Australian Aid for Australian Trade

Australian Aid for Australian Trade

The recently released Australian foreign aid policy claims to be heralding a new paradigm of aid delivery. This new paradigm will see the 'Aid-for-Trade' component increase from 12.5% to at least 20% of the aid budget by 2020 in an effort to encourage Pacific Island Countries to take advantage of the opportunities integration into the global economy may provide.

The policy argues that global trade is an engine for growth and development in the region. So using aid-for-trade to increase engagement with the global economy will see incomes rise and levels of poverty decline accordingly. However according to Harvard University's Dani Rodrik “essentially, there is no convincing evidence that trade liberalization is predictably associated with subsequent economic growth" and that “the problem isn't trade liberalization per se, but the diversion of financial resources and political capital from more urgent and deserving developmental priorities.” Further, Traidcraft, Britian's Independent Commission for Aid Impact, and the United Kingdom's Department for International Development have all stressed the tenuous links between Aid-for-Trade programs and direct poverty reduction.

The theory of free trade and global economic integration sits askew to the realities of the Pacific. Small economies of scale, long distances to markets and a social structure supported by customary land tenure that places communal cohesion above individual interest puts the Pacific Islands outside and often in direct conflict with the neoliberal economic paradigm. To claim that increased economic growth, or expansion of trade, is inherently a good thing paints over the complexity and nuance of what it really means for the people affected. Growth alone means nothing if people aren't better off. Just ask the displaced communities of any mine site or communities in PNG whose government is enjoying double digit growth!

Aid-for-Trade is underpinned by a simplistic assumption that ignores the unequal power structure of aid in the region. Australia's new aid budget reads more like a plan to use Aid-for-Trade as a trojan horse to continue to enforce reforms of Pacific Islands economic policies for its own disproportionate benefit.

The policy will use “Aid Investment Plans” and social, economic and political analysis to identify “key constraints to growth and private sector development”. Australia will then use this analysis to “advocate” for policy changes that include “promot[ing] structural reforms,” efficiency in customs and quarantine procedures, and “infrastructure that facilitates the flow of goods and services across borders.”

That Australia has a direct interest in streamlining its goods, services, and investment as the major exporter to the Pacific doesn't rate a mention in the policy.

In fact it's hard to interpret this policy as being about anyone other than Australia when you consider how it will operate. That they also refer to aid as “investments” now, signals to partners that a return will be paid in some way. Central to the evaluation of effectiveness is a measure of “extending Australia's influence”.

The disingenuous nature of the policy becomes clearer when you consider that even the World Bank is at odds with Australia about the role of an export-led private sector in driving employment growth in the region. Australia sees a linear relationship between greater international trade generating jobs, and as such raising incomes in the region. Yet the World Bank argues that “due to inherent geographic obstacles, PICs are unlikely to experience the scale of export- driven development and associated employment growth seen in much of the East Asia Pacific region under any regulatory or policy setting.”

Inter-governmental organisation, The South Centre, explains that one of the two key pillars to competitiveness in global trade is the capacity to bring goods to markets, something largely determined by the costs of transportation to markets. For the Pacific, the situation doesn't appear favourable. The World Bank reports that despite technological progress in containerisation, there has been no significant reduction in shipping costs (as a proportion of the value of products shipped) since the 1950s and in the case of air freight are going up.

The Aid-for-Trade policy is also being used as a bait for Pacific Island trade officials negotiating the regional trade agreement known as PACER-Plus.

PACER-Plus claims to be a development agreement and as such will likely include chapters on Labour Mobility and Development Assistance. The Pacific has viewed these chapters as the only areas they stand to gain out of the agreement, with the latter supporting them in the costs of implementing their commitments but also, and some would argue more importantly, support them to take advantage of any outcome. The politically astute would see those chapters as the 'pound of flesh' paid by Australia and New Zealand to have the Pacific agree to a binding free trade agreement.

So far Australia has stonewalled on the idea of providing additional financing to help the Pacific take advantage of any agreement. Instead their response has been to emphasise aid-for trade with what seems to be the assumption that this will help the Pacific Island Countries and spare Australia from making any commitments in Development Assistance under PACER-Plus. Whilst Australia demands that the Pacific Islands make binding commitments across their entire economies, Australia is merely offering business as usual.

Australia's increased Aid-for-Trade focus is the same wine in different bottles. Aid-for-Trade, and its counterpart PACER-Plus, are really about ensuring that Pacific markets are open to Australian exports and securing Pacific engagement with the global economy on terms that disproportionately benefit the regions big brothers. The Pacific has always traded and that will continue, but it must be in a way that supports their economic self-determination. Lining up the Australian aid program to complement the demands being made in a free trade agreement shows just whose interest this is all in.
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