Recent Trends in GLOBAL TRADE of Developing Countries

M Com I Business Economics

Recent Trends in GLOBAL TRADE of Developing Countries.

GLOBALIZATION AND THE SHIFTING BALANCE IN THE WORLD

ECONOMY.

Global trade trends:

Since the Second World War, global merchandise trade has generally grown faster than

global income, but the global crisis has left its mark on trade dynamics: Recovery in global trade

remains unfinished and uneven, while the trend toward greater trade openness of economies

came to a halt. The global crisis and uneven trade recovery have reinforced the ongoing shift in

balance in the world economy, featuring the relative decline of developed countries and rise of

developing countries. The shifting global balance is also visible in the changing distribution of

exports by destination, marked by the rising importance of trade among developing countries.

While developing countries as a whole have become the key driving force behind global trade

dynamics in the 2000s, performance varies considerably between regions and countries.

Commodity price developments since 2002 came along with sizeable changes to terms of trade.

GLOBAL CAPITAL FLOW TRENDS

After having surged to unprecedented levels in 2007 and until mid-2008, private capital

flows towards developing countries came to a sudden stop or even reversed direction as the

system went into cardiac arrest, fleeing back towards the core countries of global finance that

were the epicenter of the crisis. Most currencies experienced huge exchange rate gyrations vis-à-

vis the United States dollar, functioning as the world's key reserve currency.

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Tentative recovery began in the spring of 2009 under continued massive policy support

from key central banks in developed countries. But volatility stayed at elevated levels and fresh

stresses emerged starting in the winter of 2010, now concentrated in the European countries that

share the euro as their currency. Developing countries experienced another surge in capital

inflows after mid-2009 followed by yet another reversal in the course of 2011 as the European

debt crisis worsened. Renewed disruptive exchange rate swings vis-à-vis the United States dollar

broadly mirrored the tidal flows of private capital. Global finance remains in upheaval.

Financial globalization has proceeded at an even more rapid pace than trade globalization

over the past few decades. While the developed economies continue to be the most financially

integrated, more and more developing countries have meanwhile liberalized and at least partially

opened up their financial systems. Since the early 1990s, private capital flows reached the shores

of developing countries in two strong waves. The emerging market crises of the late 1990s and

the global crisis of 2008–2009 provided the major breaking points that saw sharp reversals.

Apart from crises, the monetary policy and business cycle in leading developed countries provide

the other key driving force for global capital flows involving the developing world.

While more and more developing countries have become prominent destinations of

private capital inflows, especially since the 2000s, many have also experienced rising private

capital outflows.

Net private capital flows towards developing and transition economies, 1980-2010

($ millions and as percentage of recipient countries' GDP)

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Private capital flows consist of three main categories: foreign direct investment (FDI), portfolio

investment, and other investment; the latter including international banking flows. A

compositional breakdown reveals a rise in the role of FDI and portfolio flows and relative

decline in international bank lending flows.

The rise in international capital flows involving developing countries has led to a

corresponding rise in cross-border financial holdings and an expansion in their international

investment positions, recording foreign assets and liabilities. The relative rise in developing

countries gross foreign assets and liabilities provides further evidence of progressing financial

globalization. Increasingly developing countries too are becoming part of globally

interconnected balance sheets. In many developing countries, the concomitant rise in foreign

assets and liabilities has seen an improvement in their net foreign asset positions, a process

mainly driven by improved current account positions. Running a current account surplus position

allows a country to either reduce its foreign debt and/or accumulate foreign assets, including

international reserves. External debt trends over the last decade brought a continued general

improvement of developing countries’ debt indicators. External debt expressed as a percentage

of gross national income (GNI) and as a percentage of exports of goods and services both

declined. Helped by declining global interest rates, the debt-servicing burden of developing

countries as a group also decreased substantially.

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Apart from paying off external debt or reduced overall reliance on foreign debt, many

developing countries used improved current account positions to build up their holdings of

international reserves. Rising reserves were also sourced from net private capital inflows. While

concentrated in China, the unprecedented rise in international reserves has been a widespread

phenomenon in the developing world, commonly referred to as self-insurance.

