WORLD TRADE
ORGANIZATIONWT/IFSC/W/2
15 August 2001
(01-4014)
Integrated Framework Steering Committee
INTEGRATED FRAMEWORK: PILOT PHASE WORK PROGRAM
Presentation by the World Bank on behalf of the IF core agencies
at The First IF Steering Committee Meeting, 15 March 2001, WTO
1. Pursuant to the adoption of the proposal for the Integrated Framework Pilot Scheme1, the Inter-
Agency Working Group (IAWG) was requested to prepare a Pilot Phase Work Program for
consideration by the Integrated Framework Steering Committee at its first meeting on March 15,
2001.  This note describes the proposed scope of work to be pursued under auspices of the IF PilotScheme through November 2001.  It was prepared by the World Bank, the lead agency on
mainstreaming trade, on the basis of consultations with other IF agencies.
1. Objective
2. The objective is to support the creation of a trade development strategy that will support
sustainable pro-poor growth by embedding trade expansion into national development strategies.
2. Work Plan
3. The following sequence of activities is envisaged through November 2001 under the pilot phase:
(a) Undertake three integration studies to identify key constraints to export expansion,
develop action plans to address these constraints, discuss these within each country,
and incorporate findings into the Poverty Reduction Strategy Paper (PRSP) process in
a flexible manner.
(b) Each action plan will include identification of technical assistance needs, sector-
specific projects and capacity-building activ ities that target the key priorities and
constraints identified in the studies and associated action plans.  These will be
submitted to the Consultative Group or Round Table Meeting for financing.
(c) Based on these 3 pilot cases, evaluate the effectiveness of the approach, and extend
the program to other countries.
(d) In addition to the pilot integration studies, core agencies will, in consultation with
relevant LDCs, work to prioritize the trade-related  technical assistance projects that
emerged from the five Round Tables that were held under the old IF process (i.e. for
Bangladesh, the Gambia, Haiti, Tanzania and Uganda).  Key trade-related technical
                                                     
1 WTO document WT/LDC/SWG/IF/13, 16 February 2001.WT/IFSC/W/2
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assistance projects in support of mainstreaming will be presented to the Steering
Committee at its second meeting for funding through the IF Trust Fund, and/or
through bilateral resources, including in on-going activities.  These projects may also
be presented at the Consultative Group or Round Table meetings for financing.
3. Country Selection Criteria for Pilot Countries
4. Selection of least developed countries will be based on a demonstrated strong interest and
commitment by the government to integrate trade in to its national development strategy, as reflected
in official statements.2
4. Broad terms of reference for integration studies
5. Given the distinct situation of, and conditions prevailing in, beneficiary countries, it is recognized
that integration studies must be country-specific.  The extent to which reports will focus on specific
aspects of the economic situation will also depend importantly on the amount of work that has already
been done.  For some countries, integration studies may emphasize sectoral issues, as the macro-economic environment and reform agenda may be well understood.  In others, especially those where
no recent WTO Trade Policy Review report has been done, the focus will by necessity have to include
a detailed assessment of the prevailing trade and related policies and their impact on investment
incentives and economic efficiency.  Thus, it must be understood that integration studies will not
follow a ‘one size fits all’ approach.  The integration strategy and related action plans must be tailoredto the specific needs of each country, and fit within the development framework proposed by the
country itself.
6. However, there are certain areas that have been identified as important constraints for the
integration of LDCs.  These areas will probably be reflected, in one form or other, in the integration
studies.  As a general principle, the starting point of all the studies will be the reforms undertaken andthe activities that have grown in response to the reforms.  The basic question will be the specific
policies and other interventions that are needed to expand and broaden the response that is taking
place, or was expected to take place under the reforms.  The study will also have to focus on the
sectors and areas which the interim PRSPs have identified as the key areas where the countries have
decided to focus, as well as existing work undertaken by the country and development partners.
7. An integral feature of each study will be an emphasis on the poverty dimensions of prevailing
trade-related policies, and an assessment of the likely impact of recommended policy reforms and
sectoral analyses and action plans on the poor.  It s hould be understood that the depth of such analysis
will depend on the availability of the required household survey data on sources of income and
household expenditures.
8. Integration studies will typically have five components.  First, a review and analysis of the
country’s economic and export performance.  This would include real per capita growth, poverty
trends, and integration performance in a historical and international perspective.  Particular attention
will be paid to indicators of per capita income, trade and integration performance vis-à-vis those of
comparator countries.  Analysis will focus inter alia on trends in export and import to GDP ratios, FDI
as a share of GDP ratio, type of FDI (by sector), the speed and extent of export diversification (across
products and markets), intra-industry trade trends (horizontal and vertical; role of global production
                                                     
2 Our experience has been that it is important that trade integration have the full support of the key
economic decision makers of the country, as well as the commitment of the relevant IMF/World Bank countrydepartments and resident missions to devote the resources required to assist in mainstreaming trade into thecountry development strategies.  Effective mainstreaming implies significant costs for these country
departments, so there has to be a decision by the country teams to incur these.WT/IFSC/W/2
Page 3
sharing and processing trade), the composition of imports (share of capital goods, intermediates),
international telecommunications traffic, composition of employment, dependence on agricultural
production, etc, as well as sources of foreign exchange earnings by sector (including services).  The
analysis of these indicators will be forward as well as backward looking.
