Journal Issue
Share
Article

Trade and economic cooperation among developing countries: An outline of international discussions and their prospects, accompanied by data on trade flows

Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
June 1982
Share
  • ShareShare
Show Summary Details

Jack P. Barnouin

The need for strengthening economic cooperation among developing countries (which has come to be known as ECDC) has been increasingly recognized by the international community in recent years (see box). Although global cooperation among developing countries has only recently been the focus of international discussion, the concept in itself is not a novel one. As the box shows, regional attempts to implement it may be traced back to the early 1960s. But while these were based on the concept of cooperation, the early efforts were considerably more limited in scope and content than the new approach favored now by the Group of 77 (developing countries). First, they embraced regional and subregional groupings of countries while the new approach involves all developing countries. Second, the regional agreements were concerned with trade, and the new approach is geared toward forging links not only in trade but also in a large number of other areas. Finally, while regional integration efforts had relied only to a limited extent on the support of the United Nations system, mainly through the United Nations regional commissions, the sponsors of the new approach have called for broader involvement of existing international institutions.

Rationale

This article will attempt to identify the principal efforts at regional and multilateral economic cooperation among developing countries, as an adjunct to their economic ties to the developed countries. The aim is to provide a concise outline of the discussions to date and the prospects for implementing certain policies, especially in the area of trade. Data on trade flows accompany this article.

Two major factors may explain the recent shift among the Group of 77 toward efforts at global cooperation. First, with a marked slowdown in the expansion of South-North trade as a result of the reduced rate of economic growth in the industrial countries, the developing countries began to consider the fostering of the largely untouched intra-South trade as a major tool to maintain a relatively satisfactory rate of growth of their economies. Since they felt that, by their very nature, regional integration efforts were somewhat limited in scope, they came to the conclusion that an attempt should be made to reduce barriers against trade among themselves at the world level. A second factor has been the disappointment of the developing countries with the results of the North-South dialogue. This led them to the view that their negotiating position should be strengthened through the establishment of worldwide economic links among themselves.

These two factors are emphasized by the Brandt Commission, which defines the purpose of economic cooperation among developing countries as being to forge “links among the countries of the Third World for more fully exploiting their potential for economic and social development and for strengthening their collective bargaining capability in international economic relations.”

Program scope, content

The final report endorsed by the Caracas Conference in 1981 (see chronology) identifies seven sectors in which cooperation among Third World countries should be strengthened in the near future. While no specific priority is assigned to any of these sectors, the parts of the program dealing with finance, the transfer of technology, and trade are considerably more detailed and specific than those dealing with other sectors, such as food and agriculture, energy, raw materials, and industrialization.

Main elements of the international recognition of economic cooperation among developing countries
Regional phase
1959West African Customs Union begun (replaced in 1974 by the West African Economic Community)
Equatorial African Customs Union begun (replaced in 1966 by the Central African Customs and Economic Union)
1960Latin American Free Trade Association created
Central American Common Market created
Andean Group established
Caribbean Free Trade Association established
1964Arab Common Market established
1967Association of South-East Asian Nations established East African Community created (dissolved in 1977)
1975Economic Community of West African States established
International phase
1974United Nations Sixth Special Session adopts Program of Action for establishing a New International Economic Order (NIEO), emphasizing ECDC
1976Group of 77 includes ECDC program in Manila Declaration and Program of Action
UNCTAD IV in Nairobi approves resolution to support ECDC
Nonaligned heads of state adopt action program on ECDC in Colombo
Group of 77 Mexico City conference on ECDC
1979Group of 77 adopts Arusha Program for Collective Self-Reliance, which is partly endorsed by UNCTAD V in Manila
1981Group of 77 in Caracas issues blueprint for ECDC

In the area of finance, the basic aim of the program is to bring about a substantial increase in the direct flow of funds from the developing countries with structural balance of payments (BOP) surpluses (the oil exporting countries) toward the rest. The program therefore recommends, inter alia, the strengthening of existing subregional and regional payment arrangements, incorporating an important element of reciprocal credits to support mutual trade flows; the examination of the feasibility for a financing facility to meet the BOP needs of developing countries with contributions from the developing countries themselves; the establishment of new regional and interregional trade development banks as well as an expansion of the activities of existing ones; and further study of the feasibility of establishing a development bank for developing countries.

