| Part II. | INTERNATIONAL ASSISTANCE TRENDS WITH RESPECT TO DEVELOPMENT ISSUES |
As explained in Part I (Refer for
details), following a series of international conferences held in 2002 with
development as the main agenda, the major Western donor countries successively
announced enlargement in their development assistance. (Refer
to Chart 5 in Part II.)
In this regard, in January 2004 the United States Congress approved the launching
of the Millennium Challenge Account (MCA) as well as $1 billion as the budget
for the first fiscal year, 2004, for its operation and the MCA went into actual
operation. In addition to this, the “United States Leadership Against HIV/AIDS,
Tuberculosis, and Malaria Act of 2003” was enacted in May 2003 and the
US announced that it would earmark up to $15 billion over five years from 2004
to 2008 for contributions to global measures against AIDS and the Global Fund
to Fight AIDS, Tuberculosis and Malaria16.
Throughout the 1990s, while Japan quantitatively supported the world ODA, overall
a period of so-called “aid fatigue” continued among the developed
countries. However, these moves by the major Western donor countries in recent
years have built a positive momentum of the international community for development.
Meanwhile, a large number of people involved in assistance, recipient countries,
etc. have insisted that funds far in excess of the total assistance offered
by countries around the world today are required in order to achieve the MDGs.
In recent years, total ODA to developing countries from the whole world has
been hovering at around $50 billion annually (in 2001 it was $50.6 billion),
however, for example, in April 2003 the World Bank published an estimate that
an additional $50 billion a year was needed in financing for development. Documents
presented at the World Bank-IMF Joint Development Committee in September 2003
indicated that in the medium-term, countries with properly managed institutions
and policy environment have an aid absorption capacity to effectively utilize
twice the amount of additional funds agreed to at United Nations International
Conference on Financing for Development in Monterrey, Mexico in 2002 ($16 billion),
and in the long term more funds than that will be necessary for them.
In this context, the recognition that in order to advance the development of
developing countries it is important to mobilize not only the domestic financial
resources of developing countries and ODA but all sources of finance, such as
private investment including FDI and trade has been widely shared internationally
and this was repeatedly indicated in international conferences on development
held in 2003.
The fact is that flows of funds including private investment and trade have
reached about six or seven times the level of ODA flows, therefore, they are
quantitatively abundant, and a large economic effect can be estimated. The East
Asian countries, particularly since the second half of the 1980s, have actively
accepted FDI from Japan, the US, and other countries. By building a production
network at the regional level, they have achieved high economic growth rate
along with the expansion of the world economy, and as a result, have succeeded
in reducing poverty.
Therefore, when considering the role of ODA in development of developing countries,
it is important to do so within the framework of the overall flow of funds including
investment and trade to the developing countries.
Below explains the relationship of FDI and trade to development.
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Foreign Direct Investment (FDI), Trade, and Development |
Foreign direct investment (FDI) and trade contribute to revitalization
of private sector and economic development of developing countries through employment
creation, transfer of management and production technologies, etc.
Being closely linked to each other, FDI and trade encourage consumption within
each country, increase production of the whole world, and provide each country
with access to the unobtainable resources and markets to sell manufactured goods,
resulting in profits for each country’s economy. Then in developing countries,
those profits accumulate domestically as financing for development, providing
them with the engine to achieve economic development with their own power. It
is well known that the development of the East Asian countries was built through
active attraction of FDI and the expansion of foreign trade.
However, investment and trade do not take place automatically. In order to attract
investment and revitalize trade, it is necessary for education, technology,
infrastructure, and heath and medical care as well as governance to be developed
to a certain level. Concerning this point, there are research findings showing
that the effects of investment and trade on economic growth in developing countries
where the education system or infrastructure are not well developed are somewhat
lower than in developed countries17.
In order to increase the standard of education, invest in infrastructure, and
improve the soundness of the domestic industrial sector, self-help efforts by
recipient countries are essential and the role played by the government of the
recipient country is significant in making these efforts. As was confirmed in
the Monterrey Consensus, development of the domestic environment, such as political
stability, sound macroeconomic policies, open trade and investment policies,
improving public governance becomes the foundation for the self-sustaining development
of developing countries.
For these efforts, the policy measures that the governments of developing countries
must implement are enormous and for many poor countries, dealing with these
issues on its own is difficult. For that reason, assistance aiming at technical
support and capacity building of developing countries to receive assistance
is necessary from other countries and through various international frameworks.
