WORLD TRADE  
ORGANIZATION  WT/AFT/W/13 
24 May 2006 
 (06-2511) 
Aid for Trade Task Force Original:   English 
  
 
 
COMMUNICATION FROM THE INTER-AMERICAN DEVELOPMENT BANK 
INTEGRATION AND REGIONAL PROGRAMMES DEPARTMENT 
  
 
 The following communication, dated 11 May 2006, is being circulated to the Aid for Trade 
Task Force at the request of the Inter-American  Development Bank (IDB), Integration and Regional 
Programmes Department.    
_______________ 
 
 
AID FOR TRADE IN LATIN AMERICA AND THE CARIBBEAN: 
THE INTER-AMERICAN DEVELO PMENT BANK'S EXPERIENCE
1 
 
 
 
I. INTRODUCTION 
1. The Inter-American Development Bank (IDB) is  the main source of multilateral development 
finance in Latin America and the Caribbean (LAC).2  From 2000 to 2005, total financing for 
economic, social and institutional development projects amounted to  US$38.7 billion, of which close 
to US$35 billion was ordinary capital, US$2.7 billion was concessional lending, and US$1.1 billion 
was grant funding.3  Concomitant with emerging demands in its borrowing member countries, the 
IDB has in recent years devoted a growing share of its financing to trade-related assistance, echoing a 
broader trend in aid flows across the world.  Trade -related assistance, or aid for trade, encompasses 
both traditional trade-related capac ity building and broader forms of assistance aimed at enhancing a 
country's capacity to trade (Box 1).   
                                                      
1 This document was prepared by the IDB's Integration and Regional Programmes Department (INT) as 
a contribution to the work of the WTO Task Force on Aid for Trade.  It was prepared in collaboration with an 
inter-departmental working group comprising the Bank's various operational departments.   
2 The IDB has 47 member countries:  Borrowing member countries  are:  Argentina, the Bahamas, 
Barbados, Belize, Bolivia, Brazil, Chile, Colombia, Co sta Rica, Dominican Republic , Ecuador, El Salvador, 
Guatemala, Guyana, Haiti, Honduras, Jamaica, Mexi co, Nicaragua, Panama, Paraguay, Peru, Suriname, 
Trinidad & Tobago, Uruguay, and Venezuela.  Non-borrowing member countries  include:  Austria, Belgium, 
Canada, Croatia, Denmark, Finland, France, Germany, Israel, Italy, Japan, Korea, Netherlands, Norway, 
Portugal, Slovenia, Spain, Swed en, Switzerland, the United King dom and the United States.   
3 Total funding approved for new loans and grants, including Multilateral Investment Fund (MIF).  
Another US$1.1 billion in loans was provided by the IDB' s sister organization, the Inter-American Investment 
Corporation (IIC). WT/AFT/W/13 
Page 2  
 
   
 
Box 1. What is Aid for Trade? 
 
Aid for trade refers to the flow of development finance from developed to developing countries for the purpose 
of enhancing their participation in the world trading syst em. Narrowly defined, the term refers to trade-related 
capacity building to help countries formulate, negotiate  and implement trade policy and related agreements; and 
trade development, including export promotion and trade finance. More broadly defined, aid for trade also 
covers support to strengthening a country's trade-related infrastructure (transport, energy, communications) and other supply-side capacities (for example, in the productive s ector) to help it benefit from freer trade. It can also 
refer to trade-related adjustment programs (s ocial safety nets, worker retraining).   
 While there is no universally agreed definition of the term, aid for trade is nothing new: bilateral donors, 
international financial institutions (IFIs) and other deve lopment agencies, including the IDB, have long engaged 
in the provision of such assistance. But the term has assumed prominence in the current Doha Development Round of multilateral trade negotiations, where discussi ons are underway on how to expand aid for trade. 
Several developed countries have pledged to increase their trade-related assistance in the coming years to help 
developing countries build the supply-side capacity and trade-related infrastructure they need to implement and benefit from WTO agreements and to expand their trade.  WTO members view aid for trade not as a substitute 
for, but as a complement to the development benefits that would result from a successful conclusion of trade 
negotiations in the Doha Round. 
  
 
 
2. At the Sixth Ministerial Conference of the World Trade Organization (WTO), held in Hong 
Kong in December 2005, Ministers called for the estab lishment of a WTO task force to examine ways 
in which aid for trade could be made operational a nd might contribute to the development dimension 
of the Doha Development Agenda.  The 13-member task  force was created in February 2006.  Half of 
its members are also member countries of the ID B (they are Barbados, Br azil, Canada, Colombia, 
Japan and the United States, with EU countries holding a joint seat).4  The task force has been asked 
to provide recommendations to the General Counc il of the WTO by July 2006, and has invited 
international organizations, including the IDB, to  provide advice in the formulation of relevant 
proposals.  
3. This document responds to requests from both th e WTO Director-General and the Chairman 
of the Aid for Trade Task Force for information on  the IDB's trade-related assistance to LAC, and 
proposals on how to strengthen aid for trade at both the regional and global le vel.  The IDB is well 
placed to provide contributions to the current debate  on aid for trade.  Since its creation more than 
forty years ago, the Bank has actively supported th e development of trade-related infrastructure and 
supply-side capacities in its LAC member countries.  Over the last decade, moreover, the Bank has 
built a solid track record in trad e-related capacity building in LAC,  developing both country-focused 
and region-wide approaches to the provision of su ch assistance.  Through regular interaction with 
government authorities, the private sector and other non-state actors, it has developed a sound reputation in the LAC trade community, based on tec hnical expertise, working experience and mutual 
trust.   
4. LAC is a diverse region comprising mostly middle-income countries, many of which no 
longer have access to concessional IDB or World Ba nk financing.  Most LAC countries are moreover 
excluded from recent trade-related cooperation initia tives that target the least-developed countries 
(LDCs) – such as the Integrated Framework (IF) or  the EU Everything but Arms Initiative.  Trade, 
                                                     
 
4 The remaining members of the task force are Chin a, India, Thailand, Mauritius, Benin and Zambia.  
The latter three currently act as coordinators, respectivel y, of the African, Caribbean and Pacific (ACP), African 
and Least-Developed Country (LDC) groups in the WTO.    WT/AFT/W/13 
 Page 3 
 
 
  however, is crucial for their development, and d espite their relatively more advanced levels of 
development, LAC countries continue to face serious ch allenges in this area.  For many of them, trade 
liberalization has been at the centre of a significan t structural reform process spanning the last two 
decades, but it has not yet delivered the expected results in terms of stronger export growth and 
economic development.  
5. The challenges facing LAC in the area of trade are briefly reviewed in Section II of this 
document.  Section III provides an overview of IDB support to trade in the past decade, examining 
institutional developments, efforts to integrat e trade into the Bank's programming process, and 
innovations in the types of instruments and mechanis ms used to deliver trade-related assistance.  
Section IV examines lessons learned and, based on these, highlights existing gaps in the provision of 
trade-related assistance.  Section V looks to the future, offering some recommendations on how the 
IDB could contribute to global efforts at delivering aid for trade more effectively.  The remaining members of the task force are Chin a, India, Thailand, Mauritius, Be nin and Zambia.  The latter three 
currently act as coordinators, respectively, of the African, Caribbean and Pacific (ACP), African, and 
Least-Developed Country (LDC) groups in the WTO.   
II. TRADE CHALLENGES IN LATIN AMERICA AND THE CARIBBEAN 
6. Among developing regions, LAC has been one of th e most active participants in multilateral, 
regional and bilateral trade initiatives.  LAC countri es recognize that trade can be a powerful engine 
of growth and that liberalization affords them  with many opportunities for expanding economic 
welfare.  Because many LAC countries are relativel y small, they depend crucially on trade for their 
economic development.  Even in larger economi es, domestic market size is constrained by low 
income levels across large sections of the populatio n.  LAC countries need export income to create 
and sustain jobs, finance imports, pay off foreign debt, and maintain a healthy balance in their 
external accounts, all of which is necessary to achie ve sustainable levels of economic growth.  LAC 
countries also depend on the supply of competitively priced imports to support local production and 
satisfy consumer demands.  In a global context marked by the emergence of new trade powerhouses 
such as China and India, LAC countries need to  preserve their trade co mpetitiveness to secure 
continued access to international market s and the associated welfare gains. 
7. In the 1980s and 1990s, LAC c ountries undertook significant structural reforms to facilitate 
economic growth and development.  Trade liberalizat ion featured prominently in the reform process 
and was pursued through a multi- polar integration strategy.
5  Unilateral trade liberalization helped 
raise efficiency in domestic markets, while reciprocal multilateral liberalization (GATT/WTO) as well 
as bilateral free trade agreements opened new ma rkets for exporters and provided the means for 
establishing effective rules governing trade with exte rnal partners.  Regional integration, meanwhile, 
offered easier access to neighbouring markets and an  opportunity for businesses to prepare for further 
global market integration.  Import protection declin ed substantially during this period: the region's 
average tariff fell from 40 per cent in the mid-1980s to 10 per cent in 2000.  However, liberalization 
was not systematically accompanied by complementary policies to help countries maximize the 
benefits of reform.  A comprehensive strategy ai med at making trade work for development is even 
more urgent as the scope of gl obal trade integration broadens. 
8. Increase Welfare through Trade Performance.   Despite the structural reforms, the region's 
trade performance displays some  weaknesses and needs to be improved in most countries.  Trade 
openness, measured as the ratio of a country's external  trade to its GDP, is below levels prevalent in 
                                                      