The program also contemplates a number of other self-help measures. These include the increase in the deposits of governmental and semigovernmental institutions of developing countries in the banks of other developing countries; a larger participation of developing countries in the purchase of financial instruments issued by other developing countries in the international capital market; and the conclusion of bilateral and multilateral arrangements to enhance the soundness and attractiveness of direct investment by developing countries in other developing countries. Finally, the program recommends that “developing countries should intensify collective efforts in international forums to ensure that developed countries join the developing countries in establishing a mechanism to alleviate the financial burden imposed on the developing countries on account of oil price adjustment and the continued inflation of the prices of their imports of goods and services from developed countries.”

Regarding technology, the program has two aims: to upgrade the collective technical capabilities of the developing countries through an exchange of experience and to improve the terms under which technology is being transferred from the industrial countries to the Third World. It recommends better dissemination of information on the technological capabilities of the developing countries, the conclusion of scientific and technical cooperation agreements among them, the pooling of information on the terms and conditions for the transfer of technology from the developed countries, and, when appropriate, joint negotiations for the purchase of specific technologies from the industrial countries.

The Caracas program makes a number of other suggestions for possible cooperation among developing countries. The most interesting of them would strengthen existing associations of raw material producers in the developing countries and establish new associations; foster cooperation among developing countries in specific industrial sectors, establishing, among others, multinational production enterprises; undertake joint efforts to explore and exploit additional sources of energy in the energy-importing developing countries; establish multinational enterprises for the production of energy-related capital goods such as drilling, pipelines, and storage equipment; set up a scheme for acquiring and maintaining food reserves, including infrastructure arrangements; and adopt cooperative measures for the production and marketing of agricultural inputs such as fertilizers, pesticides, and agricultural machinery and implements, as well as improved seed and livestock breeds.

Trade cooperation

While the scope of the Caracas program is very broad, it is in the area of trade that considerable attention has been focused. The section on trade is based on the premise that while trade among developing countries has expanded rapidly in recent years, there remains considerable room for growth, particularly if these countries are, by the year 2000, to account for at least 25 per cent of the world’s industrial production as set forth at the United Nations Industrial Development Organization Conference held in Lima, Peru, in 1975. By 1978 only 26 per cent of the exports (excluding mineral fuels) of developing countries went to other developing countries, while only 14 per cent of their imports (also excluding mineral fuels) came from them.

To strengthen existing weak areas of marketing, distribution, and all levels of infrastructure needed for trade to expand, the program envisages cooperation arrangements among the state-trading organizations of the developing countries; the promotion of multinational marketing enterprises among them; the establishment of national enterprises in the fields of transportation, communications, shipping and insurance, and the conclusion of cooperation arrangements between these enterprises at the subregional, regional, and interregional levels; and the fostering of technical cooperation among the developing countries through the establishment of multinational research and training institutions.

In addition to these institutional changes designed to promote intra-South trade, the Caracas program contains a specific agreement on the need to establish a system of trade preferences among developing countries. This is based on the premise that although trade among developing countries is likely to grow spontaneously (see the article on South-South trade by Havrylyshyn and Wolf in the March 1982 issue of Finance & Development), a major reorientation in its geographical distribution cannot be expected without specific encouragement. Preferences would be a direct way of providing this encouragement.

Notwithstanding the substantial consensus among the developing countries on the desirability of trade preferences among developing countries, the implementation of a comprehensive program of preferences, it is now recognized, is a task fraught with difficulties. Some of these difficulties have already emerged during the preliminary discussions in 1980 and 1981 held by a United Nations Conference on Trade and Development-sponsored group of experts from developing countries on the establishment of the preference system.