Japan is utilizing ODA, Other Official Flows (OOF), etc. to build institutions
and human resources for the improvement of the environment of developing countries.
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Japan’s Measures |
While the development of Africa was discussed at the G8 Summit,
World Summit on Sustainable Development (WSSD), etc. and in particular, the
importance of international measures in the trade and investment sectors has
been indicated, the “Tokyo International Conference on Investment to Africa”18
was held in Tokyo in February 2003 as one of Japan’s initiatives in the
investment sector. African countries, international organizations, and Japanese
companies with a record of investment in Africa attended the conference and
widely exchanged their views concerning investment environment and policies
to promote investment in Africa, based on actual investment experiences. The
results of the discussions were summarized as tasks for investment in Africa
and issued as proposals pointing out the necessity of measures by the African
countries to develop the investment environment and of international cooperation.
In addition to ODA measures, from the perspective that it is important to strengthen
the Public Private Partnership (PPP) in promoting private investment to developing
countries in order to support efforts by developing countries themselves to
promote inward investment for sustainable development, Japan is utilizing public
funds to contribute to the promotion of investment in developing countries through
financial tools that alleviate the risk of foreign investment to private companies,
such as investment finance and investment guarantees and insurance, etc. Examples
of these kinds of measures include JBIC foreign investment finance and guarantees
(investment related), untied loans (investment related), and Nippon Export and
Investment Insurance (NEXI) foreign investment insurance, foreign business loan
insurance, etc.
In addition, at the OECD Ministerial Council Meeting in April 2003, Japan proposed
the “Investment for Development” strategic project,
which formulates and implements an “action plan” containing a comprehensive
strategy for promoting investment in developing countries, gaining support from
all of the participating countries. Work commenced on this project began as
an official OECD project in fall 2003.
Under the “Investment for Development” strategic project, it is planned
to (1) draw up an investment policy framework summarizing necessary measures
by the investment recipient country to promote FDI; (2) conducting research
on a policy for strengthening coordination between FDI and ODA for development,
in cooperation with non-OECD countries; (3) based on the investment policy framework,
support peer reviews (mutual reviews) of the New Partnership for Africa’s
Development (NEPAD) countries, etc. The results of these measures are to be
reported to of the OECD Ministerial Council Level Meeting in spring 2005.
In particular, concerning promotion of accepting investment in the African region,
which is lagging behind with regard to attracting FDI, the OECD-Africa Investment
Roundtable was held in conjunction with the OECD Global Forum on International
Investment in South Africa in November 2003. At the roundtable, Deputy Secretary-General
of the OECD, Richard E. Hecklinger, gave a presentation about Japan’s proposal
for support for peer reviews of non-OECD countries and strengthening coordination
of ODA and FDI. The proposal was favorably received by the African countries
attending the roundtable19.
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The Current Status of the Doha Development Agenda—the Fifth Ministerial Conference in Cancún, Mexico |
The World Trade Organization (WTO) is a multilateral organization
that focuses on trade in particular. About three-quarters of the 146 WTO member
states are developing countries (of these 30 are Least Developed Countries (LDCs).
These countries, which have widely different economic power and human resources
quality, conform to international rules in the form of WTO agreements, promote
free trade, and work to pursue the benefits of trade. However, some of the developing
countries have been unable to develop domestic laws in a form that is consistent
with negotiated WTO agreements or have been unsuccessful in enforcing the laws;
in other words, there are developing countries that are having difficulty implementing
WTO agreements. At the WTO Ministerial Conference in Doha in 2001, the focus
was placed on measures to help developing countries facing problems in implementing
WTO agreements. This reflected the shared awareness among the WTO member states
that free trade could not be sufficiently promoted without consideration for
the domestic problems faced by developing countries, or in other words, without
measures to address development issues.
