Testimony by USAID Acting Deputy Assistant Administrator for Economic Growth, Agriculture, and Trade Mary C. Ott on Trade Capacity Building and U.S. Trade Preference Programs

Tuesday, November 17, 2009

 

Chairman Levin, Ranking Member Brady and distinguished members of the Subcommittee on Trade: on behalf of the U.S. Agency for International Development (USAID), I thank you for the opportunity to present our experience in implementing trade capacity building (TCB) programs. I hope to provide the Committee insight into how effective TCB assistance activities can advance both the objectives of our trade preference programs and the long-term development needs of our developing country partners.

Although the levels of trade and investment have increased rapidly over the past twenty years, global economic integration remains incomplete. The world's least developed countries hold 12 percent of the world's population, but account for less than one percent of global trade. Expanding trade with and among developing countries is a critical driver of economic growth and poverty reduction and can work to encourage entrepreneurship, human resource development, technology transfer, technological innovation and good governance. We see the relationship between trade and development all the more clearly today, as reduced trade flows due to the global economic downturn have contributed not only to lost jobs in the United States, but also to rising poverty in the developing countries.

TCB assistance is a priority of USAID’s work to promote rapid, sustained, and broad-based growth in developing countries. TCB activities represent a significant portion (approximately 12%) of USAID’s total economic growth assistance, which was approximately $3.3 billion in FY08. Since 2001, USAID has provided more than $3.9 billion in assistance for TCB programs. This assistance has been focused on helping more than 110 developing countries to implement trade commitments, reduce both the time and cost of exporting goods, and improve business and commercial practices. In FY08, USAID funding for TCB totaled $385 million across 75 countries. These programs included $118 million for trade facilitation (speeding the movement of goods across borders), $62 million for trade-related agriculture, $36 million for financial sector development and good governance, $32 million for environmental issues, $27 million for physical infrastructure development, and $25 million for human resources and labor standards.

USAID’s on-the-ground presence in developing countries is an essential component of our TCB support, as is our decades-long experience in implementing these programs across a wide variety of countries and regions. TCB programs also promote other USG development objectives, including agricultural development and food security, access to microfinance and even improved health.

USAID currently provides TCB assistance to countries in all regions of the world in support of a variety of shared USG and developing country trade objectives. USAID supports implementation of Free Trade Agreements (e.g., DR-CAFTA, Jordan, Peru, Morocco), trade and investment framework agreements and bilateral investment treaties, trade preference programs (such as AGOA and HOPE), and regional economic integration and trade. We also provide TCB support through organizations such as ASEAN and APEC. In addition, USAID’s TCB helps developing countries to effectively integrate into the global multilateral trading community. For example, USAID has assisted more than 25 countries in the WTO accession process over the last 10 years.

USAID TCB Initiatives in Africa in support of AGOA

The United States’ trade policy demonstrates our nation’s strong interest in assisting African countries to advance economically and improve living standards for their citizens. The African Growth and Opportunity Act trade preferences have been an important stimulus to development of viable export enterprises across Africa. Trade preferences alone, however, cannot achieve their maximum benefit due to the many physical, procedural and administrative barriers affecting African trade with the U.S. USAID has worked hard to help African countries take full advantage of the AGOA trade preferences.

Support for the AGOA preference program largely has been provided through activities carried out by four USAID-funded Regional Hubs - based in Botswana, Kenya, Ghana, and Senegal - complemented by activities implemented by USAID bilateral missions. The sub Saharan African region is unique in being subdivided into 48 independent countries, the overwhelming majority of which are small economies. Therefore, USAID decided to pursue a regional Trade Hub model to concentrate resources and technical expertise in regional centers of excellence, to support the ongoing efforts at regional integration, and to recognize the reality that a large number of land-locked countries are dependent on regional trade corridors to participate in international trade. The Trade Hubs have helped African countries to expand and diversify their exports to the United States, as well as increase the value of intra-regional trade for targeted commodities.

An example will illustrate how USAID TCB supports AGOA trade preferences. USAID’s Southern African Trade Hub assisted a chili production company with a new farming investment in Mozambique. With our support, the company is increasing its production of chili mash for Tabasco, an internationally known brand distributed both in the United States and globally. In addition, the new production in Mozambique will be used as raw ingredients into South African processed food products, providing another regional outlet for a high-value agricultural crop. The new investment in Mozambique will provide much needed employment to farmers in the area, and expand both regional and AGOA-related trade from Mozambique.

In this way, the Trade Hubs have worked extensively to promote exports under AGOA, via direct firm and sector-level assistance, buyer/seller linkages, and participation in trade fairs. They have successfully generated tens of millions of dollars in exports to the U.S. (more than $50 million in FY08). As in the case just described, an important lesson from our TCB programs has been that when our assistance is focused on increasing overall export competitiveness and awareness, significant results are also reflected in exports to other important markets beyond the United States.

