Regional cooperation and partnerships.

 

As international trade conditions are reshaping patterns of global production, developing countries may face challenges in accessing new markets and moving into higher-value segments of production. Smaller developing countries, in particular, often lack the domestic market size necessary to justify large-scale investments in industrial production and upgrading without integration into global markets. Even larger economies such as India and Brazil are likely to be affected by the shortening and fragmentation of GVCs, especially given their reliance on imported industrial inputs and export markets for certain industries. To address these challenges, industry can establish more regionalized supply chains that use shorter, more cost-effective and less polluting transport routes while incorporating SMEs in developing countries. Legal frameworks must support the development of more localized supplychains, extending beyond mere reductions in CO2emissions or the adoption of renewable energyand cleaner production technologies. They should also address social sustainability, fair trade, biodiversity and promote local production and value creation in developing countries. Stronger regional integration is essential to achieve the scale and production complementarities required to compete effectively on the global level. The European Union’s trade negotiations with the United States and China exemplify how a high-income economic bloc can leverage regional coordination. By fostering regional trade agreements, facilitating mutual FDI, developing crossregional infrastructure, and engaging in joint negotiations with other countries and economic blocs, countries can better integrate into GVCs, particularly in an era of rising geopolitical tensions. Moreover, regional integration can help insulate developing countries from geopolitical pressures, allowing them to benefit from continuing trade relations with different parts of the international trade system. Furthermore, industrial policy coordination at the regional level will be crucial. To minimize redundancies in production capacity and improve return on investment for state support, countries within regional economic blocs should align the design and implementation of industrial policy measures, focusing on targeted sectors, policy tools and the scale of such interventions. Trade measures to protect domestic industry will benefit from regional coordination to limit intra-regional fragmentation. Regional investment funds can be established to support cross-border regional value chains, such as the development of new manufacturing facilities and job training programmes. Multilateral lending organizations must play a key role in financing these regional-level industrial initiatives that are too high-risk for individual countries to undertake on their own.