International reserve holdings serve precautionary purposes, and common indicators thus

suggest that developing countries markedly increased their precaution in the era of progressing

financial globalization, especially in response to the crises of the late 1990s. Recourse to reserve

accumulation as self-insurance is part of a broader preference for defensive macroeconomic

policies, including avoidance of an overvalued currency. As financial globalization proved

hazardous in the experience of many developing countries, maintenance of a competitive

exchange rate became a policy focus. If foreign exchange market interventions are used to

contain pressures for currency appreciation, a build-up of international reserves arises as a by-

product.

The hazards of unfettered global finance were once again illustrated with spectacular

vehemence and reach in the global crisis. Even developing countries that had seemed to be in

excellent shape and had shored up their defences through large international reserve holdings

were caught in the global contagion; albeit generally less so than countries that were running

large current account deficit positions prior to the crisis, concentrated in Eastern Europe.

Ratio of foreign exchange market turnover divided by value of merchandise exports,

1989-2010 (Average daily turnover in April, $ billions (left scale) and ratio (right scale).

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Perhaps the rule of finance over trade in the modern age of accelerated globalization is

best illustrated by trading in foreign exchange markets. Daily foreign exchange trading has

reached over 4 trillion, including spot and forward markets and other foreign exchange derivates

that feature prominently in carry trades. While still in the teens in the late 1970s, the ratio of

yearly foreign exchange market turnover over merchandise exports had reached about 50 in the

1980s, and has doubled again since. The current ratio of around 100 implies that only about 1

percent of foreign exchange trading is actually related to merchandise trade.

The conspicuous rise of derivatives provides another indicator and symptom of the

fragility of unfettered global finance, including credit derivatives such as credit default swaps

and collateralized debt obligations. Hailed as welcome innovations in an era cherishing beliefs in

self-regulation, these products came to prove lethally destructive far beyond their centres of

origin in the developed world.

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Table 1: World merchandise exports and shares by income group and region

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Country Group

1980 1990 2000 2010 Exports ($ bill) Share in %

Exports ($ bill) Share in %



BY INCOME LEVEL Developed economies 1,314 66.6 2,653 76.4 4,418 68.4 8,909 58.5

Developing economies 597 30.2 837 24.1 2,035 31.5 6,268 41.2 High income developing economies 254 12.9 363 10.5 854 13.2 2,108 13.8 Upper middle income economies 211 10.7 332 9.5 873 13.5 3,175 20.8 Lower middle income economies 120 6.1 128 3.7 285 4.4 908 6.0 Low income economies 12 0.6 14 0.4 23 0.4 77 0.5 Of which: Least developed countries Memo:

15 0.8 18 0.5 36 0.6 162 1.1

Developing econ, excl. China & India 570 28.9 757 21.8 1,744 27.0 4,471 29.4 Upper middle income, excl. China 193 9.8 269 7.8 624 9.7 1,597 10.5 Lower middle income, excl. India 112 5.7 110 3.2 243 3.8 689 4.5

BY REGION World 1,973 100.0 3,473 100.0 6,456 100.0 15,228 100.0

Developing economies 597 30.2 837 24.1 2,035 31.5 6,268 41.2 Asia 165 8.3 459 13.2 1,285 19.9 4,005 26.3 Latin America & Caribbean 104 5.3 145 4.2 362 5.6 886 5.8 Europe, Middle East & North Africa 250 12.7 165 4.8 293 4.5 1,035 6.8 Sub-Saharan Africa Memo: 78 3.9 68 2.0 94 1.5 341 2.2

BRICS 5 countries 72 3.7 203 5.8 482 7.5 2481 16.3 OPEC 12 members 280 14.2 174 5.0 311 4.8 1,077 7.1


Table 2: World merchandise Imports and shares by income group and region

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Country Group

1980 1990 2000 2010 Imports ($ bill) Share in %

Imports ($ bill) Share in %



BY INCOME LEVEL Developed economies 1,465 72.9 2,775 78.2 4,792 72.0 9,508 62.0

Developing economies 485 24.2 784 22.1 1,863 28.0 5,764 37.6 High income developing economies 153 7.6 327 9.2 749 11.3 1,726 11.3 Upper middle income economies 202 10.1 298 8.4 808 12.1 2,859 18.7 Lower middle income economies 112 5.6 136 3.8 269 4.0 1,051 6.9 Low income economies 18 0.9 23 0.6 37 0.6 129 0.8 Of which: Least developed countries Memo:

25 1.2 26 0.7 43 0.6 170 1.1

Developing econ, excl. China & India 451 22.4 707 19.9 1,586 23.8 4,019 26.2 Upper middle income, excl. China 182 9.1 245 6.9 582 8.7 1,464 9.6 Lower middle income, excl. India 97 4.8 113 3.2 217 3.3 700 4.6

BY REGION World 2,009 100.0 3,550 100.0 6,659 100.0 15,326 100.0

Developing economies 485 24.2 784 22.1 1,863 28.0 5,764 37.6 Asia 181 9.0 476 13.4 1,216 18.3 3,873 25.3 Latin America & Caribbean 116 5.8 123 3.5 384 5.8 891 5.8 Europe, Middle East & North Africa 122 6.1 127 3.6 181 2.7 693 4.5 Sub-Saharan Africa Memo: 66 3.3 58 1.6 82 1.2 307 2.0

BRICS 5 countries 79 3.9 168 4.7 410 6.2 2,280 14.9 OPEC 12 members 122 6.1 100 2.8 148 2.2 595 3.9


TRENDS IN DEVELOPING COUNTRY TRADE

1980-2010

INTRODUCTION

The purpose of this paper is to review broad trends in developing countries’trade for the

last thirty years. The study is part of a more detailed analysis of the factors affecting developing-

country trade performance during this period, which considers developments in their own trade

policies as well as market access issues for their exports.

The period covered by this study, 1980–2010, witnessed a rapid expansion of world

trade, and an even more rapid expansion of developing countries' trade, especially in the last

decade.1 The share of developing-country trade in total world merchandise trade (exports plus

imports) was appreciably higher at the end of the period than at the beginning, 31 percent as

opposed to 39 percent (Tables 1 and 2). There was a sharp decline in world trade in 2009. But

this was offset by an even larger increase in 2010. Trade growth has decelerated in 2011-2012,

and there are many uncertainties about 2013, but this does not affect these broad overall trends.

A similar picture emerges, if one also considers trade in services. While the data on services are

much less complete than for merchandise trade, there is little doubt about the overall trends:

services trade grew even faster than merchandise trade; and there was a rise in the share of

developing countries’ exports.

As a consequence of these trends, the role developing countries play in the international

trading system has changed radically; and this has been reflected in their participation in the

moribund Doha Development Round negotiations. GDP growth during this period was much less

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than the growth in trade for developed and developing countries alike. Using the ratio of total

trade to GDP as an indicator of integration into world trade, on average developing countries

were more integrated at the end of 2010 than twenty years earlier. This was the result of another

long term trend in evidence over the past fifty years and an important dimension of the

globalization process. These overall trends however, disguise very different patterns during some

of the sub-periods and among different developing countries and groups. Broadly speaking, the

data show that, except for Asia, the 1980s were pretty much a ‘lost’ decade for many different

developing countries and groups. By comparison, during the 1990s and 2000s trade for

practically all major groupings of developing countries grew faster than trade of developed

countries and, in many cases, very rapidly indeed. The Least Developed Countries (LDCs)

deserve special mention: while growth in their merchandise trade was much slower than that of

developing countries as a whole for the first twenty years (1980-2000), it was the most rapid

during the decade 2001-2010. As a result, for the first time in many decades these countries

showed an increase in their small share of total world trade.

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TRENDS IN MERCHANDISE TRADE

Developing country merchandise exports grew at an annual rate of 8.2 percent for the

period 1980-2010 compared with 6.6 percent for developed countries (Table 3). But the

performance was very different in the 1980s compared to the 1990s and 2000s. In the 1980s,

developing-country exports grew only at 3.4 percent while exports of developed countries

expanded at over 7 percent per annum. This reflects in large part the slower growth of the world

economy during this period as well as the debt problems encountered by many groups of

developing countries especially in Latin America and Africa. In the last two decades the situation

was reversed with developing-country export growth at more than 10 percent per annum

compared with about 6 percent for the developed countries. The trends in merchandise imports

parallel those in exports both for developed and developing countries alike. But in both periods,

the developing countries’ imports grew faster than their exports (Table 3).

China’s exceptional trade performance throughout the period, and India’s in the last two

decades, are well known. What is not always understood is that other groups of developing

countries’ trade also grew very rapidly during the past twenty years, especially since 2000.