5 Inter-American Development Bank.  2003.  Beyond Borders:  The New Regionalism in Latin America 
– Economic and Social Progress Report , Inter-American Development Bank, Washington, D.C.   WT/AFT/W/13 
Page 4  
 
  other regions of the world.
6  Some of the smaller Central Amer ican and Caribbean countries do have 
high levels of trade openness, but in these and most other LAC countries, the quality of trade 
integration presents vulnerabilities.  Exports are not very diversified, and consist mostly of 
commodities or resource-based manufactures with low technology content.  In addition, several LAC 
countries – prominent among them the smaller Caribb ean islands – have been exposed to significant 
preference erosion in recent years, adding to thei r difficulties of maintaining a competitive presence in 
world markets.  After a decade of sluggish grow th, the region needs stronger trade performance to 
achieve and sustain higher le vels of economic growth. 
9. Equitably Distribute the Gains from Trade.   In the reform process, efficiency considerations 
overshadowed concerns regarding the distributional asp ects of trade liberalization.  As a result, trade 
opening was only rarely accompanied by mechanis ms for compensating inevitable losers in the 
process and boosting the opportunities of potentia l winners.  Few countries implemented broad 
adjustment programs to address the disruptions to local industries and labour markets resulting from 
trade liberalization.  Such disruptions, along with  rapid import growth unmatched by similar export 
performance, pressures on national trade balances a nd current accounts, and widespread perceptions 
of insufficient public consultation during the refo rm process have tested LAC countries' continued 
support for trade liberalization and reform.  In some countries, a certain reform fatigue has heightened 
the risk of a backlash to furthe r trade liberalization.  Partly as a result of these developments, trade 
issues have assumed a much more prominent role in the public debate.  At a time when further reform 
is needed to boost competitiveness, waning sup port for trade opening is a serious challenge. 
10. Adapt to the Complexity of Modern Trade Agreements.   For LAC countries, trade 
liberalization is not a linear process starting with ne gotiations at the bilateral, regional or multilateral 
level, then moving to implementation of commitments and, finally, to adjustment to a more open trade 
regime.  Rather, it is a circular and continuous pr ocess in which implementation and adjustment often 
raise the need for further negotiation and liberaliz ation.  In addition, LAC countries are often at 
various stages of implementing multiple agreements  with different trade partners, which requires 
careful planning and adequate res ource allocation across all stages of the reform process.  Finally, 
trade agreements themselves have become more complex, increasingly covering behind-the-border 
issues in addition to traditional border issues such as  customs tariffs and rules of origin.  Behind-the-
border issues such as investment, intellectual property, competition and standards are becoming standard features in modern trade agreements.  To fulfil commitments in these areas, governments are 
often required to make significant changes to lo ng-standing institutional, legal and administrative 
practices in their countries.  
11. Promote Ownership of Trade Reforms.   The combination of a more complex reform agenda 
and growing public debate about trade means that governments must increasingly involve multiple 
actors in the formulation and implementation of trade policy, with a view to creating a sense of public ownership of the reform process.  This requires th e development of efficient consultation mechanisms 
among relevant government departme nts, and between these and prominent civil society groups such 
as labour and the private sector.  
12. Further Expand Trade-Related Institutional Capacity.   Technical capacity is crucial to 
managing a complex trade agenda, and not always read ily available in the region.  In fact, there are 
significant variations in capacity and experience among LAC countries with respect to the negotiation 
and implementation of trade agr eements.  While several countries were actively involved in the 
Uruguay Round negotiations, others we re less involved, their participation often constrained by the 
lack of permanent representation in Geneva.  The speed of implementation of Uruguay Round 
                                                     
 
6 For example, Colombia has roughly the same GDP as  the Philippines, but its trade/GDP ratio is less 
than half of the Philippines.  Similarly, Venezuela's population and GDP are close to those of Malaysia, but its 
trade/GDP ratio is less than one fourth of Malaysia's.    WT/AFT/W/13 
 Page 5 
 
 
  commitments has also varied greatly across the regi on. On the regional and bilateral front, Chile and 
Mexico started liberalizing early and are now im plementing complex North-South trade agreements 
with the United States, EU and Asian countries.  Other LAC countries have gained most of their 
experience through less ambitious South-South agre ements with neighbourin g countries, and have 
only recently begun to negotiate and implement bilate ral trade agreements with developed countries 
(e.g., the US-Central America-Dominican Repub lic Free Trade Agreement, CAFTA-DR).  Some 
countries are fairly new members to the WTO and one – The Bahamas – has not yet joined.  
13. Secure Adequate Funding for Trade-Related Assistance.   LAC countries have limited 
financial resources to manage their trade agenda, particularly as the agenda expands to respond to 
emerging needs.  Severe debt overhangs, sluggish ec onomic growth during most of the past decade, 
loss of tariff revenue, difficulties in establishi ng alternative revenue sour ces, and growing social 
demands have all put severe pressure on fiscal res ources to fund the various stages of trade-related 
policymaking.  The concentration of some re cent trade-support programs on LDCs has not been 
helpful for LAC countries, which are mostly middle-in come countries.  In some  cases, such as the EU 
Everything but Arms Initiative, such programs have  placed additional strain on LAC export efforts 
because they have affected relativ e market access conditions for many of the region's exporters.  In 
others, such as the Integrated Framework, most of them are simply not included.  
14. Implement Complementary Domestic Policies.   Against this background, LAC governments 
increasingly recognize that trade policy can no longer be treated as a sectoral issue isolated from other 
aspects of economic policy.  First, trade liberali zation can induce macroeconomic shocks and thus 
requires broad-based macroeconomic responses to address the fiscal impact of liberalization and 
preserve price competitiveness through sustainable exchange rate policies.  Second, trade 
liberalization is a necessary, but not sufficient cond ition for generating equitabl e economic growth.  It 
opens doors and provides new opportunities for gr owth, but to help economic actors seize those 
opportunities, governments must cr eate an enabling environment for enhanced productivity and 
competitiveness, particularly through the removal of red tape and other impediments to business 
development.  This requires action in many areas of economic policy, both at the macro and micro 
level, and investments in infrastructure and rela ted services.  Finally, efforts to boost economic 
efficiency should be accompanied by policies that promote equity.  Specific trade-related social policies aimed at protecting the most vulnerable a nd facilitating the transition of labour to expanding 
sectors of the economy should form an integral part of trade reform.   
III. A DECADE OF IDB TRADE-RELATED ASSISTANCE IN LAC 
15. For the IDB, as for its clients in Latin Ameri ca and the Caribbean, 1994 marked a milestone 
in the area of trade.  It was the year in whic h the Uruguay Round of multilateral trade negotiations 
was concluded, with LAC countries binding their tariffs for the first time in GATT history and 
agreeing to a comprehensive agenda of compleme ntary, behind-the-border trade reforms to be 
implemented under the newly established WTO.  It w as also the year the North-American Free Trade 
Agreement (NAFTA) entered into force between Canada, Mexico and the United States.  In South 
America, MERCOSUR countries signed the Ouro Preto Protocol, consolidating the group's institutional structure and moving it towards a customs union, the second largest in the world.  In 1994, moreover 34 countries in the western hemis phere, all of them IDB members, decided to 
negotiate a Free Trade Area of the Americas (FTAA) .  Since then, LAC countries have concluded 39 
bilateral and regional trade agreements with each other and with countries outside the hemisphere. 
16. For the IDB, responding to this upsurge in tr ade policy developments in the region was an 
urgent priority.  The Bank faced three challenges in this regard: how to adapt its institutional strategy 
and structure to growing demands for trade-relate d assistance;  how to integrate trade into its 
programming process;  and how to deliver trade-rela ted assistance effectively through traditional and 
new instruments.  WT/AFT/W/13 
Page 6  
 
