By Christopher Mason
GV Correspondent

OTTAWA - It is a concept that has occupied a wing of development work for years: By focusing efforts on building trade capacity, the world's least developed countries will generate income to boost their economies and consequently improve social services, among other sectors.

The World Trade Organization (WTO) itself adopted an Aid for Trade initiative in 2005, which carried with it an ambitious agenda to link the supply potential in developing countries with the demand in developed nations as a way to generate economic and social development.

But when the WTO hosted a review of the plan in Geneva earlier this month, it did so at a difficult time.

The global recession has thrown into peril billions in aid initiatives around the world, as well as in 2009 causing an expected two to three percent drop in exports from developing countries.

The plan to achieve development goals through trade has been met with some skepticism from those who claim Aid for Trade comes with strict regulations that leave little room for developing countries to benefit while more wealthy nations profit from access to cheaper goods and expanded markets.

WTO Director-General Pascal Lamy painted a challenging picture for development-through-trade initiatives, as developing nations struggle to find room in their budgets for infrastructure initiatives and those in Europe and North America pull back from commitments made when the economy was stronger.

"The global trading environment has worsened dramatically since our first review,"  Lamy said in opening the conference. "Global trade growth of six percent in 2007 has been replaced by a projected 10 percent contraction in 2009. It is one of the biggest challenges that the multilateral trading system has faced since its inception."

The Aid for Trade initiative focuses on grants and loans to build roads, ports and telecommunications capacity and technical assistance to develop trade strategies and effectively negotiate trade pacts.

In a progress report drafted by the WTO and OECD, the two bodies said that aid for trade grew by more than 10 percent in 2007 compared to 2006, which translates into $25.4 billion in new commitments.

More recent figures have yet to be released. But the African Development Bank reports that at least 12 projects in Africa have already been cut or delayed as a result of the financial turmoil, including a large power project in East Africa.

Lamy said the bright spots come in renewed commitments to aid for trade initiatives from Japan ($12 billion for 2009-20011), the United Kingdom (£1 billion per year), the Netherlands (550 million Euros per year) and France (850 million Euros per year).

The WTO's efforts in linking aid with trade received a boost from United Nations Secretary General Ban Ki-Moon, who stressed the importance of investing in trade-enabling infrastructure as part of development efforts.

"Trade has long had tremendous potential as an engine of sustained economic growth and development," he said.

Despite those spending commitments, the concept of Aid for Trade has been criticized as benefiting the world's richer countries when its stated intention is to improve the lot of the least developed countries.

"We've been a bit skeptical about aid for trade," said Mark Fried, policy coordinator for Oxfam Canada. "It's been a long slog and developing countries have lost every step of the way. We're strongly suspicious that Aid for Trade has been introduced to benefit rich countries."

In July, Oxfam released a report titled "Empty Promises" on WTO policies that highlighted concern that Aid for Trade initiatives will overshadow or replace other development goals while producing little progress in aid efforts.

It also said the WTO is not strong enough to prevent countries, in particular the US and European Union members, from adopting policies and strategies, such as subsidies for domestically-produced goods, that counter agreements related to using trade as part of development efforts.

The issue is an important one for Canada's foreign aid community. In the government's newly revamped foreign aid policy, development efforts are more closely tied to trade initiatives, particularly in Latin America.

"The best hope for fostering development and our common security in the hemisphere and beyond is through bolstering international trade," the Canadian government said in its most recent speech from the throne.

Canada's trade-related aid will top $74 million this year, and although the largest proportion will go to Africa (30 percent), a quarter is allocated to Latin American countries, where some of the latest initiatives are focused, namely a program to fund trade-related needs of countries in Latin America and the Caribbean and a program to help Caribbean countries develop internal and external trade policy.

The decision to prioritize aid to 20 countries, with a larger focus on Latin America, and to make greater efforts to link foreign aid with trade has been a subject of some controversy. But there are signs too that there is an appetite to experiment with new approaches to development efforts.

In a recent survey by the Innovative Research Group (IRG) done on behalf of the Munk Debates, 46 percent of respondents said they agreed with the proposed changes to Canada's bilateral aid budget, while 40 percent disagreed.

"There seems to be an appetite for a new approach, and a targeted approach at least offers the potential that Canada's aid budget could have more of a strategic impact, by focusing on 20-odd countries as opposed to being a mile wide and an inch deep," said Munk Debates co-organizer Rudyard Griffiths in response to the poll.

Tracking the effectiveness of those policy changes is all the more important given that Canada's foreign aid budget is slated to reach $5 billion by 2011.

The greater emphasis on Latin America is also likely to change the face of Canada's development efforts given that Canada's contributions will form a larger proportion of the aid many Latin American countries receive, in particular those in the Caribbean, compared to most African countries.