Along with company, industry, and sector-level assistance, the Trade Hubs also support regional economic communities in their integration efforts, and trade facilitation efforts designed to reduce the time/cost to move goods along transit corridors and through customs and ports. For example, USAID has worked with government partners along the Trans-Kalahari transport corridor to implement a single administrative document which allows transit consignments to pass through all border posts using one custom document. Transport through the corridor is now faster, more efficient and cheaper. Implementing this type of reform in Africa and elsewhere is increasingly important because reducing the internal costs of conducting business in countries with difficult business environments and pervasive corruption can be accomplished unilaterally by the countries themselves and can foster greater benefits than what tariff reductions alone can provide. TCB programs in Africa will be particularly useful in supporting food security objectives.

USAID TCB Programs in Latin America

Regional preference programs in the Western Hemisphere date back to the establishment of the Caribbean Basin Initiative (CBI) in 1983. Much has changed since then. The U.S. Government recognizes the vital link between our trade policy agenda and trade capacity building programs.

HOPE

Implementation of the HOPE II legislation illustrates much of the policy evolution that has taken place since the Generalized System of Preferences (GSP) and CBI were first put in place. Building on the AGOA model, and tailoring our assistance to the Haiti context, USAID is helping Haiti take advantage of the opportunities presented by HOPE. With USAID support, Haiti is adapting to HOPE II opportunities by improving the quality of the apparel industry’s sourcing, production and marketing. For example, USAID’s program with a leading garment manufacturer showed results in the first seven months of 2009. The firm attracted three new clients, created 375 skilled, semi-skilled, and administrative jobs, and saved an additional 200 jobs that otherwise may have been filled in one of the highly competitive Asian countries. Workforce development programs have trained young adults in basic industrial sewing, with 50 trainees finding long term factory jobs, and 60 more currently enrolled. USAID is also providing financial and technical assistance for an apparel industry training center in Port-au-Prince, in collaboration with the Government of Haiti and the textile industry. Additional USAID support to the export sector consists of providing technical assistance for the development of a garment sector strategic plan to enable firms to take advantage of trade preferences; and supporting the Investment Facilitation Center (CFI).

Caribbean Basin Initiative

Prior to HOPE, USAID experience with regional trade preference programs included CBI, which laid the foundation for several beneficiary countries in the region to prepare for, and successfully negotiate, a free trade agreement with the United States. Now USAID and USTR lead the interagency process to coordinate TCB provision to the CAFTA-DR countries and Peru, and other potential FTA countries (Panama and Colombia).

The CAFTA-DR agreement elevated TCB into a standing committee of the bilateral agreement – a similar model has been followed for Peru and is proposed for Colombia and Panama, while preserving the need to be flexible within the country context. The committee serves as a forum for trade partners to present their TCB needs and report on country progress, with donor support, in meeting those needs.

USAID’s support for the USG trade agenda played a critical role in the negotiation of these FTAs and was instrumental in preparing the countries to negotiate, informing the public on the opportunities of trade, identifying and targeting areas to help implement specific aspects of the trade agreement, and transitioning these developing economies to expand the benefits of the agreement through longer-term development efforts in rural diversification and small business growth. Our work gave the Central American countries greater confidence and fostered their ability to negotiate, implement the terms of the agreement, and target policy reforms, investments, and capacity building to expand the benefits of trade to a larger segment of the population. Complementing the negotiation of a FTA with the provision of TCB assistance demonstrated the importance of linking aid to trade.

Elsewhere in the Caribbean region, assistance under the Bridgetown Accords (1997) and subsequent negotiation of a multilateral agreement (the Free Trade Area of the Americas, which was never completed) helped countries to address several trade-related issues ranging from sanitary and phytosanitary (SPS) measures, customs reforms, and competition policy. Currently, in the Eastern Caribbean, USAID activities aim to help the region meet its requirement to participate in open trade regimes, reduce business constraints, and leverage market opportunities. USAID works through a public-private alliance that leverages private sector resources to train selected farmers and exporters to use sound market intelligence, agronomic and production technology packages, and integrated pest management systems for selected specialty crops for export to North America and regional markets.

Principles for Effective TCB Assistance to Support U.S. Trade Preference Programs

Producers and investors need a long-term planning horizon. USAID’s TCB activities support a wide range of U.S. trade policy objectives from trade preference programs to implementation of fully-fledged free trade agreements. One constant concern articulated by investors relates to the stability and predictability of some of these programs. Participants have noted that preference programs’ utility is affected if they are subject to frequent changes or expiration dates.

Both bilateral and regional programs are needed to achieve USG goals for TCB. An important lesson from the LAC region is the need to recognize when TCB should be delivered bilaterally instead of regionally. For example, in the CAFTA-DR countries and in the Andean Region, USAID regional programs provided support to meet obligations in such areas as SPS measures, customs reform and trade facilitation, and intellectual property rights. Bilateral programs focused their attention on agricultural diversification, small business development, improving the “doing business” environment and fostering competitiveness.

TCB projects should seek large and systemic impacts. Implementing programs directed toward enabling a few firms to export to the U.S. is not sufficient to achieve the objectives of our preference programs. Finite resources and large TCB needs demand prioritization of activities based on a targeted aid-for-trade agenda that emphasizes TCB investments with the highest returns – specifically those reforms associated with trade policy and regulation. For example, the Trade Hub model has evolved to focus on regional trade facilitation issues and to expand its scope beyond AGOA exports to a broader concept of trade competitiveness, including through developing the capacity of African producers to export regionally and to other markets such as the European Union and Middle East.