  A. I
NSTITUTIONAL ADJUSTMENTS TO MEET CLIENT NEEDS  
17. Trade and the IDB Institutional Strategy .  In 1994, the IDB's Board of Governors increased 
the Bank's financial resources and reaffirmed regi onal integration as an important strategy for 
enhanced global integration and one of the ins titution's foremost operational priorities.  These 
priorities are developed in greater detail in the Bank's Institutional Strategy , approved in 1999.  The 
strategy defines sustainable economic growth, povert y reduction and promotion of social equity as the 
institution's overarching goals.  These goals are adva nced through action in four priority areas:  
modernization of the state, regional integrati on, competitiveness, and social development.  
18. Trade is deeply embedded in each of these four areas.  Modernization of the state includes 
trade-related capacity building and institutional refo rms in the public sector aimed at fostering more 
efficient trade policymaking and implementation.  Regional integration c overs support to regional 
trade agreements and institutions, the development of  regional infrastructure, and the fostering of 
regional public goods.  Competitiveness operations target supply-side capacities and adjustment, 
infrastructure and trade finance, and support to business development activities that improve a country's ability to compete in the global economy.   Social development encompasses the creation of 
safety nets as well as compensatory programs su ch as retraining of displaced workers.  
19. Restructuring of the Bank .  The year 1994 also saw a major restructuring of the Bank, aimed 
at improving its lending operations  and enhancing its capacity to  respond to rapidly changing 
circumstances in its borrowing member countries.
7  The restructuring included the creation of the 
Department for Integration and Regional Programs (I NT) and, within that Department, a new Bank 
unit dedicated exclusively to trade and integrati on issues, the Integration, Trade and Hemispheric 
Issues Division (ITD).8  As part of the restructuring, the Ba nk's Buenos Aires-based Institute for the 
Integration of Latin America and the Caribbean (INTAL) was made part of the new Integration 
Department.  The aim was to bring together the Ba nk's headquarters and field-based expertise in the 
area of trade.  
20. A New Bank Unit Specialized in Trade .  The new Trade Division, ITD, was given three 
mandates:  (i) to deliver trade-related technical as sistance directly to LAC countries and sub-regions;  
(ii) to provide technical support services to the Bank's main operational units and departments (both 
its public and private sector lending windows);  and (iii) to act as the Bank's focal point of contact and 
coordination with other organizations working on trade.  
a) Provision of technical assistance to governments .  One of the Trade Division's most 
important initial tasks was to provide assis tance to the launching of the FTAA process 
in 1994.  ITD provided significant technical  support in the areas of market access, 
agriculture and government procurement both in the preparatory phase (1994-1998) and during the actual trade negotiations, wh ich began in 1998.  More recently, ITD 
has also provided direct technical support to LAC countries in their multilateral, sub-
regional and bilateral ne gotiating processes, including WTO, CAFTA and US-
Andean free trade negotiations, and to im plementation of resulting agreements.  
                                                     
 
7 The IDB Group comprises the Inter-American De velopment Bank (IDB), the Multilateral Investment 
Fund (MIF) and the Inter-American Investment Corporation (IIC).  The restructuring in  1994 created the Bank's 
current structure:  th ree Regional Operational Departments that are responsible for public sector interventions 
(the LAC region is divided into three sub-regions);  the Private Sector Department (PRI), which provides direct 
lending and guarantees to the private sector, and three central departments, the Sustainable Development Department, the Integration and Regional Programs Department and the Research Department, which provide 
technical support to project teams among other specific functions.  Othe r departments complete the Bank's 
organizational structure (see www.iadb.org
).   
8 ITD began operations with a professional staff of nine.  By early 2006, ITD had 18 staff members 
covering a wide spectrum of speciali zed knowledge in tr ade-related areas.  WT/AFT/W/13 
 Page 7 
 
 
  b) Technical support services to Bank operational departments .  The Division assists the 
Bank's operational departments in the desi gn and implementation of trade-related 
operations, ranging from comprehensive programs of institutional strengthening 
spanning several ministries and trade-related agencies, to more specific interventions in areas such as customs, technical standard s, and trade-related fiscal reform.  The 
Division also provides non-operational suppor t in the form of regional papers and 
national trade and integration sector studies that feed into the Bank's regional and 
national programming cycles (see below).  Over the years, the Trade Division has established close links with the Bank's opera tional departments in all stages of the 
programming process.   
c) Coordination with other agencies .  The Trade Division is a focal point for the Bank's 
contacts and coordination with other institutions in the area of trade, prominent among them the WTO.  Collaboration between the IDB and the WTO was formalized through a Memorandum of Understanding betw een the two institutions in 1999, and 
covers such areas as training, research and support to the preparation of WTO Trade 
Policy Reviews in Latin American and Cari bbean countries.  Other institutions with 
which the Bank collaborates in the area of trade include the Asian Development Bank 
(ADB), the World Bank (WB), Interna tional Monetary Fund (IMF), European 
Commission, Organization of American States (OAS), UN Economic Commission for Latin America and the Caribbean (ECLAC), and UN Conference on Trade and Development (UNCTAD).
9  Over the years, the Bank has conducted many joint 
research, outreach and training activities with these agencies.  
21. To help fulfil its mandate, ITD launched a comprehensive research program aimed at 
providing the basis for informed policy recommendations and decisions.  The Division has produced numerous policy-relevant studies on a broad range of  trade and regional integration issues, including 
market access negotiations (tariff, non-tariff measures and rules of origin);  analysis of major trade 
agreements (e.g., FTAA, MERCOSUR bilateral free tr ade agreements);  economic impact of trade 
liberalization and regional integration (computable general equilibrium modelling and sector studies);  
the interplay between regional a nd multilateral trade negotiations; regional cooperation; and regional 
public goods.  
22. A Revitalized Field-Based Integration Institute .  In 1995, the Bank gave INTAL additional 
resources to support its trade and integration-related work in the region.  Since then, ITD and INTAL 
have partnered on a wide variety of activities and initiatives supporting trade in the region, combining 
ITD's technical expertise with INTAL's field expe rience, operational skills and know-how in the areas 
of training, publications and outreach.  In 1997,  INTAL began to collaborate with the WTO in the 
organization of training courses for trade negotiators in the region.  To date, the two institutions have 
jointly organized over 100 training events in LAC c ountries, often with direct participation by the 
Bank's Trade Division.  INTAL has also been in strumental in executing regional projects and 
disseminating Bank research on trade and integration-related issues. 
B. I
NTEGRATING TRADE INTO THE BANK'S PROGRAMMING PROCESS  
23. Beyond building institutional capacity in the ar ea of trade, the Bank has made efforts to 
integrate trade more strongly into its policy di alogue with governments and the programming of its 
regional and country-specific operations.  This has required attention to the various stages of the 
programming process, and the provision of specific trade-related inputs in each stage.  The Bank's 
programming process is increasingly based on technical analysis.  This feeds into policy dialogue with 
                                                      
9 ITD has represented the IDB on the Tripartite Commi ttee of Technical Support to the FTAA process, 
comprising the IDB, the OAS and ECLAC. WT/AFT/W/13 
Page 8  
 
  governments and other relevant partne rs, which, in turn, informs the development of a Bank strategy 
and related project pipeline.  This is then fo llowed by the design and implementation of specific 
interventions.  The process is circular in that lessons learned from programming and the delivery of 
development finance feed into new technical anal ysis and policy dialogue.  The Bank conducts two 
types of programming, regional and national, with the latter proving to be the more challenging in 
terms of integrating trade into the various stages of the process.   
24. Regional Programming focuses on the four main integration groups within LAC:  the 
Andean Community, Caribbean Community (CARIC OM), Central American Common Market and 
MERCOSUR.  Approximately every five years, the Bank prepares new strategies for support to regional integration in each of the four groups.  Because of the importance of trade in these 
integration processes, and the multiple initiatives of  regional cooperation in this area among LAC 
countries, trade has always dominated the Bank's regional strategies.  In coordination with the 
operational departments, the Integration and Re gional Programs Department undertakes diagnostic 
studies to identify the key challenges in each sub -regional integration process, as well as in the 
group's trade integration with the rest of the worl d, and on the basis of this assessment proposes 
priority areas for Bank support.  Policy dialogue with regional secretariats, national authorities and 
relevant non-state actors is crucial throughout th e process.  The regional strategy facilitates the 
formulation of regional programs and activities, whic h are then implemented mainly through grants 
and direct non-financial support.   Regional secretariats and other regional agencies often act as 
executing agencies for these programs, and over the years, the IDB has developed close working 
relationships with these agencies.  Lending for re gional programs is very limited owing to the 
difficulties in securing appropriate guarantees for multi-country loans.  
25. National Programming is the Bank's main programming in strument.  It follows a similar 
process as regional programming, but the focus is not necessarily on trade.  Rather, trade is one of 
several issues analyzed in the preparation of the Bank's country strategies.  The challenge of 
mainstreaming trade into national programming has b een three-fold:  first, to support Bank country 
teams in their efforts to focus more on trade in tegration in their diagnostic work;  second, greater 
emphasis needed to be placed on trade issues in  the Bank's policy dialogue with governments and 
relevant non-state actors;  and third, subsequent to approval of country strategies, trade specialists had 
to provide technical support to the Bank's operational units during the development and 
implementation of trade-related ope rations.  To address these challe nges, ITD began in the late 1990s 
to provide specific inputs to the national progra mming process.  Over time, these contributions have 
evolved into comprehensive trade and integration sector studies (or Diagnostic Trade and Integration 
Studies, DTIS) that serve as a basis for policy dialogue and feed into the formulation of country strategies.  Trade specialists from the Bank have in creasingly participated alongside country teams in 
the Bank's high-level, closed-door policy discussions ( encerronas ) with newly elected governments in 
the region.  ITD has also assigned some of its tr ade specialists to work exclusively on operations, 
helping the Bank to translate technical experti se into operational benefits for its clients. 
26. Efforts to integrate trade into national progr amming have already yielded results.  Whereas 
country strategies produced by the Bank in the mid- 1990s contained few specific  references to trade, 
today many strategies devote significant attention to trade and global market integration, and 
strengthening of related institutions .  This, of course, also reflects the fact that trade is increasingly 
(though not yet sufficiently) mainstreamed into the national development agend as of the Bank's client 
countries.  Requests for trade-related assistance have  increased as a result, and the Bank has used both 
existing and new instruments to respond to this growing demand.  
C. A
DAPTING THE BANK'S INSTRUMENTS TO A MORE COMPLEX TRADE AGENDA  
27. Aid for trade is not new for the IDB:  many of  the Bank's traditional lending instruments were 
designed to support the very elements of what is t oday perceived as the broa der aid-for-trade agenda,  WT/AFT/W/13 
 Page 9 
 
