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Dynamics of trade and development

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RAGHU DAYAL

The 2007 report of the United Nations (UNCTAD) emphasises regional cooperation between developing countries

TRADE AND DEVELOPMENT REPORT, 2007 — Regional Cooperation for Development: United Nations (UNCTAD), Academic Foundation, 4772-73/23 Bharat Ram Road (23 Ansari Raod), Darya Ganj, New Delhi-110002. Rs. 795.

Beginning on a happy note of the world economy continuing to maintain its expansionary momentum, the Trade and Development Report, 2007 reflects and tacitly endorses the growing phenomenon of regional pacts and arrangements. “In the absence of an appropriate multilateral framework, regional cooperation is likely to be a viable second-best solution.”

As the fastest growing region, East and South Asia led by China and India, continues to drive the world economy; developing countries recorded almost 30 per cent rise in per capita GDP between 2003 and 2007 versus 10 per cent in the G-7 countries. Per capita GDP in Africa, West Asia and Latin America increased by more than 15 per cent over the past five years, a rate not seen in these regions since the early 1980s. The transition economies of South-East Europe and the CIS (Commonwealth of Independent States) have been the most rapidly growing sub-regions since 1999-2000, with an accumulated increase in per capita income of almost 75 per cent.

Dynamics

The dynamics of overall growth in developing countries have been stimulated by strong growth in export revenues: developing economies more than doubled their real exports during 1998-2006, whereas those of the G-7 rose by less than 50 per cent. The share of the developing countries in global trade rose from 29 per cent in 1996 to 37 per cent in 2006. For developing countries in particular a stable external sector is crucial. For a safeguard against manipulation of exchange rates, wage rates, taxes or subsides, it is argued that the globalised economy needs a new code of conduct to govern overall competition between nations and thus avoid the fight for market shares. It is further suggested that changes in the real exchange rate should be subject to multilateral oversight and disciplines. Realising that such a solution at the global level has indeed a dim prospect, initiatives for monetary cooperation at the regional level have received increasing attention in recent years.

Regional cooperation

Regional cooperation between developing countries has to extend beyond trade liberalisation to include policy areas which strengthen the potential for growth and structural change in these countries. Regional economic cooperation can provide means to help countries cope better with globalisation. A marked tendency to give priority to market forces in determining factor allocation is reflected in the increasing number of regional and bilateral RTAs (regional trade agreements), FTAs (free trade agreements) or PTAs (preferential trade agreements) especially during the last 20 years. The number of such trade agreements notified to the GATT/WTO shot up from 20 in 1990 to 86 in 2000 and to 159 in 2007. The WTO in its The Future of the WTO decries this proliferation of RTAs and FTAs, as in its view they render the MFN (most-favoured nation) principle the exception rather than the rule, and lead to increased discrimination in world trade. The trend labelled as “new regionalism” denotes a departure from multilateralism; it has grown out of a sense of frustration at the slow progress in satisfactory multilateral trade negotiations.

Logistics

Over the past 20 years, intra-regional trade in all developing regions has expanded faster than extra-regional trade. In East Asia, it represents almost half of that region’s total trade; in Latin America excluding Mexico, it is 30 per cent. Intraregional trade among the economies in transition that are members of the CIS accounted for about a quarter of the group’s total trade in 2005. In the case of ASEAN (Association of Southeast Asian Nations), intraregional trade on weighted average is 25 per cent of its total trade. Developing countries in East and Southeast Asia accounted for almost 50 per cent of total ASEAN trade in 2005 compared to 30 per cent in 1990. In addition to better market access that the FTAs/RTAs provide, they may also attract more FDI to the developing country partner.

Overall, the Report strongly brings out that the developing countries would serve their interests better by advancing multilateral trade negotiations, of course, with a stronger development dimension built into international trade rules.

The growing importance of logistics attracts attention today as never before. High transport costs and poor connectivity are detrimental to a country’s development; for landlocked countries, they pose a particular challenge. Enhancing trade with partners outside the region would require an emphasis on measures such as pre-arrival customs clearance at seaports, joint border operations, mutual recognition of trade and transport-related documents and licences, and customs automation at border crossings. It is maintained, “More trade leads to better and less expensive transport services, which in turn results in more intraregional trade”; so also in regard to regional management and investment projects in the areas of energy and water supply. An efficient energy infrastructure is a precondition for economic development in general, and for industrial development and diversification in particular. “Regional energy cooperation can leverage the necessary external support for the huge public investment needed to develop the energy infrastructure.”


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