REGIONAL TRADE BLOCS THE WAY TO THE FUTURE?
SUMMARY
While middle-income countries have pursued regional trade
agreements since the 1960s, these ties are becoming more
important as the global economic crisis curtails demand from
the United States and other major markets. With the Doha Round of
multilateral trade talks stalled, regional trade agreements (RTAs) off er an
alternative approach to increase trade, spur stronger economic growth, and
lower unemployment rates in participating countries.
Th ree regions—Eastern Europe, Latin America, and East Asia—have
had vastly diff erent experiences with regional trade and enjoyed varied
levels of success. With the fi nancial turmoil, each now has opportunities to
increase trade with neighbors and work toward a broader free trade system.
Th e future economic growth of Eastern European countries will depend
largely on the European Union (EU), which received 80 percent of Eastern
Europe’s exported goods in 2008. To foster trade, the EU must implement
policies that will gradually reduce fi scal defi cits and help regain lost
competitiveness. With solutions in place, regional trade can be a powerful
engine for growth in the region.
Latin American countries have a long but not very successful history
of trying to integrate their economies and societies. Still, countries in the
region are now in a relatively strong fi scal position following the fi nancial
crisis and have the opportunity to build on smaller trade agreements
by ending burdensome administrative restrictions and tariff s and by
coordinating investments in areas such as transportation, energy, and
telecommunications.
East Asia’s outlook for regional trade is positive, given that its countries
are quickly recovering from the economic crisis and enjoy a successful
trading history. But with so many trade agreements signed both within
the region and beyond, understanding the relevant rules for business and
resolving disputes is diffi cult. All countries rightly regard regional trade
as important for future economic growth, and Southeast Asia should
signifi cantly expand its trading bloc to include China, Japan, and South
Korea—and possibly incorporate Australia, India, and New Zealand.
Th ese three regions provide valuable lessons to help all middle-income
countries sustain growth in the postcrisis period:
Regional trade agreements reach their full potential when the
political and ideological diff erences among participating countries
are minimal.
Trade deals work best when member states coordinate monetary
and fi scal policies. In fact, uncoordinated fi scal policies in the
European Union framework are responsible for current fi nancial
turmoil in the region, with a negative impact on trade.
Bottom-up approaches, in which companies develop supply chains
across borders, are more eff ective in facilitating regional integration
than are top-down approaches imposed by governments.
Agreements on trade and investment norms—including reducing
transportation costs through coordinated eff orts to improve the
quality of infrastructure—can signifi cantly boost intra-regional
trade.
Countries must achieve better balance between fi scal stimulus and
fi nancial solvency to reinvigorate regional trade agreements. Th e
former increases public debt to levels that might threaten fi nancial
stability. Countries also must address concerns over consistency in
exchange rates policies. Th e coexistence of fi xed exchange rates with
free fl oating rates, as in the euro zone, creates imbalances in trade.
Ambitious goals for trade deals are easier to achieve when
negotiations proceed among countries that embrace the benefi ts of
globalization, meaning those that have been willing to unilaterally
open to trade, or have actively supported multilateral trade
liberalization.
Pursuing stronger regional trade agreements can help form the building
blocks for global free trade deals. Increasing trade will not only help middleincome
economies develop but also drive growth around the world as the
fi nancial crisis recedes.
SUMMARY
While middle-income countries have pursued regional trade
agreements since the 1960s, these ties are becoming more
important as the global economic crisis curtails demand from
the United States and other major markets. With the Doha Round of
multilateral trade talks stalled, regional trade agreements (RTAs) off er an
alternative approach to increase trade, spur stronger economic growth, and
lower unemployment rates in participating countries.
Th ree regions—Eastern Europe, Latin America, and East Asia—have
had vastly diff erent experiences with regional trade and enjoyed varied
levels of success. With the fi nancial turmoil, each now has opportunities to
increase trade with neighbors and work toward a broader free trade system.
Th e future economic growth of Eastern European countries will depend
largely on the European Union (EU), which received 80 percent of Eastern
Europe’s exported goods in 2008. To foster trade, the EU must implement
policies that will gradually reduce fi scal defi cits and help regain lost
competitiveness. With solutions in place, regional trade can be a powerful
engine for growth in the region.
Latin American countries have a long but not very successful history
of trying to integrate their economies and societies. Still, countries in the
region are now in a relatively strong fi scal position following the fi nancial
crisis and have the opportunity to build on smaller trade agreements
by ending burdensome administrative restrictions and tariff s and by
coordinating investments in areas such as transportation, energy, and
telecommunications.
East Asia’s outlook for regional trade is positive, given that its countries
are quickly recovering from the economic crisis and enjoy a successful
trading history. But with so many trade agreements signed both within
the region and beyond, understanding the relevant rules for business and
resolving disputes is diffi cult. All countries rightly regard regional trade
as important for future economic growth, and Southeast Asia should
signifi cantly expand its trading bloc to include China, Japan, and South
Korea—and possibly incorporate Australia, India, and New Zealand.
Th ese three regions provide valuable lessons to help all middle-income
countries sustain growth in the postcrisis period:
Regional trade agreements reach their full potential when the
political and ideological diff erences among participating countries
are minimal.
Trade deals work best when member states coordinate monetary
and fi scal policies. In fact, uncoordinated fi scal policies in the
European Union framework are responsible for current fi nancial
turmoil in the region, with a negative impact on trade.
Bottom-up approaches, in which companies develop supply chains
across borders, are more eff ective in facilitating regional integration
than are top-down approaches imposed by governments.
Agreements on trade and investment norms—including reducing
transportation costs through coordinated eff orts to improve the
quality of infrastructure—can signifi cantly boost intra-regional
trade.
Countries must achieve better balance between fi scal stimulus and
fi nancial solvency to reinvigorate regional trade agreements. Th e
former increases public debt to levels that might threaten fi nancial
stability. Countries also must address concerns over consistency in
exchange rates policies. Th e coexistence of fi xed exchange rates with
free fl oating rates, as in the euro zone, creates imbalances in trade.
Ambitious goals for trade deals are easier to achieve when
negotiations proceed among countries that embrace the benefi ts of
globalization, meaning those that have been willing to unilaterally
open to trade, or have actively supported multilateral trade
liberalization.
Pursuing stronger regional trade agreements can help form the building
blocks for global free trade deals. Increasing trade will not only help middleincome
economies develop but also drive growth around the world as the
fi nancial crisis recedes.
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