 
  including infrastructure development (transport, energy, and communications) and strengthening of 
countries' productive capacities.  The Bank also has a long track record of providing adjustment-related lending, some of which has been directly rela ted to trade.  What was new in the 1990s was that 
the Bank began to build institutional capacity and deep en its operational support in the area of trade-
related capacity building (Figure 1).  The Bank al so began to explore ways of better linking the 
various components of trade-related assistance (cap acity building, supply-side development, and 
adjustment), and to design new grant a nd lending instruments to this effect.
10   
Figure 1 
Aid for Trade:  The Expanding Agenda 
 
 
           Adjustment 
     Supply-Side Capacity 
 
        Building Productive  
        Capacity  
          
Trade-Related        -  B a n k i n g  a n d   Macroeconomic  
Capacity Building       Financial Services 
            
    Trade-Related Infrastructure - Business and   Microeconomic  
        O t h e r  S e r v i c e s  
 
    -  T r a n s p o r t    -  T o u r i s m   Social 
 
Trade Policy and Regulations,         
Trade Development    - Communications  - Agriculture, Forestry 
            a n d  F i s h i n g      -  E n e r g y      
        -  I n d u s t r y ,  M i n i n g  
        a n d  C o n s t r u c t i o n                
            
                        
            
 
 
     Evolving IDB Instruments 
Source: IDB adaptation of figure presented in OECD, Aid for Trade:  Support for an Expanding Agenda  
(COM/DCD/TD), 2006. 
 
 
28. Traditional Financial and Non-Financial Support .  During the 1990s, the IDB relied on 
existing lending and grant instruments to deliver tr ade-related assistance.  The Bank's most important 
lending instruments, investment and policy-based loans,  continue to finance th e vast majority of the 
Bank's operational activities in LAC, including opera tions to improve trade-related infrastructure and 
supply-side capacities.  Investment loans are the Bank's most widely used lending instrument and 
                                                      
10 The section provides a broad ov erview of the Bank's trade-relate d operations; specific projects are 
mentioned only for illustrative purposes.  In order to respond fully to the WTO's request for information, the Bank is currently compiling an exhaustive database of its trade-related projects, consistent with the OECD-
WTO criteria. WT/AFT/W/13 
Page 10  
 
  span the whole range of the expanded aid-for-trade agenda.
11  Policy-based loans disburse against the 
implementation of agreed policy changes.12  While most loans are non-concessional, some are 
provided on a concessional basis from the Bank's Fund for Special Operations (FSO).  Only five countries – Bolivia, Guyana, Haiti, Honduras, and Nicar agua – have access to this type of financing.
13  
The Bank lends to both the public a nd private sector.  The latter operati ons are managed by the Bank's 
Private Sector Department (PRI) and its sister organization, the Inter-American Investment 
Corporation (IIC).14   
29. Grants and non-financial support  were the main instruments fo r the Bank's assistance to trade-
related capacity building  during this period.  Grant funding cam e from the FSO and the various trust 
funds managed by the Bank on behalf of its non- borrowing member countries.  None of these funds 
was dedicated exclusively to trade.  The Multilate ral Investment Fund (MIF), established in 1993 and 
administered by the IDB, focused  its assistance on private sector development, using both grant and 
investment mechanisms to undertak e small, targeted development projects to build the capabilities 
and skills standards of the workforce, broaden th e economic participation of smaller enterprises and 
strengthen the environment for doing business – but the connection to trade, and trade policy, was still 
precarious.  During the 1990s, the Bank moreover maintained a limited Export Finance Program, 
which, however, was terminated in 2001 amidst calls  for alternative, more efficient mechanisms to 
address the continuing and growing n eed for trade finance in the regi on.  Assistance provided directly 
by the Bank through its administrative budget (defin ed as non-financial support) was delivered mainly 
through the Bank's Trade Division and INTAL.   
30. The majority of trade-related capacity build ing programs funded during this period were 
regional projects.  The Bank's main instrument for regional grant projects is the Regional Technical 
Cooperation (RTC) Program , which uses both FSO and trust fund r esources to finance a wide range of 
initiatives that span the entire aid -for-trade agenda, including supply-side capacity and adjustment.  In 
the area of trade-related capacity building, RTC projects and non-financial support were used to 
finance the Bank's significant support to the FTAA process.15  The Bank also provided grant funding 
                                                      
11 Examples of such loans include Productivity Support and Development of New Livestock Products 
in Uruguay (US$19.8 million), Improvement of the Co mpetitiveness of Tourism in Argentina (US$56 million), 
SIEPAC Central American Electric Interconnection (US$50 million), Rural Roads National Program II in 
Paraguay (US$89.5 million), Northern Coastal Highway Improvement in Jamaica (US$85 million), Program for 
Institutional Strengthening of the Tax and Customs Administration in Nicaragua (US$12.5 million) and 
Modernization of the National Customs Bureau in Uruguay (US$1.1 million). 
12 The Bank has developed a number of policy-based loans to help strengthen the institutions in charge 
of competitiveness and trade negotiations, simplify trade and customs procedures, enhance business and labour productivity and improve the regulatory framework for the pr ovision of infrastructure se rvices.  An example of a 
PBL is the Peru Competitiveness Reform Program (US$300 million) with three areas of action:  (i) long-term 
approach to addressing and resolving impediments to competitiveness;  (ii) policy and institutional reform to improve the climate for private sector investment as  well as reduce costs and improve efficiency at the 
enterprise level;  and (iii) public-private cooperation activities at the local level through the development of 
clusters . 
13 The FSO has US$9.8 billion in paid-in contributions from all Bank member states.  The net income 
of the FSO enables the IDB to appr ove on average over US$400 million per year in grants and concessional 
lending. 
14 Examples of PRI projects include support to Ecuador's Quito International Airport (US$610 million) 
that includes the construction of a connector road to the ne w airport and the Inter-oceanic highway, and the 
development of a free trade zone in the area; and six hi ghway concession projects in  Brazil since 1996 (nearly 
US$1.7 billion) as part of the IDB contribu tion to Brazil's highway concession program. 
15 RTC projects financed the FTAA Secretariat and the Bank's technical support to three of nine FTAA 
negotiating groups.  Further technical support to the process was provided directly by the Bank's Trade 
Division; meanwhile, a MIF grant financed implementa tion of customs-related business facilitation measures 
agreed by the countries in 1999.  WT/AFT/W/13 
 Page 11 
 
 
  for a number of sub-regional trade initiatives.16  The Bank moreover ste pped up its non-financial 
support in the areas of policy research, technical wo rkshops, and other outreach activities.  Many of 
these initiatives were also regional in nature.  
31. New instruments .  As LAC demands for trade-related assistance increased, it became clear 
that new instruments were needed to respond rapidl y and efficiently to those demands.  More funding 
was needed for policy research, policy dialogue and direct assistance to governments.  Grant funding 
alone was not adequate to meet the demands, and the Bank's existing loan instruments were tailored 
more towards large-scale investments – requiring a s ubstantial preparation process – than to urgent 
needs for technical cooperation to assist in ongoing negotiations and implementation of trade 
agreements.  The region's private sector also needed  more targeted assistance to cope with a rapidly 
changing external environment.  Starting in 2000, therefore, the Bank began to develop a number of 
new instruments and mechanisms to strengthen its trade-related assistance.  Some are designed for 
national interventions, while others focus on regi onal support; several instruments can cover both 
types of intervention.  
a) Starting in 2000, the Bank instituted a regular Regional Policy Dialogue on trade as 
part of a broader program that also includes other thematic areas.  The objective was 
to create a trade forum or network th rough which LAC countries could share 
experiences, learn about practices outside  the region, and explore opportunities for 
regional cooperation in areas related to trad e.  The regional policy dialogue meetings 
bring together vice-ministers and other sen ior trade officials from LAC countries to 
explore pressing trade issues, based on a pr eviously agreed agenda and technical 
work prepared by the Bank.  A total of six regional meetings and six sub-regional 
meetings have so far been held.17 
b) In 2000, the IDB created a Trade Sector Facility  that provides fast track approval for 
ordinary or concessional loans up to US$5 million to strengthen the capacity of trade ministries and other trade-related institutions  to formulate, negotiate and implement 
trade policy.  Ten of the Bank's borrowing member countries have so far accessed the 
facility, with approved funds totalling  US$46.6 million.
18 
c) In 2002, MIF launched its Facilitation of International Trade and Investment 
project cluster, the aim of which is to foster greater participation of smaller enterprises in international trade and investme nt.  Projects in this cluster support trade 
                                                     