TCB efforts produce better results in reform-minded partner countries. There is strong evidence that improving trade facilitation— for example better port and information infrastructure, more rapid customs clearance times, and regulatory reform to remove duplicative technical requirements on imports -- has a positive impact on trade performance. The opportunities presented by U.S. trade preference programs can be a powerful catalyst for motivating these reforms. Nevertheless, support for trade policy improvements requires partnerships with reform-minded governments willing to tackle corruption and the vested interests that benefit from the status quo. This would suggest greater returns by focusing assistance on countries prepared to undertake reforms.

It is important to note that as average import tariffs worldwide have dropped significantly over the past 50 years, other trade barriers such as onerous border procedures have become the primary obstacles to trade for developing countries. USAID has funded research to calculate the tariff equivalents of time lost to export delays and found that they significantly exceed tariffs faced by exporters in all developing country regions with the exception of East Asia and the Pacific. Reform steps to reduce such delays will go far to assist developing countries to expand their trade; indeed, trade facilitation may represent the greatest potential return on investment for USG TCB activities. Trade facilitation is an area in which USAID TCB programs have shown significant success. For example, successful programs over the last four years in Georgia, Macedonia, Afghanistan, Egypt, Guatemala, and Ghana, have cut the average time to ship, process, and deliver shipments from buyers to sellers by an average of 31 days. (Reduction of a single day can reduce costs by one percent or more depending on the type of good).

TCB investments need not be large to have significant impacts. The median bilateral TCB program implemented by USAID during FY 08 was approximately $1.75 million. Modest resources can be translated into highly significant results when focused on key policy issues in countries whose governments are committed to implementing reforms. For example, USAID provided extensive technical assistance for the U.S.-Vietnam Bilateral Trade Agreement (BTA), and later for Vietnam’s full accession into the World Trade Organization (WTO). With its effective implementation, investment and bilateral trade have surged. This relatively small activity supported trade-facilitating laws related to the labor code, credit institutions, standards, arbitration, consumer protection and regulations affecting imports, investment, and exports, including intellectual property rights. USAID assistance also supported the Prime Minister’s sweeping initiative to reduce, simplify, or eliminate the costly and risky burdens on business/trade caused by tens of thousands of outdated administrative procedures and cumbersome regulations.

There is no single model for effective delivery of TCB. USAID provides effective TCB activities on a bilateral basis, through regional Trade Hubs, through regional associations, and through multilateral forums. The particular technical assistance model selected will vary according to country capacities and needs, the extent of regional integration efforts, and the technical capacity of our bilateral Missions to deliver assistance. For example, while a Trade Hub approach may be appropriate to Africa, the same approach would not be as effective for the Andean region where countries have significant variations in their level of development and where regional economic integration is not advancing with the same level of political commitment.

Over time, TCB has become more closely integrated with trade preference programs. Recent experiences with both AGOA and HOPE when compared with earlier programs such as GSP and CBI, demonstrate how TCB activities have evolved to become increasingly connected with the implementation of U.S. trade preference programs. Coordination between U.S. trade and development objectives has improved; moreover, our developing country partners themselves now find integration into global markets as essential to their economic and social aspirations. USAID prioritizes strategic investments in TCB in support of these initiatives without the need for legislation requiring or mandating TCB assistance. Mandating specific levels of TCB assistance for beneficiaries of preferential tariff programs could prove counter-productive in cases where developing countries’ leadership does not place a priority on undertaking the needed trade policy reforms.

TCB objectives may be different across regions. Measuring success is not a straightforward exercise. TCB activities are not uniform and different metrics are needed to evaluate different programs due to their varied goals. For example, TCB in Latin America has focused more intently on issues related to ensuring compliance and enforcement of the free trade agreements, particularly in relation to labor, environment, and protection of intellectual property rights. Such activities are not designed to cause direct increases in exports to the United States and should not be measured by that metric. TCB activities will also differ depending on the relative emphasis between the objective of supporting greater trade with the U.S., and other worthwhile objectives such as facilitating more inclusive trade with a greater focus on poverty reduction. If the objective is inclusive trade, TCB programs will target small and micro firms.

Successful TCB requires close coordination with USTR and other USG agencies. Successful implementation of TCB efforts reflects a “whole of government” approach. USAID programs are coordinated closely with our colleagues at USTR---where USAID has established a detail position to improve coordination and collaboration. Specialized technical advice is closely coordinated with our colleagues at the Departments of Agriculture, Labor, and Commerce, Customs and Border Protection, the Federal Trade Commission, the Security and Exchange Commission, and many other departments and agencies.

Thank you again for inviting me to participate in this hearing, Chairman Levin, Ranking Member Brady, and distinguished members of the Subcommittee. USAID stands ready to provide any assistance or support to you and your staff as you continue in your deliberations.

Subject 
Trade Capacity Building and U.S. Trade Preference Programs
Chamber 
House
Committee 
Subcommittee on Trade; Ways and Means Committee

Last updated: May 22, 2014

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