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The Role of Regional Development Banks in Financing Trade Development

Statement by
Philippe Bénédic
Resident Director General
European Representative Office
Asian Development Bank

At the Meeting of the ACP Ministers of Finance and Economic Affairs

Brussels, Belgium
28 April 2006

Excellencies, distinguished guests, ladies and gentlemen:

I am honored to share with you today the views of the Asian Development Bank (ADB) on the Role of Regional Development Banks in Financing Trade Development with a specific consideration for Pacific countries.

ADB is a regional multilateral development bank dedicated to reducing poverty in Asia and the Pacific. Indeed, two third of the world´s poor with less than a dollar a day (620 million people) live in Asia and the Pacific. Despite impressive progress made over the last two decades, more still needs to be done and trade development is certainly one of the key factors to reduce poverty and help achieve the Millennium Development Goals (MDGs).

According to the recent ADB Asian Development Outlook (ADO)¹, robust economic growth of 7, 2% - 7% is expected in the Asia-Pacific region in 2006-2007, respectively, with an average of 3% in Pacific countries. A special report entitled “Routes for Asia´s Trade”, however, emphasizes the risks posed by the proliferation of bilateral trade agreements against more global multilateral trading systems.

Political leaders and decision makers in Asia-Pacific are clearly committed to strengthen regional cooperation and integration and certainly view international trade as a driving force for economic growth and poverty reduction. Regional development banks share the same view and strongly support steps to improve trade between regions and within regions where they have comparative advantages.

Policy dialog, capacity building and information sharing

In 2005, ADB established the Office of Regional Economic Integration (OREI) as the bank’s focal point to support regional economic cooperation and integration, including through trade and investment. ADB key priorities include:

1. promoting policy dialogue on trade integration issues;
2. capacity building and institutional strengthening;
3. information dissemination on trade, including a database on Free Trade Agreements (FTAs) in Asia-Pacific;
4. providing innovative financial instruments to support trade development, and
5. strengthening partnerships with WTO, OECD, Bretton Woods institutions, other development banks and regional organizations such as the Pacific Economic Cooperation Council (PECC).

A specific example of ADB-supported capacity building initiatives is an ongoing project to prepare country trade negotiators for WTO Doha Round negotiations, and provide intensive training on WTO accession and dispute settlement mechanisms. The ADB Institute (ADBI) has also undertaken policy research and provided regular training on trade, regional cooperation and integration issues.

Adjusting to changing global trade environment

Regional development banks, among others, help developing member countries adjust to the changing global trade environment, especially where there are adverse implications for small and vulnerable countries. A good example in the Pacific region is the Fiji Islands where the withdrawal of preferential access to sugar markets in Europe and clothing markets in the US will necessitate considerable economic adjustment. ADB is, therefore, helping affected communities in developing alternative livelihoods, and provides policy advice and finance to improve corporate competitiveness and the business environment.

A generic issue has been the recent proliferation of bilateral Free Trade Agreements (FTAs), a phenomenon that offers both opportunities and challenges. FTAs do help developing countries pursue their dynamic comparative advantages. However, numerous co-existing FTAs also complicate the economic landscape, increase transaction costs and might marginalize small and fragile States.

In the Asia Pacific region, there are about 196 FTAs, each with different membership, coverage, time frame and sensitive areas. In many ways, this proliferation is a response to the uncertainty regarding the progress of multilateral trade liberalization under the auspices of the WTO. There is also a precautionary motive behind them as some countries fear to be placed at a competitive disadvantage by trading arrangements taking place in other parts of the world.

Altogether, as noted recently by ADB President Kuroda, intra-regional trade has significantly increased in the Asia-Pacific region and represents, for example, 54% of all trade in East Asia against 35% in 1980 and about 46% to date in the NAFTA region.

Supporting Regional and Global Trade Integration in the Pacific

Several trade arrangements will facilitate economic integration in the Pacific region: the Pacific Island Countries Trade Agreement (PICTA), the Pacific Agreement for Closer Economic Relations (PACER), and the Economic Partnership Agreements (EPA) currently being negotiated with the European Union. In addition, some Pacific countries are involved in negotiations as part of the WTO Doha Round.

(i) The Pacific Island Countries Trade Agreement (PICTA)

PICTA will allow the 14 Pacific Island countries to retain different levels of external tariffs, but tariffs within the free trade area will decline to zero over a 10-12 year period. PICTA is seen by policy makers as assisting in overcoming the disadvantages of small markets and as a stepping stone to improve competitiveness and prepare for more extensive liberalization². PICTA is consistent with the Cotonou Agreement, which proposes that ACP countries enter into EPAs with the EU, either individually or on a regional basis. The new arrangements also conform to WTO provisions as they entail progressive removal of trade barriers between EU and ACP countries. Finally, the arrangements include cooperation in trade-related areas such as competition policy, trade certification, and environmental and labor standards.

(ii) The Pacific Agreement for Closer Economic Relations (PACER)

PACER is an umbrella agreement that establishes guidelines for the future development of trade relations within the Forum comprising 14 Pacific Island countries, Australia and New Zealand, and beyond the Forum with the European Union and the United States. PACER provides a framework for enhanced economic cooperation and trade facilitation among Forum members. Financial and technical assistance are provided by Australia and New Zealand.

From a longer term perspective, it is important that FTAs are “integration friendly” and, therefore, consistent with the WTO global arrangements. Individual FTAs can, indeed, serve as “building blocks” for the WTO negotiations if they are progressively consolidated into larger regional FTAs, ultimately leading to the integration in the WTO process. There is, therefore, value in promoting regional policy dialogue on trade integration issues. Capacity building, research and information dissemination of best practices are also needed to facilitate consolidation of FTAs and lead to global economic integration. This is a key area where regional development banks, such as ADB and others, can play a significant catalytic role.

Towards enhanced regional economic cooperation and integration

From a broader perspective, development banks and other development partners also strongly support regional cooperation programs to improve connectivity and competitiveness through regional infrastructure and financial and monetary integration. For example, a substantial portion of ADB´s $ 7.4 billion annual commitments was last year targeted to support regional cooperation programs in Asia and the Pacific.

We are, therefore, confident that enhanced trade development with ACP countries, and between Asia-Pacific, African-Caribbean countries, and other regions in the world will benefit all and contribute to international stability and economic growth.

Thank you.