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    Implementing Aid for Trade in Latin America and the Caribbean: Making Progress


    International Trade Forum - Issue 2/2009

    The Second Global Review on Aid for Trade held in Geneva on July 6-7, 2009 represented an important milestone to take stock of the gains made since the First Aid for Trade Global Review in 2007. The Inter-American Development Bank (IDB) is very proud to be a partner of this initiative in the Latin American and Caribbean region.

    Latin America and the Caribbean (LAC) countries, together with the IDB, have endorsed and supported this initiative since the very beginning because we understand the power of trade to change our societies and our region. The bank is committed to this objective. We have heavily invested in promoting the Aid for Trade initiative in LAC through a range of projects and initiatives, including supporting countries in the negotiation, implementation and administration of trade agreements; strengthening trade and investment promoting institutions; fostering private sector development for trade, in particular small and medium-sized enterprises (SMEs); and enhancing economic competitiveness and regional economic integration.

    Yet, the political will to further bring down trade costs and trade barriers is needed to accompany these efforts. No time is more appropriate than this time of turbulence to boost this commitment. The global economic downturn has already accentuated the importance of trade and economic integration as engines of growth and development, and global trade is the best "antidote" to economic turbulence and the best "stimulus package" for national economies to get back to their growth paths.

    Trade as an engine for growth

    The impact of the current crisis in Latin America and the Caribbean has largely been channelled through the slowdown of global trade, in particular affecting those countries that are more trade dependent. But the region has been better prepared to face the crisis, with greater reserves, sound policies and a solid macroeconomic framework.

    However, the continuing contraction of exports, the widening of fiscal gaps and the increasing difficulties in the access to finance, are all factors contributing to the economic difficulties of the region. Therefore, trade must continue to flow and expand. Protectionism as a policy reaction to the crisis would be a great error and lessons from history are very clear in this regard.

    Through the negotiations of multilateral, bilateral and regional trade agreements, countries of the region have opened new markets to channel the energy of the private sector, they have boosted competitiveness and innovation for delivering new economic opportunities and, most importantly, they have contributed to raise thousands out of poverty.

    However, significant additional efforts are needed. Although Latin American and Caribbean countries have liberalized trade and open markets in the past 20 years at an unprecedented speed, they still face major challenges.

    First, there are the "soft" costs of trading: the region must address the increasing complexity of a trading system dominated by the proliferation of overlapping and complex rules. They can impose undue transaction costs on traders, investors and customs officials. A recent survey conducted by the IDB reveals that companies in the region would expect important gains from the harmonization of rules across regional agreements, in particular in areas such as rules of origin, standards and customs procedures, among others.

    Second, there are the "hard" costs of trading: the region must focus its attention on transport costs and logistics. The IDB estimates that the average ocean export freight rate from Latin America to the United States market is almost 50 per cent higher than exporting the same good from Europe, controlling all relevant factors such as distance. Similarly, the impact of a 10 per cent redu-ction in the freight rates would increase the volume of trade by a factor of 20 times higher than a similar reduction in tariffs. In parti-cular, cross-border interventions offer an important opportunity for reducing logistical costs. It is estimated that delays in customs clearance in Latin America and the Caribbean increase transport costs by between 5 and 15 per cent.

    Third, there are the "information" costs of trading: the region has an urgent need to modernize some of its institutional trade architecture for export promotion and investment attraction. A forthcoming report by the IDB, to be released this fall, shows the critical role that modern export promotion agencies can play in fostering commerce. They can support the private sector (in particular SMEs) to navigate the difficult path to become an exporter for the first time or to discover new niches and markets.

    Moving the Aid for Trade agenda forward

    The Aid for Trade initiative is a key platform to move this agenda forward, and it is already yielding results. The national and regional Aid for Trade Reviews organized by the IDB in co-llaboration with the Caribbean with the World Trade Organization in LAC have shown that countries in our region are mainstreaming the Aid for Trade principles into their national and regional development strategies. I am particularly pleased to note that the private sector has played a major role in the Aid for Trade dialogue, as we recently saw in the Regional Review held in Jamaica in May 2009.

    The IDB is committed to supporting national development strategies as well as regionwide initiatives conducive to a successful trade integration agenda. I would like to highlight four areas that I consider of the outmost importance and that we are supporting in the context of our Aid for Trade strategy:

    First, we must continue supporting both "soft" and "hard" regional infrastructure to ensure efficient trade and economic integration. The IDB has implemented a wide range of programmes on trade facilitation, trade logistics, customs modernization, transport corridors and harmonization of regulatory standards and norms, among others.

    The recent IDB project "International Goods Transit System" (known by its Spanish acronym, TIM), in the context of the Mesoamerican Project, is an illustrative example of how we can reduce significantly delays at border crossings, saving companies and consumers time and money. The average time to cross the border has been reduced from more than one hour to just eight minutes on average. Similar trade facilitation projects are being implemented in South America and the Caribbean.

    Second, we must continue strengthening our trade institutions to promote trade and investment, supporting the engagement of our private sector into the global market. The bank has implemented innovative programmes for export promotion, attraction of foreign investment, private sector development (in particular assistance to SMEs), export clusters and trade finance, among others.

    Restoring quickly trade finance is crucial in the present crisis. The IDB responded swiftly by expanding its Trade Finance Facilitation programme to $1 billion. In addition, a new IDB programme named "Export Plus" will allow SMEs to take advantage of enhanced market access through capacity building in the area of certification of standards, marketing and management of trade logistics.

    Third, we must continue mobilizing new resources and promoting innovative partnerships. The IDB is committed to it and has established a new "Aid for Trade Strategic Fund" which will enable the bank to meet the growing demand and needs of our region. The Aid for Trade Fund will also be an opportunity to deepen, enhance and break new ground in regional cooperation. In this context, at the IDB we are also currently exploring new mechanisms to create incentives for enhancing South-South cooperation.

    Fourth, while initiatives such as Aid for Trade are critical, the protection of the multilateral trading system is paramount. Our countries need to be global players and integrate globally to expand trade and create prosperity. In this regard, the conclusion of the Doha round is imperative for our region and the future of the world trading system as a whole, now more than ever.

    Scaling up initiatives on all of these fronts requires substantial investment, and this is where the role of the IDB becomes relevant, working together with other organizations and the public and private se-ctors. In this regard, the bank will make additional resources available to assist member countries affected by the financial and economic crisis. At the same time, the integration agenda and the role of Aid for Trade in Latin America and the Caribbean are becoming increasingly relevant for the IDB in the context of a capital increase cu-rrently under discussion.

    In these times of economic crisis and uncertainty, trade needs to become a major anchor for growth and development. The current moment calls for reinforcing our trade and integration effort and in this sense the Aid for Trade initiative is now more relevant than ever.