Indeed, since the beginning of the 21st century, growth in the trade of all major developing

country groupings whether classified by income level or by region was faster than that of

developed countries. For the thirty years 1980-2010, only the developing countries in Sub-

Saharan Africa and the group of developing countries in Europe, Middle and North Africa—

whose exports are dominated by oil, experienced trade growth slower than that of developed

countries.

Table 3 also shows the performance of different regions of developing countries. In

practically all cases and periods, Asia as a region has shown the greatest growth with Latin

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America second. But Sub-Saharan Africa and Europe, Middle East and North Africa grew fastest

in the last decade.

In the 1980s and 1990s, with the exception of China, trade grew fastest for the higher and

middle income developing countries and more slowly for the lower income countries and the

LDCs. This relationship however, did not hold up in the 2000s when LDC exports expanded

very rapidly, indeed more rapidly than any other group, except for the upper middle income

economies whose performance is dominated by China.

As noted in many studies, the trade performance of the various groups of developing

countries depends very much on the composition of their exports as between manufactures and

primary commodities and foodstuffs and the direction of their trade. Overall, growth of

developing countries’ manufacturing exports and imports has exceeded that of developed

countries for practically all groupings of developing countries for last two decades and for the

period as a whole (Table 4). The same holds true for non-manufacturing trade—except that in

this case LDC exports of raw materials and minerals lagged those of developed countries in the

1990s. In the 2000s however, increased demand and rising prices of raw materials led to very

rapid (14.6 percent per annum) increase of LDC non-manufacturing trade.

Within manufacturing, developing country export growth was especially rapid in

machinery and transport as well as chemicals. Practically all developing country groups shared in

this growth (Table 5) but it was especially rapid in the upper middle income countries—even

excluding China, as well as the BRICS and Latin America.

Growth of manufactured exports in the developing world was in part prompted by the

development of value chains which took advantage of labor cost differentials. Developing

countries benefited from large investments by both multinationals and local entrepreneurs in

assembly or production of final consumer goods based on the importation of intermediates. It is

difficult to estimate how much of this happened in different parts of the developing world. One

proxy for intermediates is given by an indicator consisting of 75 parts and component products at

the SITC-2 to 5-digit level. The results of this analysis are shown in Table 6.

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In 1980 the share of parts and components in total manufacturing imports was only

slightly higher in developed countries than in developing. In the next two decades this share

grew in both groups of countries—but much faster in developing countries than in developed.

The aggregate share of parts and components in total imports fell in the both developed and

developing countries in the decade 2001 - 2010. At the end of 2010 the shares were higher the

higher the developing country income grouping.

But not all groups of developing countries followed this pattern over time: for example,

low income economies and the least developed did not see an increase in the share of parts and

components until the decade of the 1990s. Sub-Saharan Africa, Europe, Middle East and North

Africa (EMENA) as well as the LDCs actually had lower ratios of parts and components in their

imports at the end of the thirty years than at the beginning. By contrast, the BRICS raised their

share drastically –more than doubling in the decade of the 1980s and maintained their growth,

almost uninterrupted until 2010. These findings suggest an obvious imbalance in the importance

of the value chains in different developing countries: lower income developing economies, Sub-

Saharan Africa and the LDCs appear to have benefited much less than middle and higher income

countries.

A significant portion of the growth in developing countries’ exports of manufactures as

well as of commodities is the result of expanding trade among the developing countries

themselves. China’s growth has been instrumental in this but trade among developing countries

has grown rapidly in other regions as well. Part of this growth may be the result of preferential

regional arrangements, but part can be explained by the fact that during most of the 1990s and

2000s growth in incomes in most developing country groupings outpaced that of developed

countries. Table 7 shows that South-South trade grew faster than any other trade over the last 30

years. Indeed the share of this trade in the total world quadrupled over this period.

The improvement in the export performance of developing countries during the 1990s

was due mainly to increased demand in the commodities they exported and to a much lesser

extent to diversification or increases in the market shares of their traditional exports. While this

is true for the developing countries as a whole, different regions had different experiences: both

Asia and Latin America improved their competitive position. By contrast Sub-Saharan Africa

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experienced slow growth in world trade for its export basket, reflecting the continued decline in

primary commodity prices and slow demand growth for these commodities. The same was true

for the least developed (World Bank, 2000).

