WASHINGTON, September 16—With global trade talks stalled and lower demand from major economies that were hit hard by the global economic crisis, regional trade agreements are emerging as a way for middle-income countries to increase trade, spur growth, and lower unemployment rates. In a new report, Alejandro Foxley analyzes how three regions—Eastern Europe, Latin America, and East Asia—are increasing trade within their borders and building a broader free trade system.
Using the findings from three vastly different experiences, Foxley says that regional trade agreements work best when participating countries have few political differences, coordinate their monetary and fiscal policies, and embrace globalization. And bottom-up approaches in which companies develop regional supply chains are more effective in improving regional integration than top-down approaches imposed by governments.
- Eastern Europe: The European Union—which bought 80 percent of Eastern Europe’s exported goods in 2008—can spur further regional growth by implementing policies that reduce deficits and regain lost competitiveness.
- Latin America: With their relatively strong fiscal positions, Latin American countries can expand on existing agreements by ending administrative restrictions and tariffs and coordinating investment in transportation, energy, and telecommunications.
- East Asia: Despite a high number of trade agreements that make it difficult to resolve disputes and navigate the relevant rules, East Asia enjoys a successful trading history. The region should now expand its trade bloc to include China, Japan, and South Korea.
“Pursuing stronger regional trade agreements can help form the building blocks for global free trade deals,” Foxley writes. “Increasing trade will not only help middle-income economies develop but also drive growth around the world as the financial crisis recedes.”
Alejandro Foxley is a senior associate in the Carnegie International Economics Program. Before joining Carnegie, Foxley was minister of foreign affairs of the Republic of Chile (2006–2009). Between 1998 and 2006, he was a senator of Chile, serving as chairman of the Finance Committee and the Permanent Joint Budget Committee. Previously, he was also Chile’s minister of finance and concurrently served as a governor of the Inter-American Development Bank and the World Bank (1990–1994).
The Carnegie International Economics Program monitors and analyzes short- and long-term trends in the global economy, including macroeconomic developments, trade, commodities, and capital flows, and draws out policy implications. The initial focus of the Program will be the global financial crisis and the policy issues raised. Among other research, the Program will examine the ramifications of the rising weight of developing countries in the global economy.
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