Private sector engagement: GVC partnerships as inputs and complements to PTA regulations

assessment of trade effects—perhaps as part of a broader regulatory impact assessment, generally considered a good practice. To increase the chance of trade impact being assessed, regulatory agencies should be provided financial resources so that the effort would not threaten to crowd out other activities. Incorporating language in trade agreements regarding trade effects assessment can entitle regulatory agencies to claim additional resources from the government.

Several recent Latin American and Caribbean PTAs incorporate provisions calling for consultations on new horizontal regulations,13 the use of regulatory impact analysis and evaluation, and language on pursuit of regulatory coherence across levels of government and on cooperation between national regulators (Kaufmann and Saffirio 2021). Examples include the not-yet-ratified Brazil–Chile trade agreement, the Chile–Uruguay PTA, the CPTPP, and the Pacific Alliance. Most of these establish a standing body to oversee the implementation of agreed-upon good regulatory practices and support regulatory cooperation. The standing body is also responsible for a review of the operation and lessons learned—to occur five years after implementation in the case of CPTPP and Chile–Uruguay PTA, and three years after implementation in the case of the Pacific Alliance.14 The associated provisions are not subject to dispute settlement procedures; instead, the PTAs foresee periodic review of the respective provisions over domestic regulation. The Chile–Uruguay agreement, the CPTPP, and the Pacific Alliance call for signatories to consider creating a domestic coordinating body to support regulatory coherence by facilitating interagency coordination and regulatory oversight (Kaufmann and Saffirio 2021).

That cooperative approach can also be applied to state support measures. Deliberation among PTA partners on how to do so can be undertaken if governments are interested in using PTAs as commitment devices to enhance transparency and cooperative assessment of the economic impacts of state support measures—both subsidies and SOEs.

PRIVATE SECTOR ENGAGEMENT: GVC PARTNERSHIPS AS INPUTS AND COMPLEMENTS TO PTA REGULATIONS

Private sector involvement can bolster the collection of up-to-date information on applied policies as well as cooperation to reduce the drawbacks of state support policies and the trade costs of regulatory variation. Engaging the business community not only can generate political support to deepen cooperation on subsidies and SOEs but also can identify coordination problems that constrain economic upgrading and value chain expansion. PTAs do little to incentivize government engagement with companies that operate or rely on value chains. But the value of PTAs to the business community can grow if mechanisms are built to bring together key actors operating regional value chains to identify policy gaps and frictions, boosting progress toward national objectives.

Many multistakeholder initiatives focus on private governance in value chains to promote dialogue between value chain participants. They address certification of producers, voluntary production standards, monitoring implementation, and corporate social responsibility. Such value chain partnerships have mostly concentrated on forestry and agricultural products, but they have also been applied to textile and apparel and electronics value chains (Bitzer and Glasbergen 2015).15 They can be designed to facilitate deliberation and cooperation between the government agencies that regulate value chain activities, the actors that operate them and are affected by policies, and the research community that assesses policy effects (Findlay and Hoekman 2020).

A value chain approach differs from the kind of industry- or product-specific focus that typically influences regulators, governments, and civil society considering trade agreements. Using value chains to frame analysis and argument—covering the clusters of firms in very different industries that depend on exporting and importing—might build greater support for deepening PTAs.

Value chains cut across sectors, spanning a variety of activities in international production networks. Value chain platforms can gather the knowledge of buyer firms, supplier firms, and other stakeholders to enhance understanding of value chains and possible investments and upgrades to improve them. Such platforms can identify and analyze coordination problems to boost innovation. Modern approaches to industrial policy—a major driver of subsidy programs and SOE operations in many Latin American and Caribbean countries—stress the need for public-private dialogue institutions to identify and resolve coordination problems (Devlin and Pietrobelli 2019; Ross-Schneider 2015; Sabel 2012). Such institutions aim to foster communication between stakeholders in an economic activity—in this case, upgrading value chains and expanding along the extensive margin to address constraints and market failures deterring new activity. The firms involved and local authorities and stakeholders, not the central government, typically have information on weak links and missing complementary inputs. Their communication—supporting assessment of the type of intervention needed to address specific gaps and constraints—might require tax or subsidy instruments but often does not.

The elements of value chain partnerships include regulators and government agency representatives responsible for policy (figure 6.13, bottom left) as well as producers, buyers, consumers, and other stakeholders such as workers and community representatives (figure 6.13, bottom right). Producers (figure 6.13, top left) can best identify the impediments to realizing value at different parts of the chain—including in different countries. Analysts (figure 6.13, top right) provide research capacity to assess impacts and facilitate discussion of transactions and operating costs, and they can also monitor progress in implementing measures to reduce costs.

Although no PTAs have created value chain partnerships, other initiatives offer examples that address some dimensions of what such bodies might do. Many countries have trade and investment promotion bodies to increase and diversify exports (moving along the extensive margin and upgrading participation in GVCs).

Figure 6.13 A framework for a value chain partnership

• Producer interests at different value chain locations • Business associations

Costs of compliance and technological change • Public policy analysts and researchers

Social objectives and analytical methods

• Regulators and trade policy officials Regulatory goals

Source: Findlay and Hoekman 2020. Note: GVC = global value chain.

Benefits of the GVC: private and social value

• User and consumer interests at different value chain locations • Worker and community stakeholders

Many countries also have mechanisms to facilitate imports by reducing the transaction costs of moving goods across borders and along transportation and transit corridors. Although such mechanisms are multisectoral—including both public and private actors—they generally do not come to grips with the value chain arrangements of international production. Nor do they encompass noneconomic issues as a multistakeholder value chain sustainability partnership would (Soundararajan, Brown, and Wicks 2019).

Commitments to setting goals and monitoring performance would be critical. Possible indicators of value chain performance could relate to inventory management, the speed of movement of goods, and indexes of risk. To develop methods of mapping trade costs within value chains to such indicators and to regulatory policies requires research and analysis. Business can contribute by sharing data and experience.16

Elements of the needed public-private engagement are already found in some Latin American and Caribbean PTAs. In the Pacific Alliance, for example, national leaders agree on areas for joint action, which the ministers of foreign affairs and foreign trade of the member states then elaborate. A business council has a formal role in suggesting how to address frictions and regulatory differences that increase trade costs. It has proposed harmonizing technical standards in such sectors as cosmetics, pharmaceuticals, and processed food and making national single windows for trade interoperable to