More than 30 regional agreements involving countries in Latin America and the Caribbean have been signed since 1990 and nine more are in the works. Average tariffs in the region fell from over 40 percent in the mid-1980s to about 12 percent in the mid-1990s. Trade in Latin American grew faster than world trade in the 1990s, and even though it flattened out in the hardship years of 2000-2002, it bounced back in 2003, when regional exports grew by 8 percent.
Yet transition to freer trade remains a daunting task. Subregional agreements and free trade areas require the capacity to negotiate and implement complex agreements as well as a stable macroeconomic environment, sector adjustments, good governance, investment in infrastructure, and focus on poverty and equity. The increasing tendency of the countries of the region to seek free trade areas with the United States, the European Union, Canada and Japan has magnified the challenge due to the large degree of opening and asymmetric capacities.
The IDB has always advocated increased trade and regional integration, but in the last few years, realizing the size of the challenge and the faster pace, it has taken a more proactive stance.
The Bank recognizes the Free Trade Agreement of the Americas (FTAA) initiative is an important potential development tool. Hence, the IDB has supported the process financially and technically since its inception in 1995.
In November 2002, countries in the region launched a pioneering FTAA Hemispheric Cooperation Program (HCP) to strengthen the capacity to negotiate and implement agreements as well as undertake the transition to free trade. The Bank has actively backed the initiative, as well as a similar capacity building approach involving Central America in its CAFTA exercise.
The IDB’s efforts to increase trade and integration also include new financial instruments. In 2001, the Bank launched the IDB Trade Facility, a fast approval loan window for up to $5 million, aimed at supporting capacity building for trade negotiations and administration of agreements. To date, eight loans have been approved or are being processed under this facility.
In mid-2003 the Bank also approved the Lending Program for Trade, Integration and Competitiveness to assist countries in the transition to freer trade by creating a “hybrid loan” that combines several financial products in a single package. The first loan under this new program is for Costa Rica.
Several regional technical cooperations have also been granted in support of the Andean Community, Mercosur, and other subregions, by financing projects as diverse as the consolidation of a regional market, the strengthening of regional institutions, assistance for countries preparing their World Trade Organization (WTO) obligations, and regional infrastructure development through the Initiative for the Integration of Regional Infrastructure in South America (IIRSA) and the Puebla-Panama Plan.
In 2002-2004, the Bank created the Special Initiative for Trade and Integration, which helps deliver tools for negotiators and trade policy-makers, supports public outreach, organizes conferences and produces policy papers by renowned experts.
And in the context of the Bank’s Regional Policy Dialogue Program, vice ministers of trade regularly meet to discuss an agenda prepared by them with technical and logistical support from the IDB.
The Multilateral Investment Fund (MIF), an IDB affiliate, has recently financed about 10 projects helping governments and organizations to simplify or eliminate obstacles to trade. These include improved customs procedures, technical standards and related training, investment climate and capacity building to deal with government trade policy.
Other initiatives to increase interregional links have been developed with funding from the IDB Japan Program, working in collaboration with the Asian Development Bank. Meanwhile, the IDB’s Institute for the Integration of Latin America and the Caribbean (INTAL) has 36 training courses for negotiators scheduled for 2004, most in collaboration with the WTO Secretariat. INTAL also produces working papers and organizes conferences and forums.
Finally, the Bank is collaborating with the European Commission in support of regional integration and trade-related capacity building under an umbrella agreement signed in May 2002.