South Asia Watch on Trade, Economics & Environment (SAWTEE)

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Putting money where mouth is
Published: The Kathmandu Post, 18 February 2005
By: Ratnakar Adhikari

Back in 1989, my professor of Organisation Theory at Delhi School of Economics exposed me to a harsh reality. He asserted, with valid justifications as well as examples, that sometimes due to excessive focus on means and limited focus on or, even worse, outright neglect of ends, the former dominates the latter and a strange phenomenon occurs. This phenomenon is labeled ‘goal displacement’ by organization theorists.

The much-hyped trade related capacity building (TRCB) is a classic example of goal displacement. The original objective of TRCB was to help developing countries and least developed countries (LDCs), especially those that are vulnerable and marginalised, better integrate into the multilateral trading system. However, looking at the way technical assistance for TRCB is being provided, it is clear that means have become the ends and the ends are nowhere in sight.

Since integration is a function of demand as well as supply factors, paying attention (that too half-heartedly) to one factor is bound to exacerbate the problems, rather than solving them. For example, the weaker countries are demanding that developed countries dismantle their trade barriers and provide enhanced market access to products of their export interest. Let us assume, for a moment, that the developed countries open up their markets for the products originating in developing countries and LDCs, but the question that arises is: Do these countries have the necessary supply capacity to take advantage of the market access opportunities offered to them? The answer is a resounding no!

If the objective is to achieve better integration, then the instruments to be used to achieve the same should also focus on this aspect. However, the irony is that most multilateral and bilateral donors/institutions, including the WTO, have focused only on the minor part of the TRCB program. They have mastered the art of doing two things: a) providing training to the trade officials on WTO issues; and b) flying in consultants (of their choice) to conduct ‘studies’ ostensibly with a view to preparing ‘need identification/assessment reports’.

The Doha Development Agenda (DDA) agreed in November 2001 during the Fourth Ministerial Conference of the WTO had shown its commitment to this issue by dedicating full six Paragraphs (Para 38 to Para 43) in the main declaration to the issue of technical assistance and capacity building. Moreover, the Declaration on Implementation Related Issues and Concerns, which also has the same official and legal standing as the main Declaration, makes mention of this issue at several places. Hence, an unprecedented level of political commitment was expressed to the agenda of TRCB by the DDA

However, little attempts have been made, if at all, to convert this commitment into reality. This is evident not only from the fact that a number of deadlines agreed during the Doha Ministerial were missed, but also from the mindset of the bilateral and multilateral agencies, which are supposed to make it happen. For example, a closer look at the discussions going on at the WTO on this issue reveals that most of the time of the delegates has been spent on answering the questions over design of trade policy courses and venue of such courses.

Granted, trade policy courses are useful for the trade officials who have limited exposure to the issues being discussed at the WTO. This will at least help them sharpen their knowledge and skills and will provide them the much-needed ammunition to protect their interests during WTO negotiations. However, that will address only one side of the problem – the demand side, that too partially. Nepal a new member of the WTO has also been facing this problem.

Besides trade policy courses, Nepal, being a least developed country (LDC), has been receiving assistance through what is known as Integrated Framework for Trade Related Technical Assistance (IF). This initiative was launched during the High Level Meeting of the LDC trade ministers held in Geneva in May 1997 by six multilateral agencies working on trade and development issues.

The major focus of the IF so far has also been on the demand side, which is not the only objective of the program. Precious little has been done in terms of improving the supply capacities of the LDCs. Studies, seminars, courses and exposure visits etc. – the so-called software part – constitute the bulk of the activities. Development of trade-related infrastructure such as improving road and communication networks, strengthening customs administration and developing testing laboratories that are crucial for strengthening the supply capacity of the LDCs have not received the attention they deserve.

Nepal received Window I assistance under this program during 2002-03, which was spent on preparing a study report titled Nepal: Trade and Competitiveness. Currently, Nepal is implementing Window II Program of the IF. According to Dr Posh Raj Pandey, National Program Manager of this program, only 16 percent of the funds are earmarked for the hardware part, rest is all software.

There is an implicit assumption within the donor communities that their responsibility is to fund only the software part; the hardware part should be taken care of either through the country’s budget itself or through the loan from multilateral or regional financing institutions. There is a fundamental flaw in this assumption. If the countries had the resources, why would they apply for IF funding? According to World Bank economists, Michael Finger and Philip Schuler, it costs US$ 130 million to implement three of the WTO agreements - some of which are crucial for improving supply capacity of the LDCs in particular. In the absence of technical assistance, diversion of resources from national exchequer means less funding for health, education and infrastructure.

Moreover, if a government chooses to obtain loans from the institutions mentioned above, they should bear in mind that these loans come with severe conditionalities, which restrict policy space of the government to pursue its development objectives. They are, therefore, caught between the devil and the deep sea.

Given this reality, countries that are in need of genuine trade-related technical assistance should join hands together to exert pressures on their development partners not only to make binding commitment, but also to refocus their priorities. In short, they should demand that money be put where the mouth is. This is the only way to ensure genuine integration of the weaker countries into the global trading system.

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