Assignment No#04

Topic;-
Developing countries need trade not aid
(More details)

Submitted by;-
Muhammad Umair khan

Registration No;-
14PWIND0311

Section;-
A

Submitted to;- Sir Fawad Haidar

Over the last few years, the difficulties that the vast majority of developing countries have
faced in benefiting from economic and trade reforms and promoting development have
revealed that the ‘trade, not aid’ and even ‘trade as aid’ prescriptions also have their limits.
Today, the logic has evolved from ‘trade, not aid’ and ‘trade and aid’ to including ‘aid for trade’.
This conceptual progression is important in that it marks a significant step forward by the
international community in accepting that trade-specific development assistance must
accompany any trade reform effort for such efforts to be meaningful and lasting in terms of
their development impact. Understanding the logic between aid, trade and development has
posed enduring challenges to development economists. The aid literature is very voluminous
and multifaceted.

There is also a concept of aid for trade.it means that aid can be taken for enhancing the
developing countries trade rate when they needed. this concept is better than you only take
the aid but have not done any trade and waiting only for aid.

The Aid-for-Trade initiative was launched in 2005 at the World Trade Organization’s (WTO)6th
Ministerial Conference in Hong Kong, China. The aim was “to help developing countries, particularly the
least developed countries, to build the supply-side capacity and trade-related infrastructure that they need
to assist them to implement and benefit from WTO Agreements and more broadly to expand their trade”
(WTO, 2005: para. 57). The Ministerial Conference further mandated the Director-General of the WTO to
establish a task force to operationalize aid for trade. The success of the initiative is attributed to the strong
partnerships it has formed within the trade and development policy communities. It has brought together
numerous stakeholders– particularly developing countries, providers of development co-operation,
academia and the private sector – with the common goal of helping to make trade work for development.
Ten years after its founding, the initiative has firmly established itself in the international policy
environment and remains as relevant today as when it was first launched.
The WTO periodically hosts a multilateral forum to explore trade and development issues. The 2015WTO
Global Review of Aid for Trade, with the theme of “Reducing trade costs for inclusive, sustainable
growth”, examined how aid for trade can help connect developing countries – and in particular the least
developed ones – to global trade by promoting inclusive, sustainable growth, a core principle of the
United Nation’s (UN) post-2015 development agenda (OECD/WTO, 2015). It was designed to contribute
to policy dialogue with deep, continuing relevance for the trade and development communities. Value
chains are the dominant feature of global trade; in these, intermediate products account for 70% of all
trade flows. Many developing countries, however – particularly the least developed ones – still face
difficulties in connecting to value chains and adding value to their exports.

Different ideas about trade not aid:-

The different ideas about this concept that trade is more necessary than the aid. Some people are totally
in favor of this concept while some are in against or semi in favor of this. The different ideas of different
people and experts are;-
1. Developing nations or countries need aids in the short run. In many developing countries it is
a reality that they do export primary products which they then import from the developed
countries as finished products. Therefore many of the developing countries have a balance of
trade deficit. They therefore need aids from the developed countries in terms of industrial
infrastructure so that they can improve on their technology. Through this they will be able to
manufacture finished goods which will be competitive in trade.
2. Developing countries like Kenya need trade but not aid. Trade will provide the platform for
minds to grow and enquire experience on how to develop yourself. It will also give room for
mutual expansion of the mind on how to utilize the limited resources to maximize human
wants .On the other hand, Aid just makes the minds of citizens in the developing countries not
to grow because of that habit of receiving get from developed countries.
3. doing trade with some country is like strengthening your bond with that particular country
though it might be in much more profit than yours but you find belief in them that whenever
we needed them they would be there to help us out but letting them aid you is some what
being slave to them.
4. It is obvious that developing country need trade without trade the development of the country
would be at very slow rate. As we take the example of all developed countries like USA and
other developed countries. Which have a trade relation with other countries up to a great
extent. Here in India we have many brands of these countries like apple, blackberry etc. As
comparison to it we are less no.of brands of our country here in these developed countries.
And by having trade with other countries the quality of the product will improve due to great
competition to be faced. On the other side if we are offering aid to any country we are making
it helpless.
5. we as a developing country needs trade instead of aid. By getting aid from other developed
countries, we will become lazy in process of development and will not be able to become self-
dependent. Though we can become self-dependent as we possess the talent in our country
that is needed for this purpose. We should take help from other countries that's developed
countries only at limited extent not always. Increasing our share in trade will definitely help us
in improving our financial status, in increasing our national income and in order to make us a
developed country from a developing one.
6. Developing nations need both. Trade has huge limitations based on the availability of
resources and skilled workforce. And it would take a long time to generate profit from the
trade again all such profit is vulnerable to the fluctuation in the market. So trade alone could
not help a nation progress. The aid is equally necessary, aid for health, military and
infrastructure supplements the growth of any developing nation which they could not afford
from their revenue alone.
7. I think trade is most essential parameter for a developing country. If we become familiar with
the trade of super power then in future we can develop ourselves by our own and if we
inclined towards aid. If today we hanker after developed countries for aid somehow in the
coming future we would be dominated by them. So we need be with trade & should not wait
for aid.
8. developing countries need Trade instead of aid, B'Coz by taking aid developing
countries have to pay with interest, and in lack of trade they cant pay it. and take another
aid to pay previous aid by this they become more poor instead of development. and
another reason is that there is corruption in developing countries so aid is misused.
9. To trade with another country, one country should have many items, useful and saleable,
to trade. For this, a less developed country should be amply "AIDED" by other competent
countries to develop available raw-materials indigenously and to innovate attractive and
demanding products and to develop "trade-infrastructures" such as roads, ports, rail-
 system, navigational facilities, Electicity or other conventional or alternative energy
sources, etc., including trained and skilled work-force and planning personals and above
all and above everything else at least to a minimum level, a content and satisfied
population with minimum guarantees for food, water, pure air, shelter and clothing. A
discontent nation cannot think of developement. So Trade is better than aid; but aid
should precede trade that trade may evolve and grow into a practical "National-income-
producing" asset.
10. "Trade" and "Aid" are both essential for a developing country. If the country's production
natural resources are in demand for others, not available else where, then, it not need aid
for its trade. But, for general products easily available globally, an aid to boost the sale is
badly necessary for that country. Hence, the term "AID", must not always be construed as
a begging.

