Deep Trade Agreements : anchoring global value chains in latin america and the caribbean

The Latin America and Caribbean (LAC) region has untapped potential for trade and global value chains (GVCs) to grow in the wake of COVID-19. The gap between potential and actual GVC integration reflects LAC economic fundamentals such as geography, market size, institutions, and factor endowments. But policy choices matter as well. This report, based on new data and evidence, shows that 'deep' trade agreements can drive policy reforms and help the region overcome some of its disadvantageous fundamentals. Four priority areas of deep integration--trade facilitation, regulatory cooperation, services, and state support--can improve the GVC participation of LAC countries: (i) Trade facilitation can reduce border delays and ease problems stemming from the remoteness of LAC countries. (ii) Regulatory cooperation can help LAC countries access larger markets by reducing the costs of nontariff measures. (iii) Opening the service economy can compensate for factor endowment scarcity, facilitating access to skills and technology. (iv) Regulating competition and state support to state-owned enterprises can improve the quality of economic institutions. These reforms are all the more important as global trade tensions persist and economies recover from the COVID-19 pandemic. In these times of uncertainty and upheaval, policy commitments to deep trade agreements can create a more stable institutional environment for promoting the ability of LAC countries to integrate into global value chains--