 
16 In the Andean Community, for example, the Bank financed several border development initiatives, 
while in CARICOM it supported the cr eation and operation of the Caribbean  Regional Negotiating Machinery, 
and implementation of member states' Uruguay Round co mmitments.  In Central Amer ica, the Bank provided 
assistance in such areas as services trade liberaliza tion and customs.  In MERCOSUR, the Bank supported 
institutional strengthening of the ME RCOSUR Secretariat, as well as the building of a computable general 
equilibrium model to measure the impact of various tr ade liberalization scenarios on the group's economies. 
17 The last two regional meetings focused on the negotiating agenda for the WTO Hong Kong 
Ministerial meeting and on macroeconomic implications of  trade liberalization, respectively, while sub-regional 
meetings have covered such issues as bilateral negotiati ons with the United States and special and differential 
treatment. 
18 The ten countries are: Bolivia, Chile, Dominican Republic, Ecuador, Guatem ala, Nicaragua, Panama, 
Peru, Suriname, and Trinidad and Tobago.  Although each proj ect is tailored to the specific needs of the client, 
these operations typically comprise the following components:  (i) institutional reform to improve trade policymaking;  (ii) implementation of effective information and communications systems for the Ministry of 
Trade and other trade-related agencies;  (iii) technical  support to negotiations and implementation of trade 
agreements, and training in all areas related to trade;  (i v) sector-specific support in  such areas as agriculture, 
sanitary and phytosanitary standards and intellectual property rights;  (v) modernization of export promotion and 
investment attraction agencies;  and (vi) support for outreach activities and stakeholder consultations. WT/AFT/W/13 
Page 12  
 
  facilitation activities related to customs refo rm, technical standards and certification, 
as well as strengthening the private sector's participation in the formulation of trade policy.  Many projects are regional, rather  than national in scope.  Since 2002, the 
MIF has approved 17 grant projects under the cluster with a total contribution of 
US$28.2 million; four projects totalling US$5.4 million are in the pipeline.
19  T h e  
cluster is supported by technical experts who regularly visit projects, facilitate project 
implementation and foster the sharing of experiences among beneficiary agencies.  
d) In 2002, the Bank created the Special Initiative on Trade and Integration , 
providing additional funding of US$5.5 milli on to the Trade Division over a four-year 
period (2003-2006).  The aim was to (i) strengthen the Bank's capacity to influence 
the policy debate on trade and integration;   (ii) provide technical support to 
governments, particularly in response to  urgent, time-sensitive requests;  and 
(iii) conduct more public outreach.20   
e) In 2003, responding to growing needs for ad justment-related assistance, the Bank 
established a Lending Program for Trade, Integration and Competitiveness , 
which allows a country to combine components of the Bank's policy-based, 
investment and technical assistance lending into a single loan operation to address the broader range of sectoral adjustments that it must make in the transition to freer trade.  This program, coupled with the availab ility of loans focused on competitiveness, 
provides support for all the critical issues in  the transition to free trade, including 
infrastructure, labour market adjustment, wo rker re-training, rural agriculture, small 
and medium enterprise development, tax re form, customs modernization, and trade-
related capacity building.
21   
f) In 2003, the International Trade Finance Reactivation Program (TFRP) was 
approved, allowing the Bank to commit up to US$1 billion for projects, programs and other actions aimed at supporting the availab ility of trade finance in LAC countries.  
Initially created on a two-year trial basis, the program was made permanent in 2005.  
The Bank's private sector department, PRI, has developed several instruments to implement the TFRP. In 2005, it launched one such instrument, the Trade Finance Facilitation Program (TFFP).  Under the TFFP, the IDB extends guarantees to cover risks associated with trade-related instrume nts (e.g., letters of credit, documentary 
collections, promissory notes) issued by banks  in the financing of international trade 
                                                     
 
19 Project examples include a US$1.1 million regional grant to support the private sector's participation 
in CARICOM's external trade negotiations;  a US$2.48 million grant to support small rural producers in 
Argentina in overcoming technical barrie rs to trade; and a US$2.14 million re gional grant to raise awareness and 
facilitate application of sanitary and phytosanitary standards in Mesoamerica. 
20 The Special Initiative has allowed the Bank to expa nd its trade-related research, technical assistance 
and outreach activities substantially.  For example, it has en abled the Bank to provide direct support to Central 
American and Andean countries in developing and implementing national action plans for trade-related capacity 
building.  It has also facilitated the Bank's policy research  into crucial areas such as rules of origin; asymmetries 
and distributional effects related to trade liberalization, and the implications for LAC of China's emergence as a 
major trading power.  Finally, it has helped expand the Bank's outreach activities, for example by funding 
orientation workshops on trade for parliamentarians and civil society. 
21 Costa Rica was the first to develop a multi-sector loan under the program, comprising foreign trade, 
science and technology and rural roads rehabilitation.  The US$116.8 million investment loan was approved in 
2005.    WT/AFT/W/13 
 Page 13 
 
 
  transactions.22  The Bank has also approved several  loans to investment funds that 
provide trade financing to under-served e xporters and importers in the region.  
g) Bilateral donors have increasingly channelle d trade-related assistance through the 
IDB.  The IDB-Canada Trade Fund , established in 2003 with a capital of 
CAN$6 million (US$5.4 million), provides grants of up to CAN$150,000 
(US$135,000) per project to relevant ministries or regional agencies to support trade-
related capacity-building programs agreed by LAC countries under the FTAA Hemispheric Cooperation Program.  The Fund has expanded the Bank's possibilities 
of offering grant assistance at the national level.  So far, ten countries and one regional agency have accessed the fund, for total financing of CAN$1.65 million 
(US$1.5 million).  The Trade and Poverty Trust Fund , established in 2005 as a 
multi-donor trust fund with an initial contribution of US$1.5 million from the United Kingdom (DFID), supports Bank efforts to re spond to increased demands for analysis 
of the distributional effects of trade inte gration, as well as the formulation and 
implementation of strategies, policies and in struments aimed at enhancing the impact 
of trade integration on the poor.   
32. Beyond specifically trade-related instruments,  several broader initiativ es launched by the IDB 
in recent years support the institution's efforts to de liver aid for trade more effectively.  Noteworthy 
are three infrastructure initiatives aimed specifically  at supporting the region's intra-regional and 
global integration.   
a) Initiative for the Integration of Regional Infrastructure in South America 
(IIRSA) .  Launched in 2000, IIRSA supports th e development and integration of 
energy, transport and telecommunications infrastructure across 12 South American 
countries to facilitate trade integration both intra-regionally and with the rest of the 
world.  The IDB, along with the Andean Development Corporation ( Corporación 
Andina de Fomento , CAF) and the Financial Fund fo r the Development of the River 
Plate Basin ( Fondo Financiero para el Desarrollo de la Cuenca de Plata , 
FONPLATA) forms part of IIRSA's t echnical coordination committee, which 
provides support to countries in all IIRSA-related topics.  IIRSA has developed physical infrastructure requirements for ten integration hubs in the region, and identified 335 related projects with an esti mated value of US$37.5 billion.  From this 
portfolio, governments have selected 31 pr iority projects worth US$5.8 billion for 
implementation over the next five years.
23  Under the IIRSA initiative, the IDB has so 
far financed seven strategic infrastructure projects for a combined value of US$515 million.  In 2005, moreover, the IDB created a US$20 million Fund for the 
Financing of Technical Cooperation Op erations for Regional Infrastructure 
Integration Initiatives under IIRSA.  
b) The Puebla-Panama Plan (PPP) , launched in 2001, seeks to improve the trade, 
growth, and economic development poten tial of southern-Mexico and Central 
America.  The PPP focuses on a number of areas including trade facilitation, infrastructure development (roads, energy, telecommunications), and tourism 
                                                     
