A Trend that is Here to Stay : Regional Trade is the Way Forward
The world had become small due to the ease of transporting products and tracking them; some products are delivered within a few days or even hours hence making the world accessible regardless of geography.
Until the recent Covid-19 pandemic globalization was leading the way; but the pandemic made it difficult for people and products to cross borders. A 2021 UNCTAD report concluded RTAs are important to trade resilience: “Overall, trade within RTAs decreased significantly less than trade under no-agreement during the pandemic by about 5.6 percentage points”.
World Bank research shows regional trade agreements increase trade in goods by more than 35% and trade in services by more than 15%. COVID-19 proved how interconnected world supply chains can be disrupted — from unpredictability in demand and disruptions in supply to disruptions in logistics and transport. Example: Some goods, notably medical goods were subject to unanticipated surges in demand. These were due to COVID-19, but also to shifts in demand resulting from work-from-home policies (e.g. the shift from food consumed away from home to food consumed at home, which led to changes in product choices and packaging requirements). Other goods and services saw declines in demand due to confinement measures or falling incomes (e.g. travel or in-person services, purchases of durable goods).
Technologies such as artificial intelligence (AI) and blockchain also impact the future of trade by improving the aggregate supply for many industries, promoting lower prices and higher output.
However, technology also poses a threat to trade as some technologies may disrupt current patterns of production and trade – shortening supply chains and creating greater autonomy between individual countries. Technology Spillovers are also common, these are the unintentional technological benefits to firms that come from the research and development efforts of other firms without the costs being shared eg spillover can be strong from firms from advanced economies to firms in emerging economies.
RTAs, particularly deep RTAs with investment provisions, can facilitate cross-border technology spillovers through an increase in bilateral trade and FDI.
Developing countries can benefit from free trade. A free trade agreement is an understanding between two or more nations, usually within the same region, to reduce barriers to imports and exports among them. Under a free trade policy, goods and services can be bought and sold across borders with little or no government tariffs, quotas, subsidies, or prohibitions to inhibit their exchange.
Theoretically, regional trade can improve the quality of life for a nation's citizens. Nations can import goods that are not readily available within their borders. Importing goods may be cheaper for a developing country than attempting to produce consumer goods or services within their borders.
The benefits of regional trade are multi-fold it generates economic growth, reduces trade barriers, ensures the quality of goods and increases variety, finally it increases the volume of trade.