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DLSU AKI 2005-11: An analysis of trade policy environment and global production networks: Implications on regional agreements

The tremendous surge of Global Production Networks (GPN) in the Asian region in recent years has been facilitated by the rapid liberalization mechanisms undertaken by host countries in trade and investment. The liberalization measures have brought about convergence in the tariff rates as well as the investment climate in the region. Likewise, availability of hard and soft infrastructure in information and communication technology in selected countries facilitated the growth of GPN in the region. The combination of liberalization measures and information communication technology (ICT) infrastructure created competitive and strategic advantage for various countries that made them popular destinations of foreign direct investments (FDI) including GPN. GPN is the network that combines concentrated dispersion of the value chain across firms and national boundaries, with a parallel process of integration of hierarchical layers of network participants. This study examined how liberalization forces and other factors helped in promoting the growth of GPN. In addition, the implications of GPN in the emergence of regional trading arrangements and regional agreements were also observed. Several implications of GPN that may arise at the country level. First, countries should identify sectors (that is, production components) where they have or could develop locational competitive advantages. These advantages could be derived either from cost leadership (lower-tier supplier) or technology leadership (higher-tier supplier). Second, increasing competitiveness requires continuous technology upgrading to move from a lower-tier position in the GPN to a higher-tier position. Third, liberalization policies should be promoted with the view of strengthening local firms and industries which could be or are currently integrated in GPNs. Fourth, improvements in ICT should be undertaken to improve and to strengthen linkages with other players in the GPN. Regional cooperative efforts, on the other hand, have influenced one of the major drivers of GPN- liberalization. However, given the convergence of tariff rates and investment promotional incentives of various countries in the region, the most that regional cooperative undertakings can do currently is to fine-tune existing agreements. 1 The impact of regional arrangements, however, on the major drivers is rather limited and indirect. Thus, what can be done is review existing regional agreements, evaluate the extent of their implementation and recommend ways of improving these agreements to expand the coverage and deepen the depth of liberalization measures. In addition, such improvements in existing regional cooperative initiatives can intensify the growth of GPN in the region, hopefully contribute in the diffusion of knowledge, and lay down alternative regulatory frameworks that are still conducive to foreign

Agricultural Credit Policy Council
Authors Keywords
Tullao, Tereso Jr. S.; Conchada, Mitzie Irene; Aguinaldo, John Paul; information technology (IT); regional trade agreement; global production networks (GPNs); Foreign direct investment (FDI);
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