 
22 The TFFP currently comprises a ne twork of over 60 confirming ba nks belonging to 26 different 
international banking groups in 20 countries, and 11  issuing banks in seven LAC countries with over 
US$270 million in approved credit lines.  To date, th e IDB has issued guarantees for over US$30 million in 
support of approximately 50 international trad e transactions totalling over US$66 million. 
23 One initiative directly related to trade is the four-country project to pave the Carmelo Peralta–Loma 
Plata route and build the Carmelo Peralta–Porto Murtinho  bridge, which will inter-connect productive areas in 
Chile, Bolivia, Brazil, and Paraguay and ensure access fo r isolated, landlocked re gions to Pacific ports. WT/AFT/W/13 
Page 14  
 
  services.  The core PPP structure is comprised of the IDB, the Central American 
Bank for Economic Integration (CABEI),  and ECLAC, as well as the national 
governments.  IDB acts as financial coordinato r of the program and is also a member 
of its technical committee. Envisioned as a multi-billion, multi-year program with stated goals until 2020, the PPP is finan ced by contributions from participating 
countries, the private sector, and bilate ral and multilateral donors, including the 
IDB.
24   
c) The Bank approved a new US$20 million Infrastructure Project Preparation Fund 
(InfraFund) in early 2006. The fund, which is not exclusive to either IIRSA or the PPP, supports the preparation of pre-investment studies (e.g., financial and 
environmental assessment) for infrastructure projects.  
d) The Bank has also supported improved provision of infrastructure services for trade 
with technical cooperation grants in areas such as port security, institutional strengthening of port authorities, and stre ngthening of border crossing logistics.  
33. The Bank's Business Climate Initiative (BCI) , launched in 2003, aims to identify and then 
reduce or eliminate critical barriers to growth, pr omoting the expansion of private sector activities 
through legal and regulatory changes in the institutions and policies that affect the investment climate.  
The BCI seeks to identify areas wh ere there is consensus among public officials and private business 
leaders that significant barriers to private sector-led growth exist, and to defi ne priority actions to 
address those barriers.  The initiative has three phases:  (i) signature of an aide-mémoire  between the 
IDB and the government reaffirm ing the importance of a sound environment for private sector 
development, and defining the scope of action fo r identifying the appropriate reform agenda and 
support program;  (ii) diagnostic assessment ba sed on consultations with a broad range of 
stakeholders to identify issues that should be addresse d as a matter of priority to maximize the impact 
of any policy action on the country's business climate;   and (iii) business climate reform financing.  
Once identified in the country strategies, the sp ecific action plans are then supported through the 
IDB's operational programs.  
34. Not exclusively linked to trade, but important  for its potential to facilitate larger-scale 
regional interventions is the Bank's new Regional Public Goods Initiative, launched in 2004.  This 
initiative aims to support the development of goods, services, rules systems or policy regimes that 
generate shared benefits for the participating co untries as a result of cooperation and collective action 
by those countries.  The Bank provides non-reimbursable resources of up to US$10 million a year to 
finance demand-driven projects that develop regi onal public goods in LAC.  Based on a competitive 
selection process, the IDB approved US$8.9 million in grants in 2005 and has a 2006 pipeline of 
11 projects for 23 borrowing member countries in areas such as environmental protection, education, 
modernization of the state, financial markets,  information and communication technologies, 
agriculture, health and social development.  Th e Bank has already approved several trade-related 
projects under this initiative, and there is good poten tial for developing more such projects in the 
future.  Importantly, moreover, this instrument  could be used to provide seed money and as an 
incentive for countries to cooperate around larger re gional projects that also require lending for the 
implementation of national components.  
D. A
DDRESSING FUTURE CHALLENGES IN TRADE -RELATED ASSISTANCE  
35. A Regional Development Bank Positioned to Deliver Aid For Trade.  As the above 
demonstrates, the Bank's institutional structure and support for trade-related assistance have evolved 
                                                      
24 Two recent IDB operations are a US$50 million lo an to Honduras and two loans for a total of 
US$80 million to Nicaragua in 2004 to support PPP-related road projects.  WT/AFT/W/13 
 Page 15 
 
 
  over time to meet growing demand in LAC countries, for which global trade integration is emerging 
as a priority.  Historically a supplier of technical and financial assistance to what are perceived today as the broader components of the aid-for-trade age nda, the Bank more recently also established a solid 
track record in the delivery of assistance for trade- related capacity building.  The combination of a 
critical mass of technical expertise in trade -related issues, operationa l know-how to deliver 
development assistance, and a presence in each country of the region, along with a wide 
representation of donors in its shareholding structure,  put the Bank in a good position to contribute to 
the delivery of trade-related assistance to LAC.  
36. A "New Lending Framework" to Improve Development Effectiveness.  In 2005, the IDB 
adopted a New Lending Framework (NLF) to support the region's need for more effective spending 
and higher returns on investment within the context of narrowing 17 fiscal space.  The NLF favours a 
programmatic (rather than individual project) approach  to lending, more flexibility in terms of lending 
criteria, increased reliance on national fiduciary an d evaluation systems, and greater focus on results. 
The NLF includes the use of sector-wide approach es (SWAPs), new lending instruments such as 
programmatic policy-based loans (PBLs) and perform ance-driven loans (PDLs), and a wide range of 
other measures to make lending more flexible  and execution of projects more efficient.
25  In 2006, 
moreover, the Bank relaxed its cond itions for lending to the private sector.  Several elements of the 
NLF may prove to be critical for delivering trade-related assistance more effectively.  
37. A Dynamic Institution Aligned with Client Needs.  Along with upgrading its operational 
instruments and procedures, the Bank is currently en gaged in a process of ins titutional realignment to 
increase its effectiveness in the delivery of devel opment finance.  With Bank operations now covering 
the whole range of trade-related assistance, and us ing many different instruments to deliver such 
assistance, the challenge is to ensu re that all interventions are closely linked with and complement 
each other, and that the region's trade concerns  are effectively addressed in all areas of Bank 
intervention, and through all available instruments.   The Bank's proven capacity to adapt to changing 
demands in its borrowing member countries, its New Lending Framework, and its long-established 
presence in the region provide good tools for addre ssing this challenge.  So do the lessons learned 
from its past experience in providi ng trade-related assistance.   
IV. LESSONS LEARNED AND GAPS IN THE DELIVERY OF AID FOR TRADE  
A. RECOGNIZING THE CONTEXT AND DEFINING THE SCOPE OF ASSISTANCE  
38. The ultimate objective of aid for trade is broad-based economic growth and development. 
Achieving this outcome requires, first, recognizing the context in which such aid is being delivered, 
particularly if it involves further trade liberalizati on as envisaged by the D oha Development Agenda.  
While trade has assumed a much more prominent pl ace in the public debate and on the policy agenda 
of LAC governments, trade is not yet sufficiently ma instreamed into national development agendas.  
Past experience has moreover shown that to sustain support for trade liberalization, adequate attention 
must be paid to supply-side capacity and adjustme nt issues in conjunction with future liberalization 
efforts.  Finally, most LAC countries are highly indebt ed and face serious fiscal constraints.  All this 
                                                      
25 A sector-wide approach can be supported by any type of investment loan.  In a SWAP, all 
development partners involved in a sector collaborate to support a single government-led sector policy and 
expenditure program, and relying increasingly on government procedures to disburse and account for all funds.  
A programmatic policy-based loan comprises a series of individual operations set within a medium-term 
framework of reform, approved on a phased basis to su pport a country's reform program, and with specific 
triggers for moving from one operation to the next.  A performance-driven loan is an investment loan that 
disburses once the program's actual developmental results or outcomes are achieved, and the Bank has verified 
the expenditures incurred by the borrower to reach the outcomes. WT/AFT/W/13 
Page 16  
 
