Productive Capacity

Trade-Related Adjustment

Other Trade-Related needs

Trade Policy Regulations

Trade Development

If explicitly identified astrade-related priorities in the recipient country’s national development strategies

As defined by theWTO/OECD Joint Database

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Three broad AfT categories

1. Trade policy and regulations (TPR)

2. Building productive capacity (BPC)(including trade development for non-DAC reporting countries and agencies)

3. Trade-related infrastructure (TRI) (energy, transport and telecom)

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ODA and Aid for Trade Commitments

Source: OECD/DAC CRS database; WTO/OECD database

Note: USD billion in 2004 constant prices

81

98 98

120

18 20 24 22

0

20

40

60

80

100

120

140

2002 2003 2004 2005

ODA Aid for Trade

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Global Aid-for-Trade Commitments by Category

Source: OECD/DAC CRS database; WTO/OECD database

Note: USD million in 2002-2005 average, constant 2004 prices

11,247

8,928

804

0

2,000

4,000

6,000

8,000

10,000

12,000

Trade policy andregulations

Building productivecapacity

Trade-relatedinfrastructure

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ODA and AfT Projections to 2010

0

20

40

60

80

100

120

140

2001 2002 2003 2004 2005 2006 2007 2008 2009 20100

20

40

60

80

100

120

140USD billion (2004 constant)

Total ODA

Doubling 2005 volume

‘Aid for Trade’

DAC Members' net ODA 2001-05 and DAC Secretariatsimulations of net ODA, 2006-2010

Stable relative shares

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ODA and AfT to Southeast Asiacum.2002-2005, USD million (commitments) in constant 2004 prices

0

2000

4000

6000

8000

10000

12000

14000

CA IN LA MY PH TH VN

Total ODA Total AfT

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AfT to Southeast Asiaannual ave. 2002-2005, USD million (commit) in constant 2004 prices

0

500

1000

1500

2000

2500

3000

3500

ASEAN (7)

Total AfT TPR BPC TRI

3471

59

954

2458

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AfT to Southeast Asia* by Donors annual ave. 2002-2005, USD million (commit) in constant 2004 prices

Total AfT

TPR BPC TRI

Bilateral

Japan 2157 4 267 1886

Germany

160 0 66 94

France 99 3 72 25

Multi-lateral

IDA 509 17 170 322

ADB 271 9 176 85* ASEAN (7)

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Requirements for Effective Monitoring

• Develop PRSP, DTIS and government strategies

• Set up a medium-term budget framework budget allocation to each sector

• Sectoral allocation of aid Identify gaps and duplications

• Performance evaluation according to Paris Declaration on Aid Effectiveness

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WTO Process of Global Monitoringat Three Levels

• Global data on financial commitmentsand disbursements- Analysis of global trends- Comparable data across time and countries

• Donors’ self-assessments- Tracking fulfillment of pledges

- Finer detail on Aid for Trade coverage

• In-country assessments- Connecting measurement to national strategies

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CLMV can also offer useful lessons…

• Three of CLMV are signatories of the Paris Declaration on Aid Effectiveness– Cambodia and Vietnam have taken part in the 1st

Baseline Survey on Monitoring the Paris Declaration

– Laos has yet to join the survey, but it has established with 22 donors the Vientiane Declaration on Aid Effectiveness (2006)

• CLMV experience with multi-donor assistance (e.g.)– The Integrated Framework in Cambodia (> Laos)– The Mekong Private Sector Development Facility

(MPDF)

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Concluding Remarks

• Mainstreaming trade into support to infrastructure and productive sectors is key

• Ensuring the neutrality of Aid for Trade

• More co-ordination and specialisation among donors needed

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Concluding Remarks (cont)

• To make regional reviews work, it is necessary to…

- develop aid tracking schemes from commitments to disbursements

- engage major non-traditional donors

- ensure participation of private-sector stakeholders

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Thank you!