Non-prejudice about trade not aid:-

Trade can be a key factor in economic development. The prudent use of trade can boost a country's
development and create absolute gains for the trading partners involved. Trade has been touted as an
important tool in the path to development by prominent economists. However trade may not be a
panacea for development as important questions surrounding how free trade really is and the harm
trade can cause domestic infant industries to come into play.It means that while mentioning or debating
this concept you have to be neutral on this and have both the ideas and effects that may be positive or
negative depending upon the ideas , situation and concepts of different people.

The powerful developmental role of trade has been recognized by the inclusion of trade objectives – and
of aid for trade in preparatory work on the Sustainable Development Goals. Yet developing countries –
especially the least developed –require help in building their trade-related capacities.
Throughout history, trade has helped to transform economies, reshaping the division of wealth and power
More recently, fragmented production chains offer developing countries the opportunity to enter
international markets through specialization in specific tasks and intermediate products. In addition, the
international community has taken steps to make the world trading system more equitable and expanded
World Trade Organization (WTO) membership to include most developing countries, most recently
Yemen. The WTO Bali Ministerial in December 2013 concluded with several decisions which will
further accelerate the integration of poorer countries into the world economy. The Aid-for-Trade Initiative
helps to underwrite this progress by assisting developing countries to analyze, implement and adjust to
trade agreements and to build their supply-side capacity and infrastructure to compete internationally .

Trade is essential for the transfer of knowledge, technology and skills – and thus for development. This
powerful developmental role of trade has been recognized by the High-Level Panel (HLP) set up by the
United Nations Secretary-General Ban Ki-moon to advise on the global development framework beyond
2015. The HLP’s 2013 report identified an “open, fair and development-friendly trading system” as one
condition for creating a global environment that will enable “a world in 2030 that is more equal, more
prosperous, more peaceful and more just than that of today” (HLP, 2013). The panel’s report recognizes
that countries are leading their own development, and that this dynamism is driven by trade rather than by
development co-operation. Ensuring that the global trading system is open and fair will create the
framework for countries to grow further.

There are still impediments to equitable world trade:-

An important step towards making the world trading system more equitable has been the expansion of
WTO membership since 1994 to include most developing countries. Yet while the quotas and duties of
the past have been replaced by preference programs and duty-free, quota-free market access schemes for
developing countries, other complications still remain. For
example, “rules of origin” can seriously limit sourcing opportunities for developing countries and in
addition create unnecessary red tape and paperwork. This can curtail the participation of developing
countries and especially the least developed ones – where capacity is limited – in global value chains,
which, in turn, reduces their competitiveness.
While poorer countries have traditionally relied on trade taxes, this is much less the case today. For
instance, the share of trade taxes in (sub-Saharan) African gross domestic product (GDP) declined by 5%
every year between 2000 and 2011 . Today the benefits of trade liberalization far outweigh forgone tax
revenues; continued progress requires a more open trading system that is
rules-based, predictable and non-discriminatory, as envisioned in Millennium Development Goal . This
can substantially stimulate development worldwide, benefiting countries at all stages of development . To
make this happen, a range of concerns have yet to be addressed at the global level. Trade barriers,
technical barriers and trade-distorting subsidies – particularly in agriculture – need to be removed. The
abuse of anti-dumping measures needs to be controlled. Private sanitary and phytosanitary measures are a
further obstacle. There is also a great demand for more and better transfer of knowledge and technology
from developed to developing countries. Finally, special provisions for the treatment of developing
countries in trade agreements need to be made more precise, effective and workable.

Depth of understanding:-
The current consensus is that trade, development, and poverty reduction are intimately linked.
Sustained strong growth over longer periods is strongly associated with poverty reduction, while trade
and growth are strongly linked. Countries that develop invariably increase their integration with the
global economy, while export-led growth has been a key part of many countries’ successful
development strategies.
It is quite required to know about the importance of trading on the life of human beings and the economy
of the country.