9. Second,  a description and assessment of the macroeconomic environment and the country’s
investment climate.  Particular emphasis will be placed on the adequacy of policies (both macro andmicroeconomic, e.g. transport or port monopolies, not only their infrastructure) and the business
environment (property rights, rule of law).  Trade and related policy developments and the behaviour
of the real exchange rate will be reviewed.  The objective here is to assess the incentive regime that
confronts (potential) investors, both in tradables and nontradables.  Areas to be addressed/assessed
include customs clearance (existence and func tioning of temporary admission and drawback
mechanisms and exemptions, the structure and effective incidence of tariffs and related ‘red tape’
costs), access to and cost of pre-shipment finance and working capital, as well as barriers toinvestment (regulations, negative lists, equity restrictions and nationality requirements, role of state-
owned enterprises, including status of privatization programs, transfers from the budget, capital
controls).
10. Research has identified the behaviour of the real  exchange rate to be a key determinant of the
supply response to liberalization episodes.  Appreciation and high volatility of real exchange rateslead to import surges and reduces the profitability of export and import substitution activities.  More
important, by increasing uncertainty about future profitability, high real exchange volatility lowers
investment in tradable activities.  In this section, the areas that can be covered are:
• historical behaviour of real exchange rates and its impact on the supply response,
especially on the key activities and subsectors;
• institutional arrangements for exchange rate management, especially whether they are
designed to be flexible, and reflect the underlying productivity of the real economy;
and,
• the structure and constraints in efficient operation of the foreign exchange markets,
and whether they can be improved to yield more competitive and stable real exchange
rates.
11. The major objective of this dimension of the study will be to assess the relative importance of
domestic policies in accounting for observed trends.  The real exchange rate is not a policy instrument
itself; it is the result of the various macroeconomic polices that are pursued by the government.  What
matters therefore is to identify whether past and pr evailing policies have resulted in a misaligned real
exchange rate.
12. The first and second parts of the study will be summarized through a benchmarking exercise, in
which the country is compared both in terms of policy reforms and performance (economic, social)
vis-à-vis other developing countries in the relevant region and other parts of the world.
13. Third,  focus on the international policy environment and specific constraints that exports from
each country face in international markets.  In many countries, policy recommendations aiming at
export promotion have been made without paying attention to prevailing trade restrictions in theimporting countries.  This section will have three dimensions.
(a) Document the specific set of trade restrictions (and preferential trade arrangements)
that exist in industrial country markets for the existing and potential export products.
This will allow the LDCs to have reliable information to argue for greater market
access in the global forums, as well as adjust their policy interventions so as not to be
penalized by the restrictions in the world markets.WT/IFSC/W/2
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(b) Determine the impact of membership in regional economic integration arrangements
on the prevailing policy stance by explicitly considering the benefits and costs of such
agreements in terms of policy freedom and investment incentives.
(c) Analyze the implications of greater market access for the existing and potential
export commodities, including services, both regionally and globally.3
14. Fourth, focus on a small number of key labour-intensive sectors, including in agriculture (e.g.
horticulture), where the private sector perceives a potential to exist for a significant expansion in
output and exports, and a good a priori case can be made that the poor stand to benefit either in terms
of employment and/or lower prices.  For each sector/product, the team will analyze the internal
constraints that entrepreneurs face in expanding production and exporting to the rest of the world.
These analyses will be targeted on a set of priority subsectors, to be determined after consultations
with stakeholders in the country, in line with the broad priorities that are being incorporated into the
PRSPs.  While these constraints will vary among countries, there are a series of common constraintsthat prevail in many countries.  These include:
• transaction costs: transportation, trade facilitation, duty free access to intermediate
inputs, availability of export credit and availability and cost of communications and
energy are all important in determining the competitiveness of products from LDCs;
• the regulatory environment: this will focus restrictions on entry and exit, inspections,
and other regulations that constrain the ability of firms to adjust in key sectors; and,
• global, regional rules and disciplines: analysis of constraints and opportunities will
review such areas as product and other standards, market standards, intellectual
property protection requirements, rules of origin, etc.
15. Finally , each study will conclude with a pro-poor trade integration strategy.  This will comprise
of a proposed set of policy reform priorities and several action plans at the sectoral level that include
project proposals to capitalize on major opportunities identified in the strategy.  These policyproposals will target the key bottlenecks and constraints that emerge from the analysis as priority
areas for action, and corollary actions by donors and development partners.  The sector-specific
analyses will result in recommended action plans that identify key priorities and bottlenecks that must
be addressed so as to mobilize investment and exports.  Each study will also include an assessment of
technical assistance and capacity building priorities to support the trade strategy, as well asrecommended actions that should be taken by high-income and regional partner countries to improve
access to their markets.  The recommendations will take into account the likely impact of proposed
actions on the level and structure of poverty to ensure that the strategy has the desired positive impact
on the poor.  Analyses of gainers and losers from the policy changes will be undertaken and specific
policies to minimize any possible detrimental impact on the poor must be identified.