In the decade of the 2000s, the trends of the 1990s continued in many ways— except, of

course, for the increase in African exports of raw materials, a relatively rapid growth of Latin

America exports of foodstuffs and an expansion of exports of fuels from developed countries and

the BRICS (See Appendix Tables B-1 and B-2). During this period practically developing

income groups and regions improved their competitiveness with respect to developed countries

Overall and in most sectors (Hanson, 2011). The overall weak export performance of the

LDCs, in the 1980s and 1990s was largely due to their dependence upon a small range of

primary commodities (usually two or three), for the bulk of their export earnings. On average the

top three LDC export commodities account for over 70 percent of the each country’s exports,

and with the exception of Bangladesh, few countries have any significant exports of

manufactures. On average, manufactures, mainly textiles and clothing, constituted about 20

percent of total LDC exports in the 1990s (WTO, 1997). Although these exports grew

substantially over this period, it was not possible to overcome the weak performance of primary

commodities which accounted for the bulk of LDC merchandise exports. The situation changed

drastically in the 2000s: both the volume and the prices of their primary commodity exports rose

very rapidly and, while their manufacturing exports also increased, the share of primary

commodities in their total exports rose from 58% in 2000 to 75% in 2011 while clothing fell

from 18% in 2000 to 11% in 2011. China was the main force in this growth and Sub-Saharan

LDCs the main beneficiaries: China’s share of LDC exports rose from 9% in 2000 to 22% in

2011, while the share of developed countries decreased by almost the exact same percentage

(Ancharaz, 2012).

TRADE IN SERVICES

Data on trade in services are far weaker than data on merchandise trade. Indeed many countries

do not report data on certain service categories (Goswami, Mattoo and Saez, 2012; Mattoo,

2005; Whichard, 1999), and data are simply not available for a number of countries for certain

periods.3 Nonetheless, it is clear that growth of world trade in services in the thirty years 1980-

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2010 was faster than that for goods. Developing country service exports grew faster than those of

developed countries for the period as a whole (9.7 percent compared to 7.7 percent) and for the

last twenty years; their growth was only marginally lower in the 1980s. The same trends hold

true for service imports except that the differences are less pronounced (see Tables 8-10).

The regional growth patterns in services trade were similar to those in goods. The Asian

developing countries’ trade grew the fastest and Sub-Saharan Africa’s the slowest with Latin

America and the Europe, Middle East and North Africa the Mediterranean, in between (Table

10). Growth over the period as a whole was associated with the per capita income levels of the

various developing country groups, especially if you take India out of the lower middle income

group (Table 10).

Different developing countries have been successful in exporting different kinds of

services: India is well known for its exports of software and business services. In Latin America,

Brazil, Costa Rica, Chile, Mexico and Uruguay are among successful cases of exporters of

information technology, communication and distribution services. Kenya and South Africa are

among Sub-Saharan Africa countries exporting professional services to Europe; and a range of

different countries in Asia, Latin America and the Middle East and North Africa are exporters

of health services (Goswami, Mattoo and Saez, 2012).

Table 11 shows the growth rates of service exports by main sector for different

developing country groupings. The growth in financial and insurance services in the 1990s for

countries in Asia and the BRICS during the last decade is especially noteworthy. Similarly there

was very large growth in the export of information technology exports in the period 2000-2010

in practically all developing country groups except for Sub-Saharan Africa.

The picture regarding service imports is very similar to that of service exports with only

one interesting difference: LDC service imports for the period as a whole as well as for all sub-

periods tended to grow much faster than for non-LDC low income economies. This is probably

due to very rapid expansion of service imports by Bangladesh.

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The overall conclusion that emerges from these findings, are that the patterns of growth

both for exports and imports of merchandise trade and commercial services have been very

similar for different developing country groupings whether by region or by income level. There

is particularly striking similarity in their growth performance in the 2000s which far outpaces

that of developed countries during this period.

INTEGRATION IN WORLD TRADE

A key indicator of a country’s integration into world trade is the ratio of the total trade in

both goods and services (exports plus imports) to GDP. Essentially it shows how much of a

country’s economy is directly affected by international trade. This indicator is especially useful

in determining the links between a country’s economy and international trade over time, but it

has to be used with caution when making comparisons between countries. This is because large

countries tend to have smaller ratios of trade to GDP than small economies. Also, the existence

of large enclave type export sectors in some developing countries may give the false impression

that the economy is well integrated into the world trading system, while in practice the bulk of

economic activity may be subsistence domestic production.

