South-South trade: applauding the growing phenomenon

IN the midst of all the bad economic news, there is one relatively unknown phenomenon that we should all be applauding. Developing countries have dramatically increased economic cooperation and development by expanding their mutual trade. The importance of trade among the developing countries, or what is called South-South trade, has been enhanced by the slowed growth in world trade and the recent global recession from which we are recovering -- even if unevenly. During the 1970s the exports of developing countries grew faster than the exports of the rest of the world. Even in the 1980s, with the growth of developing-country exports to the world declining, exports between the less-developed countries (LDCs) continued to rise. The share of developing countries in world trade has increased significantly in the last two decades. The growth of this trade benefits not only individual developing countries but also, by lowering import penetration, positively affects de veloped economies such as the United States. Everyone gains something.

Although exports from Asia account for the greatest share of intra-LDC trade, African and Latin American trade has grown despite the rising degree of protectionism in many markets. Trade in fuel is by far the largest category traded, followed by food. Manufacturing trade accounts for over $2 billion worth of total South-South trade, with Asian goods outstripping other LDC exports in the manufacturing area by 2 to 1, giving further evidence of that amazing East Asian performance.

The prospects are good that trade among developing countries will become even more of an engine of growth in the years ahead because of comparative advantage and increasing LDC incomes and revenues. Developing countries have installed considerable productive capacity and have a growing ability to export manufactured goods, and some technology and services. Four overlapping flows constitute the present trade among developing countries:

Manufactured goods: Usually associated with the newly industrialized countries (NICs), these products are concentrated in a relatively few countries. Trade among the NICs represents the fastest-growing share of their total trade within the LDC ranks.

Petroleum: Exports of petroleum still represent nearly 50 percent of the total value of South-South exports.

Primary products: Many basic commodities are imported by resource-poor NICs and oil-exporting countries.

Neighboring trade: Subregional and regional groupings represent a growing component of LDC trade, although in most instances they represent less-efficient market mechanisms than open trading systems.

A sustained and more widely diffused expansion of trade among LDCs will require policies and accommodative measures. Trade liberalization by other LDCs, particularly in manufacturing, would be particularly beneficial to those countries with appropriate industrial structures and higher levels of income, many of which also have large debt burdens. Special access would be important for the exports of the least advanced countries (LLDCs) into growing NIC markets, along with efforts on the supply side to ass ist these LLDCs in strengthening their export capacities, including equity investment, technical cooperation, research, and training. Examples here would be Venezuela's help for poorer Latin American countries, Singapore's relationship with less-developed countries in Asia, and the work of the OPEC Special Fund.

Economic cooperation among developing countries, the acronym for which is well known in foreign capitals -- ECDC -- is viewed by developing nations as a complement, not a substitute, for North-South economic relations, the longstanding dialogue between developed and less-developed countries. ECDC is thought by the developing countries to improve their bargaining position by reducing their dependence on developed countries. Indeed, trade linkages among countries within Asia and Latin America now have a g enuine bearing on the performance of export sectors and domestic economies in many individual developing countries. The US, Canada, and the European countries are coming to the realization that they have to do more to encourage these efforts among developing countries to promote economic cooperation among themselves.

The prospect for increased trade among developing countries is of course heavily dependent on global economic conditions. LDCs could run into some problems because of the declining revenues of oil exporting countries, disparity of interest and level of development among the ranks of the many developing nations, and fears of the least developed that dependence on the NICs would in the long run be no better than the relations they now have with many developed countries.

But the industrialized countries should look most favorably on this growing trend of trade among developing countries, because, among other things, it can serve as a means to check growing protectionist impulses in the industrial lands. New markets for LDC exports outside Europe and North America permit developing countries to sustain positive rates of economic expansion, earn more exchange, service their large debts, and increase both incomes and employment. Over time this will inevitably lead to imp roved standards of living and healing within and between the diverse social and economic systems that make up our obviously interdependent world.

Dr. Theodore R. Malloch, an international economist with the US State Department, is in a congressional fellowship program working with Sen. Paul S. Trible Jr. (R) of Virginia on the Senate Foreign Relations Committee. These views are his own.

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