Developing countries need both trade and aid, says new UN study

18 January 2008

With the erosion of trade preferences, which save least developed countries (LDCs) hundreds of millions of dollars a year in duties that would otherwise be levied on their exports, both trade and aid are crucial to their development, according to a new United Nations study.

With the erosion of trade preferences, which save least developed countries (LDCs) hundreds of millions of dollars a year in duties that would otherwise be levied on their exports, both trade and aid are crucial to their development, according to a new United Nations study.

Before the 6th UN World Trade Organization (WTO) Ministerial Conference in Hong Kong in 2005, the prevailing rationale for the preferences was that “trade is better than aid.” The new paradigm has become “aid for trade.”

This recognizes that trade preferences per se are not sufficient to generate supply capacity and economic growth in the LDCs, but that aid is first needed to make the preferences, and trade itself work for development, says the study – Erosion of trade preferences in the post-Hong Kong framework: From “trade is better than aid” to “aid for trade.”

The study, produced by the UN Conference on Trade and Development (UNCTAD), underscores the significant value of trade preferences granted by the so-called Triad - the European Union, the United States and Japan, which are the LDCs’ largest trading partners. In 2004, such preferences represented about $800 million in savings.

It examines which products and countries have benefited the most from existing preferences and what the likely effects will be of preference erosion. It tackles the relationship between preference erosion and recent proposals for aid for trade and finds that while there has been some progress in widening the scope of preferences, the issue of erosion remains to be addressed to the satisfaction of many developing countries.

Established in 1964, UNCTAD promotes the development-friendly integration of developing countries into the world economy. It has progressively evolved into an authoritative knowledge-based institution whose work aims to help shape current policy debates and thinking on development, with a particular focus on ensuring that domestic policies and international action are mutually supportive in bringing about sustainable development.

It provides technical assistance tailored to the specific requirements of developing countries, with special attention to the needs of the LDCs and of economies in transition. When appropriate, UNCTAD cooperates with other organizations and donor countries in the delivery of technical assistance.

 

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