Adopting regional trade policies

Ideally, regional integration schemes consistent with the multilateral trading system would promote intraregional trade and, through higher economic growth, also stimulate trade with third countries. Hence new export opportunities would be created for economies inside and outside such arrangements.
The Generalized System of Preferences (GSP) represents the greatest tariff concession ever granted to developing countries in developed country markets. In more than two decades of operation, it has proved to be a valuable trade policy instrument for the expansion of exports of developing countries. In 1991 a total of US$ 6,800 million of exports from these countries actually benefited from the low or zero tariff reductions in OECD preference-giving country markets. This preferential trade has been increasing at an average annual rate of 14.5% since 1976, when all major schemes were in operation. In comparison, total imports from the same developing countries increased at an average rate of 8% annually. The growth in GSP trade resulted not only from the increase in exports of traditional products but also from the development of export capacity in non-traditional products. The proliferation of regional trading arrangements, the granting of beneficiary status to countries in transition and the MFN cuts which would result from a successful conclusion of the Uruguay Round are likely to reduce the effectiveness of the GSP as a tool to further increase exports from developing countries. For this reason a drastic improvement of the GSP advantages is in order. First, preferences should be extended to all products of export interest to developing countries, in particular in the textile, leather and agricultural sectors. Second, where applicable, duty-free treatment on all covered products should be the norm. Third, [a priori] limitations should be reduced if not completely eliminated. Fourth, the rules of origin should be further simplified and liberalized. Finally, the effectiveness of the GSP would be further enhanced through a judicious removal of non-tariff measures affecting GSP products.

Inward-orientation of regional arrangements, on the other hand, carries the risk that trade diversion effects will predominate and thus affect adversely the trading opportunities of the non-member countries. Developing countries which form free trade arrangements with developed countries can benefit significantly from guaranteed access to a large market (provided they have the supply capability to compete), as well as from possible increased direct foreign investment and faster technological diffusion. Integration arrangements among developing countries can also serve as a vehicle to promote export opportunities of member countries at the regional level. The ongoing reforms of developing-country integration groupings, in combination with national policy reforms in member states to strengthen the competitiveness of their export supply capabilities, will provide a new impetus to trade, production and investment in these regional groupings.

Experience has shown that without formal arrangements, "business-led" regional integration can stimulate intraregional trade and exports to the world market by building production networks which make efficient use of different resource endowments of countries in the region, and thereby promote an efficient division of labour, both at the regional and international level. Relatively open and transparent trade and foreign investment regimes are indispensable for countries which seek to participate in business-led integration processes that can expand their trading opportunities.

The export opportunities for developing and other countries outside of regional arrangements are highly dependent on the openness of regional integration schemes. The elimination of intraregional barriers should be accompanied by the reduction or removal of barriers in trade with third countries. Hence, regional and multilateral approaches should be complementary. In the context of such "open regionalism", intraregional trade expansion would not come at the expense of trade with non-members.

Southern Common Market
Type Classification:
E: Emanations of other strategies
Related UN Sustainable Development Goals:
GOAL 16: Peace and Justice Strong Institutions