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Harnessing Aid and Trade in a Time of Fiscal Austerity

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Today’s post is the fifth and final post in a Feed the Future/Reform blog series that MFAN has been coordinating with key members of the community. To read the first post by Bread for the World, click here. To read the second post by the World Food Program USA, click here.  To read the third post by ActionAid USA, click here. To read the fourth post by the Partnership to Cut Hunger and Poverty in Africa, click here.

Our guest bloggers from GMF say, “By helping build comprehensive trade corridors that connect crop surplus to deficit regions, Feed the Future is leading the way in ‘aid for trade’ and making U.S. foreign assistance more effective and sustainable.”

A Guest Blog Post by Jonathan M. White and Kathryn Ritterspach

German Marshall Fund of the United States

The Marshall Plan helped facilitate Western Europe’s economic integration and revival through market-oriented policies, leaving behind the protectionism of the 1930s. The European Coal and Steel Community – the precursor to the European Union – further encouraged European integration, pooling these much-needed resources among Western European countries.  The EU expanded membership to countries in the East after the Cold War, offering aid, market access and a common regulatory framework. The Marshall Plan and the European Union, while not perfect by any means, are considered among the most successful development programs.

One lesson from these initiatives has been that to get a bigger bang for your buck, you need the alignment of aid, trade and investment policies toward a unified objective – in this case the rebuilding of Europe. Both the Bush and Obama Administrations have sought to foster vibrant private sectors that complement critical health and education programs in the developing world. In that spirit, the U.S. Presidential Policy Directive on Global Development and the U.S. Feed the Future initiative seek to harness both aid and trade to help lift countries out of poverty and become reliable trading partners.

As democracy slowly emerges in Egypt and Tunisia, with other societies in the region on the move and with high commodity prices pushing millions back into poverty worldwide, we cannot waver in our support for these innovative U.S. development policies. In the face of budget constraints, governments must better coordinate aid and trade policies toward common development objectives. Market access, for example, which the United States is very generous in granting to developing countries, can mean little in the absence of cross-border infrastructure, trade finance, reasonable custom regimes, and a sound business climate. Foreign aid supporting small farmers, enterprises, and jobs will only go so far without access to regional or international markets.

Currently, the United States and Europe have a number of trade preference programs that seek to expand markets at home and abroad. However, many of these programs do not adequately reach industries where the poor work. For instance, over 90 percent of African exports under the U.S. African Growth and Opportunity Act (AGOA) are petroleum products, an indication of the fact that the trade opportunities it provides are severely under-utilized due to lack of trade capacity. Some of the products in which African producers are competitive and able to export, such as sugar, are effectively excluded from AGOA’s otherwise broad coverage. Although it has wide product coverage, Europe’s Everything But Arms program has overly complicated rules of origin requirements that make it difficult for developing countries to benefit from market access.

Pakistan provides another example. In 2009 the United States committed to provide Pakistan a $7.5 billion aid program. Certainly a country with nuclear weapons and a weak civilian government on the border with Afghanistan should merit friendly U.S. trade policies to help bolster such a massive aid program. However, efforts to provide U.S. duty-free access to Pakistani textile and apparel sectors – critical sources of export earnings and jobs – have floundered. It seems senseless, if not irresponsible, to undercut a multi-billion dollar aid program by maintaining high tariff barriers against a strategic ally.

Ultimately, Pakistan, Afghanistan, and the Arab world need security, reliable governments, and jobs. When countries ask for foreign assistance it is incumbent on governments – both the donor and the partner country – to think about how their trade policies can accelerate returns on development programs or at a minimum not undermine them. While Egypt has a larger population than South Korea and Taiwan, these Asian nations export more manufacturing goods in two days than Egypt does in an entire year. The Arab Spring provides an opportunity to rethink regional trade and investment opportunities. U.S. and EU trade policies that run counter to transatlantic development objectives in the Arab world should, for starters, be reformed or scrapped.

The good news is that the U.S. has launched a new development policy which opens the way for better development coordination. The Presidential Policy Directive on Development resulted in a U.S. government interagency policy committee, which sets priorities, facilitates decision-making where agency positions diverge, and coordinates development policy across the executive branch. U.S. trade officials are playing an active role in this process. This new policy also recommends, through existing policy mechanisms, “development impact” assessments of other U.S. policies, including trade policy through the U.S. Trade Representative’s Trade Policy Review Group.

The Feed the Future initiative is spearheading a more coherent approach to development, involving a wide range of U.S. agencies. This initiative aims to accelerate inclusive agriculture growth and improve nutrition. To achieve this, it will focus on post-harvest market infrastructure, business development, strengthening and harmonizing regulatory frameworks and tariff reductions, and linking smallholder farmers to regional and international markets. By helping build comprehensive trade corridors that connect crop surplus to deficit regions, Feed the Future is leading the way in “aid for trade” and making U.S. foreign assistance more effective and sustainable.

But more could be done, especially in the face of tighter budgets. In February, the U.S. Andean Trade Preference Act (ATPA) and the Generalized System of Preferences (GSP) program were allowed to expire. The U.S. International Affairs Budget is under threat at a time when events in North Africa and the Middle East require strong diplomats and development experts on the ground. At risk are meaningful U.S. policy coordination efforts that seek to make the most of development investments to end hunger and foster economic growth. Trade combined with aid is a cost effective means to offering countries a sustainable long-term path out of poverty.

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