Tables 12 and 13 show the evolution of this indicator of integration in developing

countries, grouped by income level and over time for the period 1980- 2010. After stagnating

during the 1980s (and declining for some groups), the trade/GDP ratio recovered, rose rapidly

and was substantially higher for all developing country income groupings by the end of the

1990s and increased further in the last decade. Since 2000 the ratio is higher for all developing

country groups than for developed countries.

One study (Frankel and Romer, 1999) using earlier data estimated that the ratio of trade

to GDP is strongly and positively related to growth in incomes: an increase in the ratio by one

percent can raise the level of income by anywhere between 0.5 and 2 percent. It is unclear

whether the experience of the last decade would support this finding, as a number of very large

countries with relatively low ratios of trade to GDP grew very rapidly—as did some small and

poor countries.

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Interestingly, with the exception of the high income developing countries, the data show

an inverse relationship between the level of per capita income and the share of trade to GDP. As

noted earlier however, inter-country comparisons of this indicator are risky: some of the most

rapid growth in the LDCs resulted from booming commodity exports which had little impact on

the rest of their economies. The only thing can be stated definitively is the very strong evidence

of globalization at every developing country income level and grouping.

POLICY ISSUES

This strong overall trade performance—with some exceptions, for example Sub-Saharan

Africa in manufactures-- raises a lot of questions about the factors responsible, the implications

for the architecture of the trading system as well as its sustainability.

How much of this growth was due to the developing countries own policies? To what

extent improved market access resulted from the implementation of multilateral trade

liberalization following the Uruguay Round Agreements as well as the establishment of

numerous regional preferential arrangements? Following the 2008 crisis, protectionism has

reared its ugly head again—but much less than had been feared (Wolf, 2011; Dadush, Ali and

Odell, 2011).

To what extent does the robust developing country performance reflect the strengthening

of their capacity to export, although weaknesses in trade institutions and infrastructure continue

to be a problem in many low income developing countries and the least developed? And what

does about the impact of this growth on poverty and income inequality?

Partly as a consequence of the strong trade performance, in the last decade the role

developing countries play in global trade relations has changed dramatically; and they have

become increasingly assertive in global trade negotiations in the WTO. What does this mean for

the future of the WTO?

Finally, to what extent are these trends sustainable? The slow-down in China’s and

India’s growth, Europe’s continued problems with the euro and US’s slow recovery pose obvious

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dangers. Commodity trade booms are often followed by busts. While protectionism has not been

as bad as it has been feared, the cumulative effect of protective measures may have an impact

over time.

All these issues create obvious risks for the sustainability of the surge in developing

country trade. But we should not allow these risks to overshadow what has been accomplished in

the last thirty years. The world tomorrow will be very different from the world of the 1980s and

developing countries will play a much more important role in the future trading system because

of what they have accomplished already.

Overall averages disguise stagnation in many countries. On the other hand, the successful

performance of many countries, several of which are low income, suggests that marginalization,

stagnation and poverty are not inevitable. Countries can integrate in the world economy, grow

and alleviate poverty. The key questions have to do with the policies and institutions both in the

countries themselves and in the international environment that can support this objective; and in

this context, the role played by international trade and the WTO.

APPENDIX A

COUNTRY GROUPINGS

There is no formal ‘developing country’ definition in any of the major international

organizations such as the World Bank or the World Trade Organization. The former uses for

statistical purposes a per capita income grouping which does not distinguish between developed

and developing countries which is used in part in this analysis. The WTO has no official

breakdown of developed versus developing countries. For operational purposes ‘developing’

countries use the principle of self selection. The breakdown between developed and developing

countries used in this analysis follows roughly the breakdown used by the WTO for statistical

purposes with a few changes to be noted below.

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Developed countries in our analysis include 47 countries in all of Europe (including

Belarus, Kazakhstan, Russia and Ukraine, but not Armenia, Azerbaijan, Georgia, or Moldova),

Australia, Canada, Israel, Japan, New Zealand, Turkey and the US. This is pretty close to the

WTO definition with the exception that South Africa, which the WTO classifies as ‘developed’

in our case is in the developing country group—while Turkey, classified by WTO as developing

is in our analysis with the developed—as it is applying for association with the EU. Also,

Armenia, Georgia and the Kyrgyz Republic classify themselves in the WTO as ‘transition’

economies- a category that had been used in the past but which is of doubtful usefulness in this

analysis. All three countries are classified as ‘developing’ as is Moldova, Tajikistan,

Turkmenistan and Uzbekistan.

