This article is part of a series in which OECD experts and thought leaders —from around the world and all parts of society— address the COVID-19 crisis, discussing and developing solutions now and for the future.
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As a result of the COVID-19 crisis, global trade contracted faster than in the global financial crisis of 2008-09, which has far-reaching impacts on the poorest countries. According to the World Trade Organization, travel services declined by 68% in 2020, affecting countries like small island developing states that are heavily reliant on tourism. The International Labour Organization estimates that over 250 million jobs have already been lost. This has been particularly acute for women, who make up a larger share of workers in tourism, and informal sectors that lack unemployment or health coverage.
At the same time, however, trade has also contributed to keep economies going. Global trade in agriculture has increased in the year of 2020 ensuring access to food for populations across the globe. Trade in pharmaceuticals has also increased allowing governments to respond to the health crisis in their countries. Trade will continue to be important as we come out of this pandemic. In order to vaccinate the world population, vials, syringes, needles and vaccines will have to cross borders many times in order to move from producer countries to their destination. With countries emerging at different speeds and in different shapes out of the pandemic, trade can also play an important role in spreading the benefits of recovery across the globe.
In this context, Aid for Trade, which seeks to boost the trade capacity and infrastructure of poorer nations, is essential to contain and mitigate the effects of the pandemic—not to mention an important means to support recoveries. It should be a focus of our international co-operation and official development assistance (ODA) efforts.
More on the Forum Network: Closing vaccine borders provides a false sense of security. Enabling global flows allows vaccine supply chains to deliver more vaccines to all by Prashant Yadav, Centre for Global Development & Jan C. Fransoo, Tilburg University's School of Economics
Support to trade facilitation efforts can play a particular role in this context. During the pandemic, countries who could afford to do so digitalised border processes to the extent possible. In many cases, this was a short-term response to the absence of staff during lockdown periods. But it is known that digitalisation of border processes has long-term beneficial effects, in particular for small and medium-sized enterprises. Providing assistance to trade facilitation will therefore not only have the direct effect of facilitating trade of products necessary to tackle the pandemic (like vaccines), it will also benefit trade and growth more generally and increase the resilience of countries with respect to possible future crises.
Aid for Trade can also play a key role assisting the many developing countries suffering from the breakdown in the tourism industry. Before the pandemic, tourism represented around one third of global services exports; in many developing countries, tourism is the main export sector. Until recently, it was a major driver of growth and job creation in these countries. Tourism is considered to have been among the main contributors to Cabo Verde, the Maldives and Samoa graduating from their previous least developed country status.
Nevertheless, tourism has in the past not been a major priority for donor countries. Only 0.09% of total ODA and 0.4% of total Aid for Trade disbursements were allocated for tourism between 2006 and 2013. This has to change in the light of the major shock the sector has experienced, and to help developing countries adjust to new post-COVID-19 sanitary and vaccination requirements.
More generally, Aid for Trade programmes should be revisited to better respond to the ambitions of the 2030 Agenda and to the new imperatives of the post-COVID-19 era: putting prosperity, people and planet at the heart of trade and investment; building the resilience of the global economy; creating quality jobs, including for the most vulnerable; and leaving no one behind. Aid for Trade programmes can help countries implement the necessary measures—particularly those relating to trade facilitation and information sharing that supports resilient trade.
All countries face choices in government spending that will have an impact on global trade and development. Among OECD members—who have access to recovery tools that low-income economies lack—recovery packages account for 16% of GDP. For low-income countries, many already burdened with external debt exacerbated by declining revenues from fuel and mineral exports, the equivalent figure is 2.5%. At the same time, according to UNCTAD the external finance needed by developing economies to help restore investment and trade flows has slowed to a trickle, and access to trade finance—the "grease" in the wheels of trade—has become scarcer and more expensive.
Read OECD Services Trade Restrictiveness Index: Policy Trends up to 2021 and visit the OECD's COVID-19 Hub to browse hundreds of others policy responses
This is why continued ODA support is so important. Aid for Trade has grown steadily since 2006, amounting to USD 46.6 billion in 2019, representing almost one quarter of total ODA in 2019. This represents an average annual increase of 6.6% per year, with support to least developed countries and other low-income countries, and lower middle-income countries growing at a sustained pace at around 8% per year on average. Looking at sectors, economic infrastructure represented the bulk of total disbursements in 2019 (USD 25.3 billion), together with economic capacity building (USD 20.4 billion). However, we are seeing trends towards more loans rather than grants, and regional or unspecified Aid for Trade allocations rather than to one country.
The way forward
We know the prescription for a healthy population and economy: ensure an equitable rollout of vaccines; keep trade flowing and global value chains functioning; enhance co-operation to remove regulatory barriers to trade in essential goods; improve access to trade finance for low-income countries; and help countries implement the "win-win" provisions under the WTO's Trade Facilitation Agreement. Digital trade can play an important role, but this depends on countries addressing existing digital divides to ensure that the gains from digitalisation can be realised and more widely shared across countries and societies. And governments should seize current opportunities to incorporate climate friendly trade policies into their recovery plans, creating opportunities for environmental technologies, goods and services, and improving supply of inputs key to clean energy transitions.
The COVID-19 crisis re-shuffled the cards of trade. It is unclear how many of these new ways of trading will continue as the “new normal”. The poorest developing countries will need more support than ever to adjust and make trade work for all. As the economic recovery continues its asymmetric path and trade rebounds faster in some parts of the world, the world's biggest economies must take the lead and reaffirm their commitment to Aid for Trade so no one is left behind.
|Tackling COVID-19||Digitalisation||Trade||Competition||International Co-operation|
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