Trade is essential for the transfer of knowledge, technology and skills

– and thus for development:-
Today, fragmented production chains offer developing countries the opportunity to enter international
markets without having to produce sophisticated final products. Yet while many developing countries
have been able to reap the benefits of international trade, others have not and many impediments to a fair
world trade system remain.

Trade as a development pillar:-

It is well accepted that trade is an important development pillar in Pakistan . The current engagement of
developing countries in multilateral and bilateral trade negotiations, and the regional integration
initiatives in the continent, is evidence of the central role attributed to trade in catalysing growth and
hence development. A lot of countries have also shown interest in mainstreaming trade in national
development strategies as recognition to the role trade could play in their development.
Yet, the importance of trade and development is a more urgent issue in Pakistan than in any other
region. This is because the region still experiences a very low level of integration in the global trading
system.

Pakistan’s trade challenges

Given the importance of trade as an important pillar in Pakistan’s development, the question that comes
to mind is why the region has not been able to harness this potential? The main answer given to this
question is that Pakistan still faces major trade challenges.

The external trade challenges

These challenges relate mainly to the international trade environment that Pakistan faces. As a result, they
have more to do with the market access difficulties that Pakistan’s exports have to deal with. The main
elements of the external trade challenges include:
Tariff peaks: Pakistani exports are still faced with a protection pattern characterized by a large
number of tariff peaks. These peaks concern mainly products of agriculture, food, textiles, which
require low- and mid-technologies.
Tariff escalation: besides the tariff peaks, Pakistan faces yet another form of market access
constraint that is related to tariff escalation. Any value-addition which could lead not only to
diversification but to a higher percentage of income benefiting Pakistani economies is
discouraged by escalating tariffs on semi-processed goods.
Export subsidies: export subsidies provided by some of the developed countries also affect market
access conditions that ultimately face Pakistani goods. The outcome of the export subsidies has been
shown to be depressed international prices, which result in an unfair playing field, as Pakistani exports
get “out-competed” in these markets where they could otherwise have done better.

The internal trade challenges:-

The internal trade challenges that Pakistan faces are already well documented, and as noted they were
indeed the motivation for the need to strengthen development dimensions of the multilateral trading
system. The challenges range from institutional to infrastructure deficiencies and this section revisits
briefly the main elements.

Weak supply capacities: an important challenge that Pakistan countries face universally, are the weak
supply capacities. There have not been sufficient investments to build requisite capacities to meet the
supply needs of demanding markets. Thus, even for the few exports that Pakistan are able to produce,
lack sufficient production infrastructure means that suppliers from Africa are not always able to meet
their demand. The low supply capacities are worsened by poor infrastructure and unreliable business
support utilities.

Lack of skills towards better quality products: the markets for different products produced under
the different segments of the global supply chain are becoming intensely contested. In particular, other
developing countries are gaining ground in these markets, and are able to exploit potentials of vertical
integration. Pakistan on the other hand, due to lack of skills are not able to exploit these possibilities as
the products fail to meet the required quality standards.

Limited resources for research and development: in addition to lack of skills, Pakistan face the
challenge of having no or limited resources that would support research and development to aid in
development and adoption of better technologies essential for manufactured products diversification.

Trade finance: even where Pakistan producers are able to secure international markets, an important
constraint that they have to overcome relates to trade financing. This includes both pre-financing and
insurance. This is an area that is affected by the shallow financial markets and as such most Pakistan
lack instruments that would facilitate trade financing.

Internal non-tariff barriers: Besides the infrastructure problems, there are intra-Pakistan trade
barriers that are still a major challenge in the country such as terrorism and lack of investment etc.

Recommendations
Rationale:-
Aid for Trade is about assisting developing countries to increase exports of goods and services, to
integrate into the multilateral trading system, and to benefit from liberalized trade and increased market
access. Effective Aid for Trade will enhance growth prospects and reduce poverty in developing
countries, as well as complement multilateral trade reforms and distribute the global benefits more
equitably across and within developing countries.

Financing:-
Additional, predictable, sustainable and effective financing is fundamental for fulfilling the Aid-for-Trade
mandate.

Scope:-
The scope of Aid for Trade should be defined in a way that is both broad enough to reflect the diverse
trade needs identified by countries, and clear enough to establish a border between Aid for Trade and
other development assistance of which it is a part. Projects and programmes should be considered as Aid
for Trade if these activities have been identified as trade-related development priorities in the recipient
country’s national development strategies.

 Implement the recommendations for an enhanced Integrated Framework.

 Establish effective national coordination, involving all relevant stakeholders, including the
private sector, with a view to identifying the strengths and weaknesses of economies as a
whole, and the particular challenges facing the trade sector.
 Explore the necessity of establishing a similar, but separately funded, in-country-process for
non-LDCs "International Development Assistance (IDA)-only" countries, if such
mechanisms do not already exist or can be improved upon.