Conclusion

reduce the time and costs (WEF 2014). A high-level group is charged with monitoring the progress of the technical working groups implementing the action agenda that the ministers have defined. High-level monitoring based on performance and outcome measurement ensures accountability and thus boosts the prospects of success.

National committees on trade facilitation offer a path for operationalizing value chain partnerships in PTAs. Such committees, mandated under the WTO Trade Facilitation Agreement (TFA), exist in most Latin American and Caribbean countries.17 They bring together government agencies that implement regulations applied at the border and include private sector representation, usually business associations or chambers of commerce. PTA signatories could expand the committees’ mandate by asking the business representatives to go beyond the issues covered in the TFA and add considerations of policy impact on value chain operations and investment incentives.18

Value chain partnerships will entail fairly limited costs—time for consulting with participating firms on policy-induced sources of value chain friction, compiling performance indicators, and participating in deliberations. The return on that investment, which should be assessed periodically, is likely to greatly exceed the cost. The costs to government officials are just the time and travel for participating. Anchoring such activity to a trade agreement will facilitate the allocation of any needed budgetary resources. Civil society groups will have to fund their own participation, and for them as for business, the proof of the pudding is in the eating. The existence of a plethora of multistakeholder sustainability initiatives suggests that financing is unlikely to create an undue burden. The research and analysis needed to inform deliberation creates a cost to be shared by the core of the partnership—business and government—but requirements should not be great, especially if businesses are willing to work with analysts to identify and compile data on value chain frictions.

PTAs focus primarily on policies and the associated administrative procedures applied at the border. They can improve economic outcomes by enhancing the transparency of state support policies and by serving as a commitment device to support the state adopting rules restricting competition-distorting subsidies. Beyond that, they can enhance participation in cross-border value chains and the creation of an investment climate that supports economic upgrading. Transparency in state support and analysis of support programs’ effects strengthen value chain participation and operations by increasing the understanding of possible subsidy and SOE disincentive effects and revealing how well-targeted support programs can address coordination failures and weak supply chain links.

Most PTAs include provisions on domestic policies, including subsidies, but they tend to be narrow in scope. In most cases, their regulations aim to constrain the governments’ ability to undo trade policy commitments through domestic measures that

discriminate against foreign products. This is one purpose of national treatment and nondiscrimination principles as sometimes applied to SOEs in PTAs.

Latin American and Caribbean PTA regulations on subsidies and SOEs are below the world average in their coverage of possible provisions and much shallower than those in the EU, which has the deepest extant integration agreement. Given the prevalence of subsidies and SOEs in many Latin American and Caribbean countries, PTAs offer a tool for governments that desire to take policy stances more consistent with competitive neutrality. PTAs can do so by expanding their regulation of subsidies— using PTAs as a commitment device—or by using the PTA institutional framework to increase policy makers’ attention to the competitive spillovers of national subsidy policies and SOE operations (Brou and Ruta 2013).

There is little evidence about the economic effects of using PTAs as a commitment device to regulate states’ use of subsidy policies (in contrast to a growing literature on the benefits of making commitments on using border barriers to reduce uncertainty). Subsidies are frequently the subject of disputes in the WTO, often focused on countervailing measures taken by a country against subsidized imports and on the adverse effects of subsidies in third markets. Neither the WTO nor most PTAs define “good” subsidies or those that should be subject to countervailing measures. A major exception is the EU. Because of the depth of the desired integration of national markets, it has extensive rules and delegates enforcement to a supranational body that considers both subsidies and the behavior of SOEs through the lens of competition policy.

Although Latin American and Caribbean countries could do more to use PTAs to discipline state support measures, that will only be possible if governments desire deeper market integration—which may not be the case. But PTAs are not solely devices for making binding commitments on economic policies. They can also make policies more transparent and foster domestic and international deliberations on the effects and effectiveness of policies affecting competition. That information generation role is underemphasized in the economic literature on trade agreements, which views information and transparency primarily in terms of enforcing commitments.

More and better information is needed on applied subsidy policies and the operation of SOEs in Latin America and the Caribbean. PTAs provide a framework for joint action among partners to enhance the transparency of policies and to assess their effects. The region’s PTAs have above-average coverage of transparency provisions. Some recent agreements foster dialogue, regulatory cooperation, and engagement with the private sector, providing a basis to build on. Doing so requires creating an institution to collect the requisite data and pursuing government action to support the analysis of policy impacts and effectiveness. A lesson from the OECD, the EU, and the WTO is that a trusted intermediary is likely to be needed to collect that information. That lesson applies as much to governments eager to deepen commitments on subsidies and SOEs to lower competitive spillovers as to governments desiring to retain discretion but interested in using PTAs to support dialogue on good policy based on joint assessments of the effects of support policies.