5. Consultations with stakeholders
16. A precondition for undertaking the integration studies is that there is a commitment to incorporate
trade analysis into the PRSP process.  This process involves a variety of participation and consultation
mechanisms with stakeholders, so that discussions on trade will occur as part of the broader
participatory mechanisms associated with the preparation of PRSPs.  However, these should besupplemented by at least one ‘trade specific’ workshop or seminar in the country to discuss the draft
report with relevant parties, including the donor community, chambers of commerce, and civil
society, with a view to raising the profile of trade issues within the overall context of the PRSP.
                                                     
3 While the implications of trade liberalization for developing countries have been made on an
aggregate and regional basis, there are very few country specific analyses of the constraints and benefits each
country face in the industrial country markets.WT/IFSC/W/2
Page 5
6. Capacity-building
17. Efforts will be made to involve local consultants and representatives of the private sector and
think tanks in the preparation of the integration study  and sectoral action plans.  To some extent it is
envisaged that this will occur through working with counterpart national PRSP teams that are
responsible for the trade agenda.
7. Pilot Integration Studies and Action Plan Development
18. It is proposed to start the pilot phase with three countries, to be identified and to be agreed by the
IAWG.  As mentioned, criteria for selection will be  that the government has shown a serious interest
in expanding exports and using trade as a vehicle to reduce poverty as part of the PRSP (or UNDAF if
the country is not a PRSP country), and a commitment to implement measures required to further
integrate with the rest of the world.  In all pilot countries, it is also important that World Bank and
IMF country teams fully support the mainstreaming objective, as reflected in a willingness to commit
the time and the resources of the country department to contribute to the integration study and supportfollow-up work to identify possible projects.
4
(i) Possible Countries Under the Pilot Scheme
19. A number of countries have been identified through consultations among IF partners and
Bank/Fund country departments as possible candidates for trade integration studies and development
of action plans.  These include: Cambodia, Dji bouti, Eritrea, Ethiopia, Guinea, Lesotho, Malawi,
Mali, Mauritania, Madagascar, Mozambique, Nepal, Sao Tome and Principe, Yemen and Zambia.
The IAWG will identify a set of 3 countries to be included in the pilot phase by end March.  Other
countries will be included into the Pilot Phase subsequently after experience has been obtained with
the first three countries selected.
(ii) Time frame
20. It is envisaged that the pilot scheme will proceed in two stages, given the overall objective of
developing a vision and strategy designed to increase exports significantly.
21. The World Bank will lead missions to each country.  Other IF core agencies will be involved,
based on the objectives of mission and the expertise required.  Bilateral donors could also be involved
if appropriate.  Missions will update existing information and assess the macroeconomic, trade policyand investment environment, including the role of exchange rate management.  Prior to this or
concurrently, work will be undertaken by the World Bank to identify and quantify the impact of
market access barriers confronting potential exports from the country concerned, using feedback from
the mission and country counterparts to identify the products concerned.
22. On the basis of this data collection and analysis of the internal and external environment
confronting investors in the country in general, and the key sectors in particular, a draft report will be
prepared by the mission members - which will comprise international consultants and local experts.
This will be discussed with stakeholders (entrepreneurs, civil society) as part of a second, follow-up
mission.  This mission will organize a consultation workshop for key players, and will assist the
counterpart national PRSP team to complete the integration strategy.  This will include a
determination of technical assistance needs, a discussion of major findings and a process to
incorporate the conclusions into the PRSP.  A second mission will focus on identifying key capacity-
building needs and priority projects that could be submitted to the Consultative Group or Round Table
                                                     
4 As in PRSP process, the IMF will take the lead in the integration studies in macroeconomic and
exchange policies and issues and the World Bank will focus on sectoral and structural policies and issues.WT/IFSC/W/2
Page 6
meetings for financing.  The country's PRSP timet able would ideally provide enough lead time to
integrate trade issues into the PRSP.  However, given the dynamic nature of the PRSP process, this is
not a binding constraint.
23. The three diagnostic studies and associated identification of priorities for technical assistance and
capacity building, as well as possible project identification, are expected be completed by November
2001.
(iii) Budget
24. The cost of each of the three integration studies envisaged under the Pilot Phase and the
associated action plans will be on the order of $300,000.  This will be allocated primarily to
consultants (local and international), travel and subsistence costs for missions, seminars and
consultations with government, the private sector and civil society in each country, the development
of required databases and analysis, and efforts in country to map the trade strategy into the PRSP.
25. The maximum ceiling for financing the prioritised an d sequenced technical assistance projects for
each of the five Round Table countries through the IF Trust Fund is set at $300,000.
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