A major issue is whether the liberalization of trade should be limited to a reduction of tariff and nontariff barriers or whether it should also encompass direct measures of trade promotion, such as long-term supply and purchase contracts that would provide importers with assured supplies and exporters with stable markets. The more advanced developing countries favor the first approach. By contrast, other developing countries, which rely significantly on state trading, insist on a long-term supply approach, arguing that because of their weak export structure and competitiveness they are unlikely to be able to take substantial advantage of the export opportunities arising from a mere reduction in tariff and nontariff barriers.

A second important and debated issue is whether tariffs should be reduced product by product or across the board. Most of its proponents favor an identical across-the-board tariff reduction for all customs items and all countries. Their argument is that, because of the emphasis of the Third World’s industrialization policies on the development of consumer goods industries, protection is high for those goods which are the most susceptible to be traded among developing countries, and low or nonexistent for intermediate and capital goods for which the supply capability of these countries is very limited. An across-the-board reduction of tariffs among developing countries would not modify substantially the current situation for capital and intermediate goods but it could greatly foster intra-Third World trade in consumer goods for which it would provide a significant preference margin. This reasoning presupposes that a reduction would, in fact, increase trade. However, in some developing countries, tariff rates on consumer goods are so high that even after an across-the-board reduction they would remain prohibitive. Obviously some selection would have to be introduced, either through the stipulation of a maximum post-cut tariff level or through the adoption of a progressive formula that would call for greater cuts in the higher rates. Reaching agreement on any of these proposals, however, promises to be difficult.

Another delicate problem is how to maintain tariff preferences that developing countries have extended to each other in the framework of existing regional groupings. It is clear that if individual members of such groupings grant preferences to nonmember developing countries, the effect could erode the group system. To avoid such an erosion, the groupings would need to increase group preferences. This might well be difficult in view of the numerous obstacles that anyway exist to the strengthening of existing regional and subregional trade arrangements.

Although the experts of the Group of 77 have not yet been able to reach conclusions on these difficult issues, they did reach agreement at their meeting in November 1980 in Geneva on some broad guidelines for the initiation of negotiations on the global system. These guidelines stipulate, inter alia, that the system should be negotiated and established step by step; that the negotiations be reserved for the exclusive participation of the developing country members of the Group of 77; that the existing subregional, regional, and interregional groupings of such countries should participate fully in the negotiations; that the least developed countries should not be required to make concessions on a reciprocal basis; that the products covered by the system should include manufactures as well as commodities and agricultural products; and that, at the start of the negotiations, the participants should submit information concerning the areas in which they consider appropriate to offer concessions. Beyond these guidelines, it was agreed that a meeting of senior officials would be convened to consider the procedural and institutional arrangements needed for an effective launching of the negotiations.

Whatever those procedural decisions might be, it is clear that the establishment of the Global System of Trade Preferences will be a time-consuming exercise. In this connection, it may be recalled that the countries participating in the Tokyo Round of negotiations on the mutual reduction of tariff and nontariff trade barriers took some six years to reach agreement. Since commercial policies diverge more widely among developing than developed countries, it is likely that the negotiations on the global system will be complex and could require even more time than the Tokyo Round.

TRADE AMONG DEVELOPING COUNTRIES

Chart 1Share of major economic groups in world trade: 1960 and 1979

(In per cent)

Source: United Nations Conference on Trade and Development Handbook of International Trade and Development Statistics. Supplement 1980 (United Nations publication. Sales No.E/F.80.11.D.10 and corrigendum).

Chart 2Structure of trade of developing countries: 1965 and 1979

(In per cent)

Source: United Nations Monthly Bulletin of Statistics, May 1981.

Table 1Trends In trade among developing countries (LDCs), 1960–79
19601965197019751979
All productsIn billion of U.S. dollars
Total intra-LDC trade6.107.5111.1749.37103.07
Intraregional14.495.477.8124.7253.82
Interregional11.612.043.3624.6549.25
Total exports of LDCs27.4035.9255.02211.22416.61
Excluding fuels
Total intra-LDC trade3.834.857.3423.2954.43
Intraregional2.813.675.4875.8335.82
Interregional1.027.247.867.4618.62
Total exports of LDCs19.8024.6436.8985.65180.86
All productsIn per cent
Total intra-LDC trade22.320.920.323.424.7
Intraregional16.475.214.211.712.9
Interregional5.95.76.111.711.8
Total exports of LDCs100.0100.0100.0100.0100.0
Excluding fuels
Total intra-LDC trade19.319.719.927.230.1
Intraregional14.214.714.918.519.8
Interregional5.15.05.08.710.3
Total exports of LDCs100.0100.0100.0100.0100.0
Sources: United Nations, Monthly Bulletin of Statistics, July 1981, and United Nations Conference on Trade and Development (UNCTAD) secretarial estimates.

