SIMULTANEOUSLY UNIFIES RoOS AND ADDRESSES

THE RELATIONSHIP AND PRODUCT GAPS, IT IS THE INITIATIVE THAT IS MOST LIKELY TO DELIVER THE MUCH NEEDED PRODUCTIVITY GAINS

71 _{See IDB (2017).}

ful thinking. In 2017, the two blocs launched an initiative that points in this direction, setting up a formal dialogue forum and agreeing on a convergence road map, which includes initiatives on extended cumulation, trade facilitation, NTBs, and trade in services.71

Negotiations toward the agreement should follow similar guidelines to those discussed for the intermediate stops on the route to the full LAC-FTA: that is, guidelines that strive to strike the right balance between flexibility and mean- ingful results. The first guiding principle should be for the LAC-FTA to be a “living agreement,” one whose text should allow for the addition of new mem- bers and new issues. It should create conditions for negotiations to move ahead with a hard core of participants and issues, without precluding the possibility of future expansion in both these areas when political and economic conditions allow. There should be incentives for “early birds” though, since size matters for the success of the take-off. Latecomers would have to accept the original rules as given, except when issues are incorporated after their accession.

Another page this LAC-FTA should take from the Pacific Alliance book is that it does not necessarily have to replace existing PTAs. Instead, it could offer a more comprehensive and rational solution for trading goods and services, while allowing members to opt to maintain their existing intraregional schemes. PTAs can be particularly relevant for deeper and more complex integration objectives such as the free movement of labor or shared institutions, which require a po- litical consensus that is more likely to be achieved among a smaller group of countries.

Negotiations toward the common RoO regime and the harmonization of pref- erences (which should eventually converge to 100% or duty-free) should look for a common denominator and require a single undertaking for all norma- tive aspects of enforcement (i.e., acceptance of all rules as a package, with no “cherry picking”). Convergence to the common rule and preferences, though, should take a “variable geometry” approach to accommodate sensitivities. Members’ phase-in schedules may be partner- and product-specific (for in- stance, Argentina’s convergence to the common rule/preferences in trading auto parts with Mexico could differ from Colombia’s or even its own preferences in trading wheat with Mexico), possibly taking advantage of what has already been negotiated under bilateral or subregional PTAs. Exceptions, however, should be kept to a minimum and the median product–partner timeframe should be no

longer than five years, with a maximum of seven years; a requirement consis- tent with the urgency that the current global trading environment demands and with the fact that most adjustment costs have already been paid off in this last quarter century of integration.

In line with the need for a light institutional architecture, all members should still be able to resort to the WTO to resolve general trade disputes, as well as to use trade remedy tools compatible with the WTO framework, such as anti- dumping, countervailing duties, and safeguards. Disputes specific to the imple- mentation or violation of the agreement should be dealt with by ad hoc panels appointed by LAC-FTA members and whose decisions are binding, consistent with the “quasi-judicial” model used by most PTAs worldwide, including those in LAC.72 _{To keep the architecture simple and to avoid political quagmires, the}

dispute settlement provisions should be based exclusively on a state-to-state mechanism, without allowing for investor-to-state claims.

The agreement should also include a broad chapter on trade facilitation, covering not just customs-related measures but also mechanisms capable of minimizing transportation and transaction costs, such as technical standards, phytosanitary measures, and logistics. While efforts to rationalize and promote the harmo- nization of these measures do not necessarily depend on a formal trade agree- ment, this platform represents a major opportunity to facilitate coordination and enforce the commitments already contained in a series of subregional ini- tiatives relating to both infrastructure (e.g., the Initiative for the Integration of the Regional Infrastructure of South America [IIRSA] and the Mesoamerica Integration and Development Project) and trade facilitation (interoperability of single-window systems and authorized economic operator programs, mostly carried out within existing PTAs). As shown in IDB (2014), the region still has a long way to go to meet recently negotiated multilateral standards and a region- wide agreement could be an important platform for promoting and coordinat- ing reforms.73

As argued elsewhere, given LAC’s historical gaps in these areas, solutions for which have long proved elusive, trade gains several orders of magnitude higher than pure tariff elimination initiatives could be generated by coordinating and financing transnational investments in transport infrastructure. That will be the case, for instance, for improving all border crossings in Latin America or de-

72 _{See Chase et al. (2013).}

73 _{See Volpe (2016) for an evaluation of existing trade facilitation initiatives. For details of the infrastructure}

initiatives mentioned here, see http://www.iirsa.org/ and http://www.proyectomesoamerica.org/.

THE AGREEMENT