  has implications for what kind of trade-related assistance LAC countries now need, and how it should 
be delivered.  
39. Demand for traditional trade-related capacity bu ilding continues to be acute in many LAC 
countries, but there is also a growing need for tr ade-related assistance to address the broader aid-for-
trade agenda.  In particular, such assistance shoul d increasingly help countries eliminate supply-side 
constraints that inhibit them from realizing the opportunities of trade liberalization and that weaken 
their capacity to respond efficiently to  trade-related adjustment shocks.
26  The IDB has provided such 
assistance for decades both at the national and regional level, but is now making efforts to link it more 
effectively with the countries' trade agendas.  At the same time, trade-related assistance must seek to 
address the distributional effects of liberalization and the problems of asymmetry, which, if left 
unsolved, can intensify as a result of liberalizat ion.  Aid-for-trade could make an important 
contribution towards changing attitudes about trade libe ralization and mitigating the risk of a backlash 
against further trade reform in LAC.  
B. DELIVERING AID FOR TRADE : EXPERIENCES AND LESSONS LEARNED  
40. Technical Analysis and Diagnostic Work .  The best way to identify a country's trade-related 
needs is through comprehensive and broad-based tec hnical analysis.  The preparation of diagnostic 
trade and integration studies presents several chal lenges.  First, developing countries often lack the 
capacity for doing their own diagnostic work, and their action plans tend to be somewhat narrow, 
focusing on short-term capacity building rather th an considering trade challenges within a broader , 
long-term development perspective .  Lack of sufficient data and adequate methodologies for 
preparation of trade and integration studies ofte n contribute to this outcome.  Second, and as a 
consequence of the above, trade and integration studi es are often supply-driven, prepared by IFIs or 
other development agencies.  Here, however, is a nother challenge in that staff, time and budget 
constraints in these agencies may pr event them from conducting the kind of in-depth analysis that is 
needed to prepare a comprehensive diagnostic study.   Effective coordination in the preparation of 
analytical work, both at the country level (inter-agency) and within the development agency (inter-
departmental) is crucial to ensure that trade stra tegies encompass all relevant sectors and aspects of 
the economy.  This, too, may present a challenge.  The way forward is to support the preparation of 
diagnostic studies that are demand-driven, have local ownership, and are effectively integrated into 
national development plans.  
41. Policy Dialogue and Programming .  Analytical work feeds into policy dialogue with 
governments and other relevant stakeholders.  Here , the challenge is to move beyond traditional 
constituencies in the trade community  to target decision-makers in th e country more broadly.  It is 
important to expand dialogue on trade issues with finance and planning ministries, who have crucial 
responsibilities in deciding future macroeconomic  and development policy and prioritize funding 
requests for external assistance.  Ideally, policy dialogue should encompass all relevant ministries 
(e.g., finance, planning, trade, agriculture) as we ll as the legislative branch of government (Congress, 
Parliament), the private sector and other importa nt civil society groups, including labour.  Without 
such dialogue, trade strategies run the risk of being unbalanced and unsustainable (because of 
insufficient political support and lack of "ownership").  
42. Broad-based dialogue is also necessary to mainstream trade into national development  
agendas .  Trade ministries are often aware of the signi ficant challenges that lie ahead, but finance or 
planning ministries may be less attuned to the speci fics of those challenges given their much broader 
                                                      
26 Overcoming supply-side constraints requires both ph ysical investments and regulatory reform.  In the 
area of infrastructure, for example, it is important not only to focus on building roads, ports or communications 
systems, but also on related policy and regulatory improvements.  For trade-related infrastructure, it is moreover 
important to address questions of policy consistency across countries, and to prioritize cross-border linkages.    WT/AFT/W/13 
 Page 17 
 
 
  policy mandates.  As a result, they may undervalue the importance of trade for economic 
development, and of well-functioning institutions for trade development.  Continued efforts to 
integrate trade into country dialogue and programming are urgently needed.   
43. Identification and design of operations .  For IFIs and other development agencies, one 
important challenge in the design of operations is  to ensure efficient coordination between staff 
engaged in strategy and policy formulation on trad e for a specific beneficiary country or region, and 
the operational staff that will design and help implem ent programs in the field. In other words, it is 
important to establish a close working relationshi p or link between "trade  practitioners" and "aid 
practitioners " in the identification, design and developmen t of trade-related assistance.  The Bank has 
made efforts in recent years to strengthen this link, aiming to ensure that policy research feeds 
seamlessly into operational support.  
44. Implementation .  One challenge related to the implem entation of trade-re lated operations is 
the limited absorptive capacity  of local executing or "beneficiary " agencies in LAC, some of which 
execute multiple donor projects at the same time.  Donor coordination can go some way towards 
easing the pressure on these agencies, but capacity problems will remain a serious issue for the 
foreseeable future, particularly in the region's sm aller and/or poorer countries.  Trade ministries and 
other relevant agencies in these countries are often inadequately staffed and too weak to implement 
operations without outside technical and administrative assistance.   
45. To help countries execute projects, devel opment agencies often establish specific project 
implementation units in such agencies, staffed by consultants.  The availability of a broad pool of 
international experts who can assist in implementa tion is crucial to achieving beneficial outcomes.  
However, it has sometimes been difficult to attrac t such expertise, particularly for longer-term 
assignments in the region; language has also been an  issue.  The problem of limited implementation 
capacity could become even more pronounced with th e planned increase in aid for trade.  There is 
thus urgent need to build local expertise in all areas of trade  as a first step in expanding such aid.  This 
is also crucial to ensure the consolidation and sustainability of aid-for-trade development outcomes 
over the long term.  
46. In terms of the Bank's own processes, it is wo rth noting that IDB operations, similar to those 
of other IFIs, are developed by staff in headquart ers and, once approved, are administered by field-
based staff.  In the IDB, trad e specialists from headquarters provide regular advice on the technical 
aspects of implementation, but field office staff is in  day-to-day contact with local executing agencies.  
The presence of field offices  in each of the IDB's borrowing member countries provides a good 
opportunity for the Bank to participate in the de livery of expanded aid-for-trade flows.  Their 
responsibility in the administration of such flows al so highlights the importance of further developing 
technical expertise on trade in these offices, an d of ensuring effective coordination between 
headquarters and field offices.   
47. Instruments for delivering aid for trade .  As mentioned earlier, most LAC countries are 
highly indebted and face se rious fiscal constraints.  This places limits on how much they can borrow 
to facilitate trade integration and adjustment.27  In such a context, the limited availability of grant 
funding for trade-related assistance to mi ddle-income countries is a serious challenge .  In the IDB, for 
example, 21 of the 26 borrowing member countri es have no access to Bank grant funding beyond trust 
fund, MIF and regional FSO resources, which are sc arce.  The Bank's specialized trust funds for 
trade-related assistance have emerged as important  instruments for channelling resources to countries 
                                                      
27 The Caribbean countries are a good example of this dilemma: they have relatively high per capita 
income levels, but their high debt ratios limit the amount of borrowing they can do.  These countries, nevertheless, are highly vulnerable to further multila teral trade liberalization and are struggling with the 
consequences of preference erosio n in their main export markets. WT/AFT/W/13 
Page 18  
 
  engaged in trade reform;  expanding their scope  could help LAC countries overcome their binding 
financial constraints in addressi ng trade-related adjustment.  
48. Grant funding is not only limited, but often also  programmed on an annual basis.  This makes 
it difficult to support programmatic, long-term  approaches to trad e-related assistance
.  The scarcity of 
grant funding also limits the scope of activities th at can be undertaken.  There has been a significant 
amount of support for short-term training in LAC countries, perhaps crowding out other important 
trade-related priorities.  Coordination among donors has not always been optimal and short-term 
training also raises the question about the sustaina bility of its outcome.  Gr ant funding is sometimes 
tied to specific nationality requirements for consulta nts, country eligibility criteria, and thematic 
priorities, limiting the flexibility of its use.  Grant funding, of course, must also grapple with the 
question of ownership – some counterpart funding may be warranted to ensure that beneficiary 
countries have sufficient incentives to work towards optimal outcomes of such aid.  
49. As regards specific lending instruments, one less on learned is that a multi-sector approach to 
trade-related assistance is crucial .  Hybrid programs covering multiple sectors and combining multiple 
lending instruments and executing agencies have a ll the requisites for addressing the complexity of 
the aid-for-trade agenda.  They can, however, be di fficult to design, implement, monitor and evaluate. 
Meanwhile, sector-wide interventions involving multiple donors could provide significant benefits  to 
a country if implemented effectively (through SWAPs or similar mechanisms).  They could also provide a vehicle through which to combine loans wi th technical assistance grants.  The grant element 
could be used for purposes of strengthening local execution capacity, which, as noted above, has been 
a serious challenge in some LAC countries. SW APs, meanwhile, present their own challenges in 
terms of donor coordination and attri bution of development outcomes.   
50. There is a clear gap in financing for large-scale regional interventions
, particularly those 
involving the public sector.  The Bank has a lot of experience working with LAC governments at the regional and sub-regional level, but its regional interventions ar e necessarily small owing to the 
scarcity of funding for such programs.  The current level of grant funding that is available to LAC 
countries cannot cover the cost of large-scale regiona l infrastructure or public goods initiatives in the 
region, and lending instruments continue to focus al most exclusively on national interventions.  It 
may be worthwhile for developmen t banks to explore the possibility of combining national loans with 
a regional grant component that provides incentives for countries to approach problems from a regional perspective.  To a certain extent, th e Bank's IIRSA experience suggests that regional 
infrastructure projects can be financed through separ ate national projects, but perhaps the provision of 
grant funding could facilitate greater use of such  regional approaches.  The Bank's Regional Public 
Goods Initiative, by providing seed money for th e development of new regional public goods, 
presents one possibility to foster greater use of regiona l approaches in the delivery of aid for trade.  At 
the national level, a combination of grant and loan fi nancing could be used to lower the effective cost 
of borrowing for countries.   
51. Finally, in terms of instruments, the Bank's e xperience also points to the need for a flexible 
"rapid response" facility  to address short-term, urgent requests from governments.  When countries 
are already negotiating, and need urgent technical as sistance within a week or two there is little time 
to develop even a small grant-financed project.  Fl exible funds would also allow timely identification 
and execution of pilot projects that could subsequent ly be scaled up and replicated in other countries 
or regions.  To date, the Bank has sought to a ddress urgent, very time-sensitive requests through 
deployment of its own staff and administrative budget resources. 
52. Monitoring and Evaluation .  There is much need to strengt hen this aspect of aid for trade 
delivery.  In the current context of serious fiscal constraints, many LAC countries are reluctant to 
borrow for projects that do not have an immediat e or easily measurable development outcome.  
However, measuring outcome is very difficult in trade-related assistance , particularly assistance  WT/AFT/W/13 
 Page 19 
 