Regional here refers to the United Nations division of developing countries into four regional groups: Latin America, Africa, West Asia, and South and Southeast Asia.

Sources: United Nations, Monthly Bulletin of Statistics, July 1981, and United Nations Conference on Trade and Development (UNCTAD) secretarial estimates.

Regional here refers to the United Nations division of developing countries into four regional groups: Latin America, Africa, West Asia, and South and Southeast Asia.

Table 2Commodity structure of trade among developing countries, 1960–79
19601965197019751979
Per cent of total trade among developing countries1
Food43.244.431.333.429.0
Agricultural raw materials22.913.816.49.810.0
Manufactures26.934.142.648.251.6
Machinery and transport equipment3.65.98.915.317.5
All other products27.07.69.78.69.4
Total100.0100.0100.0100.0100.0
Per cent of total developing countries exports1
Food45.548.640.139.432.4
Agricultural raw materials24.717.915.110.110.9
Manufactures12.017.124.435.844.4
Machinery and transport equipment0.91.73.98.412.1
All other products217.816.420.414.712.2
Total100.0100.0100.0100.0100.0
Sources: United Nations, Monthly Bulletin of Statistics, July 1981. and United Nations Conference on Trade and Development (UNCTAD) secretarial estimates.

Excluding fuels.

Minerals, ores, iron and steel, and nonferrous metals.

Sources: United Nations, Monthly Bulletin of Statistics, July 1981. and United Nations Conference on Trade and Development (UNCTAD) secretarial estimates.

Excluding fuels.

Minerals, ores, iron and steel, and nonferrous metals.

Table 3Share of intra-LDC trade in total exports of developing countries, by major commodity groups, 1960–79
In billions

of 1979
19601965197019751979
Commodity groupsU.S. dollars1In per cent
Food57.918.217.415.422.827.0
Agricultural raw materials19.517.414.821.526.327.6
Minerals and ores9.53.75.66.48.112.0
Fuels235.729.723.621.120.820.6
Iron and steel4.240.964.447.051.552.4
Nonferrous metals8.26.06.26.317.021.0
Manufactured goods79.342.738.034.536.335.0
All commodities416.622.320.920.323.324.7
Sources: United Nations, Monthly Bulletin of Statistics, July 1981. and United Nations Conference on Trade and Development (UNCTAD) secretarial estimates.

For reference only. Data refers to the value of trade among developing countries.

Sources: United Nations, Monthly Bulletin of Statistics, July 1981. and United Nations Conference on Trade and Development (UNCTAD) secretarial estimates.

For reference only. Data refers to the value of trade among developing countries.

Related reading

    The Brandt Commission Papers: Selected Papers Prepared for the Independent Commission on International Development Issues 1978–79 (Geneva-The Hague, Independent Bureau for International Development Issues1981).

    Group of 77Manila Declaration and Program of Action (UNCTAD IV, document TD/1951976).

    Group of 77Arusha Program for Collective Self-Reliance and Framework for Negotiations (UNCTAD V, document TD/2361979).

    Group of 77Final Report of the High-Level Conference on Economic Cooperation among Developing Countries CaracasMay1981 (Caracas/G.77/F.R.).

    New Directions and New Structures for Trade and Development: Report by the Secretary-General of the United Nations Conference on Trade and Development to UNCTAD IV (UNCTAD TD/183/Rev.l1977).

    Gamani Senevirarne:Economic Cooperation Among Developing Countries, New Dimensions in the Thrust for Collective Self-Reliance” (New York, United Nations1980).

Other Resources Citing This Publication