Debating International Trade And Aid

Lok Nath Bhusal

Despite alarming methodological limitations, evidence uncovers that benefits of economic openness and incursion of globalisation have been skewed. Precisely, economic openness has been costly for economies with weak domestic markets, negligible support for domestic producers and in which a significant proportion of the population is engaged in subsistence production. Additionally, despite more than a quarter of a century of extensive research and evaluation on trade liberalisation experiments affecting billions of people across the developed and developing world, there remains little consensus about the effects of neo-liberal policies on most macroeconomic and social indicators. For instance, trade has always accounted for a relatively small percentage of GDP, and the relative underdevelopment of Nepal's agricultural and industrial base has so far badly impeded the potential profitability of trade liberalisation. Obviously, there cannot be a fight between a tiger and a cat; globalisation is clearly unfair.

Global village

UNDP states that, although enthusiasts who have been trying to quantitatively emphasise the positive aspects of globalisation and increasingly use the language of global village to describe the new order, the global village appears deeply divided between the streets of the haves and those of the have nots, when viewed through the lens of human development. However, policies that encourage investments in human and physical capital, and support technological change, are more likely to promote export-growth and, thus, the wealth of a nation.

Henceforth, FDI (foreign direct investment) and aid for trade is likely to offset the inequalities emerging from globalisation. The common development strategy should recognise the sheer importance of foreign aid in our development efforts. The development partners who have funded development in Nepal have had their own agenda and interests other than solving the overdue structural problems of the country.

Up until the present time, Nepal received funds only when it has been in accordance to the plans of the donors. The agenda and interests of the latter have obtained easy entry into the national development discourse, as the country's own political parties and bureaucratic structures have blindly supported them and have themselves failed to come up with a commonly-shared agenda of a pro-people's development process led by the poor themselves. Indeed, the concept of "aid for trade" should be materialised to sustainably benefit from foreign aid as aid for trade enhances trade-related capacity, expands exports and creates new jobs.

At the international level, the eighth Millennium Development Goal ? develop a global partnership for development ? aims at altering aid, trade, business and debt-related policies in the developed countries that now obstruct poverty reduction efforts in developing countries like Nepal. More specifically, the targets under Goal Eight aim at increasing developed countries' commitments to relax trade restrictions to enable market access, especially for developing countries' agricultural commodities and labour-intensive manufactures, along with expanded provisions of debt relief and transfers of technology.

Despite the commitment to the eighth goal - the critical area of financing and sustaining development in poor countries - it is neither time-bound nor measurable by the kinds of indicators specified for the other goals. The World Bank states that aid has rarely been a simple transfer of resources from the affluent to the deprived economies. Rather it comes along with a number of conditional ties. These conditions explicitly or implicitly fulfil the interests of the donors; donors use aid to advance their values, their commercial interests, their cultural aspirations and their diplomatic and political objectives rather than the developmental needs and priorities of developing countries.

Furthermore, in 1970, the world's rich countries agreed to provide 0.7 per cent of their gross national income for development assistance, but only five have met or surpassed the target ?Denmark, Luxembourg, the Netherlands, Norway and Sweden. Consequently, coupled with this, Nepal is unlikely to meet several MDGs targets, in part because of the poor economic growth rate limited to the urban areas, poor implementation of public services and support mechanisms, and low agricultural productivity.

Not only the economies of the low-income bracket, even the middle-income countries have been arguing for increased support, mainly for enhancing their trade-related capacity from the developed countries. The G-11 has identified four areas where international support can help consolidate the gains and move forward. The first is promotion of investment, which supports higher productivity and trade-based growth. Second is trade development, including market access and technical assistance. Third is debt-burden alleviation, to reduce pressures on financial and budgetary space. Fourth is targeted grant assistance, to address global crises such as poverty and health, but just as urgently, to support education, infrastructure and other initiatives that enable developing countries to maximise the impact of knowledge, technology, innovation and economic liberalisation.

Aid for trade

Since expansion of trade leads to sustainable growth, the World Bank and the IMF have jointly proposed an aid for trade package for the provision of financial and technical assistance to developing countries to address supply side constraints and to assist them in copying the adjustment costs raised from the liberalisation of economies. Therefore, there is a growing need to assess the benefits of global trade more holistically through rigorous intellectual exercise, particularly for serving national interests. Nepal and other developing economies should focus on aid for trade for development rather than relying on conventional aid.

Source: The Rising Nepal, June 4, 2007