 
  related to institutional strengthening and capacity bu ilding.  This partly owes to the difficulty of 
establishing baseline indicators for measuring progress in  trade-related assistance that is not related to 
physical infrastructure or investment.  It also ow es to the difficulty of establishing attribution in 
countries where many donors are invol ved in trade-related assistance.  
53. One area where donor coordination could be very effective would be in the development of 
well-designed results-based framewo rks for trade-related assistance .  A "Results Framework" 
comprises goals, objectives, baseline indicators, targ et indicators, and an assessment of identified 
risks and mitigation efforts.  Common frameworks, agreed and used across IFIs and donor agencies 
for the various types of trade-related assistance (r anging from training and ins titutional reform in trade 
ministries, to improved customs procedures, export promotion, infrastructure development, business 
development and adjustment efforts) would st rengthen monitoring and evaluation capacities in 
individual institutions, an d would also make it easier to monitor trade-related assistance at the 
regional and global level.  
54. Role of the Private Sector .  The private sector should play an active role in identifying  
countries' trade-related needs and in implementing adequate responses .  The Bank has been active in 
this area with its MIF project cluster and Trade Finance Facilitation Program.  In 2006, moreover, the 
Bank relaxed its conditions for lending to the privat e sector.  Previously, such lending was limited to 
infrastructure, capital markets and trade finance.  The Bank can now lend to private companies in any 
sector, and can also support public-private partners hips, where public sector involvement can be at 
both the national and sub-national le vel.  This expanded mandate c ould substantially strengthen the 
Bank's role in supporting aid for trade, particular ly as it relates to infrastructure and supply-side 
capacity.   
55. In an effort to expand and better coordinate its  support to private sector development in LAC, 
the Bank has recently launched the preparati on of private sector development strategies  for all its 
countries.  These strategies, which feed into the Bank's country programming, guide the activities of the Bank's public and private sector lending depart ments and seek to provide a more coordinated 
approach to the Bank's support to the private sector.  One challenge in the area of trade is that private 
sector agents in many LAC countries lack awar eness of the benefits and consequences of trade 
liberalization.  Particularly in th e smaller countries of the region, they  are often inadequately informed 
about public sector initiatives in the area of trad e, and have little influence on the development of 
national trade policy.  Outreach activities and awareness building
 for the private sector are therefore 
important activities that should be covered in trade -related assistance.  It would naturally lead to 
improved capacity for preparing private sector needs assessments in the area of trade.   
56. Donor coordination .  Donor coordination in the delivery of aid for trade must be 
strengthened to avoid duplication of efforts, stre amline reporting requirements for executing agencies 
and facilitate greater use of SWAPs .  The IDB has taken a number of steps to coordinate its trade-
related assistance, not least in conjunction with  the FTAA Hemispheric Cooperation Program and the 
donor meetings organized during the bilateral tr ade negotiations between the United States and 
Central American and Andean countries.  In deliv ering aid for trade, donors should adhere to the 
principles outlined in the 2005 Paris Declaration on Aid Effectiveness – ownership, harmonization, 
alignment, managing for results and mutual accountab ility.  These principles are particularly relevant 
in view of the trade challenges outlined above and the planned expansion of aid for trade in the future.  
V. LOOKING AHEAD:  LAC, AID FOR TRADE AND THE IDB  
57. One of the most important lessons learned by the IDB in its efforts to supply trade-related 
assistance to its borrowing member countries is that there is overwhelming need for such assistance in 
LAC.  Despite being mostly middle-income, LAC countries face serious resource constraints that 
have created significant gaps in their capacity to r espond to trade-related challenges and to exploit the WT/AFT/W/13 
Page 20  
 
  opportunities of more open markets.  Aid for trade,  appropriately tailored to their more advanced 
levels of economic development (relative to ot her developing regions) c ould make an important 
contribution towards closing those gaps.  
58. In the past decade, the IDB h as made significant efforts to align its institutional structure, 
technical expertise and financial and non-financial instruments with client needs in the area of trade.  
It has established a solid reputation for the deliver y of trade-related assistance to LAC countries and 
can draw on valuable lessons learned in designing it s future interventions in  this area.  Along with 
new instruments for trade-related assistance, the Bank  has also added greater flexibility to its overall 
lending process, making it easier and faster for c ountries to access its resources.  Perhaps most 
importantly, working with trade-related assistance  has given the Bank a keen sense of where the 
current bottlenecks to the provision of such assistance lie, and what gaps need to be filled to make aid 
for trade a truly effective instrument for helping de veloping countries participate more effectively in 
the multilateral trading system and, ultimately, to achieve stronger and more sustained economic 
growth.  
59. This experience makes the Bank a natural part ner for LAC – and for the wider global trade 
community – in the design and implementation of an expanded aid-for-trade package under the Doha 
Development Agenda.  In devel oping its own expertise in trade -related assistance, the Bank has 
grappled with many of the issues that now c onfront the WTO Task Force on Aid for Trade:  
identifying the gaps, finding effective means of delivery, involving the private sector and strengthening monitoring and evaluation mechanisms, to name just a few.  
60. As the previous section on lessons learned showed , there is clearly a need to develop better 
analytical tools and diagnostic capacities, mo re effective dialogue and programming, more 
appropriate operational instruments and stronger monitoring and evaluation mechanisms for trade-
related assistance.  But in terms of institutions for managing additional aid, the existing global and 
regional architecture appears to be adequate, at le ast on the supply side.  Re gional development banks, 
in particular, should play a prominent role in the fu ture delivery of aid for trade.  They offer a number 
of advantages in this respect, regional experien ce and proximity to clients being among the most 
important ones, not least because trade is often a politically sensitive issue.  On the demand side, 
greater efforts should go into strengthening the abso rptive capacity and sustainability of institutions 
that implement trade-related assistance.  In fact, th is aspect of managing aid for trade may be the most 
important issue for ensuring effective delivery of ai d, and it deserves greater attention in the current 
debate on aid for trade.  The role of the WTO Task Force on Aid for Trade is therefore crucial in 
ensuring a balanced debate between the supply and demand sides of aid for trade on how best to 
operationalize this important initiative in order to contribute to the development dimension of the 
Doha Development Agenda.  WT/AFT/W/13 
 Page 21 
 
 
  ABBREVIATIONS 
  
ADB Asian Development Bank  
CABEI Central American Bank for Economic Integration  
CAF Andean Development Corporation  
CAFTA-DR US-Central America-Domini can Republic Free Trade Agreement  
CARICOM Caribbean Community  DFID Department for International Development (UK)  DTIS Diagnostic trade and integration study  
ECLAC UN Economic Commission for Latin America and the Caribbean  
EU European Union  FONPLATA Financial Fund for the Development of the River Plate Basin  FSO IDB Fund for Special Operations  FTAA Free Trade Area of the Americas  
GATT General Agreement on Tariffs and Trade  
GDP Gross domestic product  IDB Inter-American Development Bank  IF Integrated Framework  IFI International financial institution  IIC Inter-American Investment Corporation  
IIRSA Initiative for the Integration of Regional Infrastructure in South America  
IMF International Monetary Fund  INT Integration and Regional Programs Department (IDB)  INTAL Institute for the Integration of Latin America and the Caribbean (IDB)  ITD Integration, Trade and Hemispheric Issues Division (IDB)  
LAC Latin America and the Caribbean  
LDC Least-developed country  MIF Multilateral Investment Fund (IDB)  NAFTA North American Free Trade Agreement  NLF New Lending Framework (IDB)  OAS Organization of American States  
OECD Organization for Economic Cooperation and Development  
PBL Policy-based loan  PDL Performance-driven loan  PPP Puebla-Panama Plan  PRI Private Sector Department (IDB)  
RTC Regional Technical Cooperation  
SWAP Sector-Wide Approach  TFFP Trade Finance Facilitation Program  TFRP Trade Finance Reactivation Program  UNCTAD UN Conference on Trade and Development  WB World Bank  
WTO World Trade Organization 
 
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