These emerging nations are cutting themselves a bigger slice of the pie.
Medical prostheses made in India and sold in Kenya, fruit and vegetables grown on vast African plantations and served to wealthy Arabs in the Emirates. The type of trade called “south-south”, namely emerging markets trading with each other, is now one of the global economy’s most dynamic sectors.
With the continuing deadlock in the World Trade Organization’s (WTO) Doha round (the latest phase in the 14-year-long international trade talks) and advanced economies weakened by the financial crisis, the part of the globe that is moving onward and upwards – the current and erstwhile developing countries – has got its act together. This has led to a burgeoning of bilateral and regional free trade agreements, and in the case of agriculture, the application of private industry standards is becoming increasingly common. However, there are numerous concerns about this trade trend’s potential effects on the global balance of power.
In fact, free trade agreements have always represented an influential tool, not only to boost economies but also to create bonds between nations. Often these commercial ties are so strong that they result in the partners becoming politically interdependent. What’s more, this practice frequently leads to separate standards being developed for trading blocs between different countries or geographic areas.
This goes counter to the WTO’s intentions so much so that in 2007 the then director-general, Pascal Lamy, cautioned that this “proliferation is breeding concern – concern about the incoherence, confusion, exponential increase of costs for business, unpredictability and even unfairness in trade relations”.
But these warning bells haven’t put a dent in south-south trade, quite the reverse. The WTO itself reports that in the last 20 years (1990-2010), the number of preferential trade agreements rose from 70 to 300 with those involving southern countries contributing considerably to that increase. Indeed, free trade treaties between developing countries represent roughly two-thirds of the world total.
And the sheer value of the exports is mind-boggling. According to 2012 figures published by the United Nations Conference on Trade and Development (UNCTAD) in its Handbook of Statistics 2013, world trade more than tripled in value over 20 years, reaching $18 trillion (€15.7tn). Virtually half this growth came from exports of developing countries, which now account for 45% of the global total. If we narrow down the field to examine trade between those countries alone, it reached a value of $4.7 trillion (€4.1tn), more than a quarter of all trade.
It comes as no surprise that Asian countries top the charts for this exponential growth with South American nations hot on their heels. In Asia, regional or bilateral free trade agreements have climbed from three to 61 in just a decade (2000-2010) with trade between countries in this area worth $3.5 trillion (€3tn) in 2012. And the trend shows no signs of slowing: Asia’s most recent free trade deal was signed in late 2014 by the region’s two heavyweights China and South Korea. In terms of exporting countries, they respectively represent the world’s number one and number seven. With that in mind, the implications of the deal are easy enough to imagine.
The lion’s share of the business has obviously gone to China: at the end of 2012, it had exported products worth $1 trillion (€880bn) to other developing countries. But many other nations have now joined it as leading players on the export stage thanks to the boom in south-south trade. Along with the well-known names exporting oil and natural gas, newcomers recording high levels of export-oriented growth include Vietnam, Egypt, India, Turkey, Peru, Colombia, Brazil, Mexico and Chile.
The most surprising success story of all, however, is the commercial development of Africa over recent years. Between 1995 and 2012, African countries racked up the highest growth in exports towards other developing world destinations, and even Africa’s least developed nations did the continent proud. The latter in particular were quick to ride the crest of the Asian wave. They exported their own energy, agricultural and manufactured goods to the parts of Asia with the greatest demand, receiving in exchange – or often in addition – a significant share of the Far East’s inward investments.
The result is a new network of partnerships that are not only economic but also profoundly geopolitical. Today, these alliances are a cause for concern for the major Western countries and former colonisers who struggle to maintain their once privileged relationships with many of these countries.
According to the International Monetary Fund (IMF), south-south trade today accounts for almost half of the total trade of China and almost 60% of the total trade of India and Brazil. In addition, the south-south trade of each of these countries will continue to outstrip their trade with the rest of the world all the way through to 2050, according to IMF forecasts. This trend has far-reaching implications for global, political and economic power plays, and it pulls much more weight than a mere bean counter’s view of today’s trade figures would suggest.
These emerging nations are cutting themselves a bigger slice of the pie.