THE EMERGENCE OF THE SOUTH

By Supachai Panitchpakdi Reprint | | Print |

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GENEVA, Jun 9 2008 (IPS) - A fundamental transformation has taken place in the structure of the world economy. The dominant feature of this transformation is the emergence of the South. Indeed, the global expansion of the past five years has been more broad-based than even before. This has allowed many developing countries to become major players in trade and investment, wrires Supachai Panitchpakdi, Secretary-General of United Nations Conference on Trade and Development (UNCTAD) and ex Director-General of the World Trade Organization. Between 1990 and 2006, the real exports of developing countries nearly tripled, while those of developed countries grew by only 75%. Similarly, the share of developing countries in world exports rose from 24% to 37%. During the same period, our data show that the developing countries\’ share of all inward foreign direct investment (FDI) doubled, from 18% to 36%; and perhaps more surprising, their share of outward investment tripled, from 5% to 15%. The geographical distribution of skills is also shifting. In 1990, for example, developed countries accounted for 40% of all technical tertiary enrolments globally; 10 years later, that share had dropped to 28%. The unprecedented expansion in South-South economic linkages has been demand-driven. In other words, South-South cooperation has been guided primarily by viable economic factors and not by political considerations, as had been the case in the past. In many cases, demand for South-South business ties increased despite relatively higher tariff barriers imposed by partner countries.

Just consider the following statistics: between 1990 and 2006, the real exports of developing countries nearly tripled, while those of developed countries grew by only 75%. Similarly, the share of developing countries in world exports rose from 24% to 37%. During the same period, our data show that the developing countries’ share of all inward foreign direct investment (FDI) doubled, from 18% to 36%; and perhaps more surprising, their share of outward investment tripled, from 5% to 15%. The geographical distribution of skills is also shifting. In 1990, for example, developed countries accounted for 40% of all technical tertiary enrolments globally; 10 years later, that share had dropped to 28%.

As a consequence of this broad-based growth, we have also seen a phenomenal increase in South-South trade and investment flows. South-South trade in 2006 reached more than US$ 2 trillion, comprising 20% of world merchandise exports, up from just over 10% in 1995. FDI flows among developing countries are also rising: they totalled US$ 60 billion in 2004-2005, or 8% of total world investment inflows and 20% of total inflows to developing countries.

The unprecedented expansion in South-South economic linkages has been demand-driven. In other words, South-South cooperation has been guided primarily by viable economic factors and not by political considerations, as had been the case in the past. In many cases, demand for South-South business ties increased despite relatively higher tariff barriers imposed by partner countries. With this underlying demand for business expansion, South-South regional trade agreements (RTAs) may be an important instrument for boosting trade flows among members, particularly when such agreements address the so-called “beyond-tariff issues”, such as non-tariff barriers, trade in services, trade facilitation, competition policy and investment.

Of course, it goes without saying that such RTAs need to be designed and implemented in a way that they help rather than hinder the multilateral trading system embodied in the WTO. Ultimately, the aim must be the full integration of all developing countries into a multilateral trading system that takes their development aspirations fully into account.

In this context, the ongoing WTO Doha Round of negotiations should correct existing “imbalances” in the rights and obligations of the multilateral trading regime, particularly if it is to live up to its name as a “development round”. It must therefore address such key obstacles as tariff peaks on textiles, footwear and many agricultural products; trade-distorting subsidies in the agricultural sector; and intensive restrictions on the movement of natural persons in the services sector.

However, the scope for South-South cooperation goes far beyond the trade and investment arenas. There are many policy areas where regional integration and cooperation can yield significant benefits. Perhaps the most crucial need that South-South cooperation can help address is the creation of productive capacities in developing countries. Indeed, the existence of sufficient productive capacity is an absolutely crucial requirement for being able to take advantage of the trade opportunities offered by globalization and trade liberalization. For what good are tariff concessions and duty- and quota-free market access if developing countries lack the infrastructure required to bring their goods to market? In both agricultural and non-agricultural sectors, cooperation at the regional level can help spread the costs of introducing new productive techniques and technologies; investing in innovation and research; enhancing entrepreneurial, management and marketing skills; and promoting public-private partnerships. Developing countries can also cooperate on creating synergies between modern, large-scale enterprises, such as transnational corporations, and local small or medium-sized enterprises (SMEs), to make the latter fit effectively into global value chains and act as catalysts for innovation. Other promising areas for regional cooperation include trade and transit facilitation, transport infrastructure development, and investment projects in electricity, other energy sources and water supply. These initiatives are often too costly for developing countries to undertake on their own, but they may be economically viable if several countries pool their resources, including by involving developed countries’ partners in “triangular cooperation” schemes.

Another example is the development of new and innovative financial mechanisms to help mobilize domestic and regional resources. Obviously, there is a need to improve access to capital for SMEs in developing countries. To do so requires the creation and mainstreaming of mechanisms and products, such as micro-insurance and microfinance, that can overcome problems of asymmetrical information.

Climate change is another serious challenge. To tackle this problem, each and every country has to adopt proactive environmental policies. But for a developing country to do so alone is virtually impossible. Hence there is an urgent need for meaningful and predictable assistance from the international community on capacity-building, technology transfer and adaptation measures. At the same time, developing countries stand to gain a lot from closer cooperation on this emerging issue. Regional cooperation can help developing countries design solutions that cater for region-specific needs and circumstances, while also complementing relevant global mechanisms. (END/COPYRIGHT IPS)