The current round launched at the Doha Ministerial Conference is called the
“Doha Development Agenda” and it places importance on promoting the
development of developing countries through participation in the multilateral
trading system. The conference also worked to improve market access for the
products of LDCs and in response to requests from developing countries, gave
increased support to Trade Related Technical Assistance/Capacity Building (TRTA/CB)
aimed at improving the capacity of developing countries to implement agreements
and participate in negotiations. Particularly successful was the establishment
of the Doha Development Agenda Global Trust Fund (GTF) as a source of funds
for TRTA/CB in the WTO at the time of the launching of the Doha Round. The GTF
is supported by voluntary contributions from developed countries and Japan made
a financial contribution of about 2.31 million Swiss francs (about ¥160
million) over the two-year period from 2002 to 2003. The WTO is formulating
and implementing the Technical Assistance and Training Plan comprising about
400 projects a year and funded by the GTF. (Details
about Japan’s bilateral trade related technical assistance.)
The Cancún Ministerial Conference held in September 2003 was designated
the midpoint of the Doha Round, but the basic pattern of opposition between
the developed countries and developing countries could not be overcome and the
conference concluded without producing the hoped-for results. At the conference
the following issues surrounding developing countries were raised: making rules
for agriculture, approach to the Singapore Issues*1,
disagreements concerning Special and Differential Treatment (S&D)*2,
the new Initiative on Cotton*3 from the developing
country side, the issue of declining prices for primary commodities*4and
the issue of the erosion in the margin of preferences*5.
It is difficult to deal with these kinds of issues only within the framework
of the WTO, which is a trade organization. It is also important to adopt an
approach to them that takes into account consistency with development policies,
such as capacity building, including infrastructure development and strengthening
competitiveness.
Japan, through bilateral assistance and cooperation with international organizations,
intends to ensure the coherence of ODA policies and trade policies, and to actively
contribute to the participation in the multilateral trading system and sustainable
economic growth of developing countries by utilizing the synergistic benefits
of ODA policies and trade policies.
From this perspective, Japan is actively supporting the Integrated Framework20,
a joint initiative by the WTO, World Bank, IMF, and others, for trade related
technical assistance for LDCs.
In particular in Cambodia, the pilot country of the Integrated Framework, Japan
became the leading donor country and supported Cambodia’s participation
in the multilateral trading system and its accession to the WTO. Specifically,
Japan has contributed $500,000 to the “Capacity Building for Pro-poor Trade
Reforms” implemented over a period of one year beginning in September 2002.
As noted above, the Cancún Ministerial Meeting ended with an unsatisfactory
result from the perspective of advancing the Doha Round, but it was able to
achieve one good result: approval of the accession to the WTO of Cambodia and
Nepal, the first LDCs to be accepted by the WTO.
Trade related technical assistance (including assistance for WTO accession)
under the Integrated Framework is attracting praise, with people saying that
it is being implemented without duplication and efficiently.
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| Minister for Foreign Affairs Yoriko Kawaguchi giving a speech at the Fifth WTO Ministerial Conference in Cancún, Mexico |
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Improving Market Access |
From the perspective of placing importance on assistance for developing countries through trade, Japan is imposing a preferential tariff—a lower tariff than the general tariff—on certain agricultural and marine products, and mining and manufacturing products imported from developing countries and is allowing tariff-free and quota-free imports of certain products from LDCs. At a series of international conferences, in particular the Third United Nations Conference on the Least Developed Countries, there were increasing calls by developing countries for developed countries to further expand tariff-free and quota-free treatment for LDC products. Japan declared at the WSSD and in other international conferences that it would expand such treatment, and expanded the range of LDC products eligible for tariff-free and quota-free treatment beginning on April 1, 2003. As a result, in combination with the mining and manufacturing products, which are already 99% tariff-free and quota-free, on a monetary basis, 93% of total imports from LDCs to Japan became tariff-free and quota-free. In addition, Japan has expanded the Generalized System of Preference (GSP) for developing countries other than the LDCs by about 120 items and is making a big contribution to the expansion of trading opportunities for developing countries.
16. Refer to http://www.usaid.gov/ for details.
17. OECD, 2002, Foreign Direct Investment
18. For the results of the “Tokyo International
Conference on Investment to Africa” see the Ministry of Foreign Affairs
(MOFA) homepage at http://www.mofa.go.jp/region/africa/conf0302/index.html
19. Refer to http://www.oecd.org
for details.
20. This is a joint initiative being implemented by six international organizations: the IMF, the International Trade Center (ITC), the UN Conference on Trade and Development (UNCTAD), the UNDP, the World Bank, and the WTO. Its goal is to realize sustainable economic development and poverty reduction in LDCs by incorporating trade related technical assistance into the PRSP process.