All remaining countries and territories are considered developing. For merchandise trade,

the analysis has data for 145 countries. 46 are in Sub-Saharan Africa, 42 in Asia, 35 in Latin

America and Caribbean, and 22 in Europe, Middle East and North Africa. The latter region

includes the five North Africa countries (Morocco, Algeria, Tunisia, Libya and Egypt) and

stretches all the way East to include Iraq and Iran (but not Afghanistan -- which is in Asia). It

also includes Armenia, Azerbaijan, Georgia and Moldova. Far less service data are available for

developing countries. In this case our analysis includes information for 132 developing countries,

46 in Sub-Saharan Africa, 33 in Latin America and the Caribbean, 33 in Asia, and 20 in Europe,

Middle East and North Africa.

OPEC consists of 12 members as follows: Algeria, Angola, Libya, Nigeria, Indonesia,

Iran, Iraq, Venezuela, Kuwait, Qatar, Saudi Arabia, United Arab Emirates.

The income level analysis uses the same definition for developed countries as above.

Developing and transition economies are then grouped into five categories using basically the

World Bank definitions of groupings and per capita income in 2012 for 192 economies/countries,

except that the Least Developed countries (LDCs) which are the 48 countries in the UN list are

shown as a separate category; Low income countries -- those with per capita income less than

$1,025 (except the LDCs); Lower Middles Income $1,026-4,035; Upper Middle Income $4,036-

12,475; and High Income $12,476 or more.

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For merchandise trade sectoral breakdown data are available for 161 countries from UN

COMTRADE with 42 LDCs (6 LDCs are missing data); but information for service sectors is

available for 173 countries in 2010, only 46 for developed countries and 127 for developing

economies. Similarly, the low income group includes 22 countries for merchandise trade but 32

for services. The number of developing countries in the other groups is as follows: Lower Middle

Income: 41 for merchandise trade and 44 for services; Upper Middle Income, 34 and 37 and;

High Income, 17 and 14 respectively.

Globalisation and shifting balance in the world economy

In the context of the global crisis international merchandise trade International

merchandise trade includes goods which add or subtract from the stock of material resources of a

country by entering (imports) or leaving (exports) its economic territory.

registered its greatest plunge since the Second World War: Between the fall of 2008 and the

spring of 2009 global trade collapsed by 20 per cent in volume Reference to Volume disregards

changes in prices and exchange rates. Volume movements are determined by holding the price

constant.

Having initially rebounded sharply beginning in mid 2009, growth in international

merchandise trade then slowed again in the course of 2010. While regaining its pre-crisis peak

level in that year, the global crisis appears to have left a marked impact on the dynamism of

global trade, keeping the volume of global trade well below its pre-crisis growth trajectory

World merchandise exports volume, January 2000-November 2011 (Index numbers, 2000=100)

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Apart from remaining unfinished, the trade recovery has also been rather uneven. By the

end of 2011, in developed countries as well as in South-East Europe and the Commonwealth of

Independent States (CIS), where the trade collapse had been sharpest, merchandise trade in

volume terms has yet to even reclaim its pre-crisis level. By contrast, the volume of both imports

Imports of merchandise are goods that add to a country's stock of material resources by entering

its statistical territory. It is recommended that merchandise imports be reported c.i.f. (cost,

insurance and freight) more and exports of merchandise are goods leaving the statistical territory

of a country. It is recommended that merchandise exports be reported f.o.b. (free on board)

more in most groups of developing countries had already exceeded their pre-crisis peak in the

course of 2010, with East Asia, China in particular, leading the expansion.

Globalization features the rise in global exports relative to global income, while

individual countries see their respective exports and imports rise as shares of national income

(Motion chart) Is an animated bubble chart which shows data using the x-axis, y-axis, and the

size and color of the bubble over time. In other words, a rising proportion of global production

of goods and services is being traded across borders rather than sold at home. The global crisis

has brought the long-run trend of rising global integration through trade to a halt, at least

temporarily. The pre-crisis trend toward more openness and ever-deeper trade integration might

well firmly reestablish itself in due course. But persistence or trend reversal seem also possible.

At a time of high unemployment, fiscal austerity, and complaints of currency wars, the threat of

rising trade protectionism is looming large.

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http://dgff.unctad.org/chapter1/1.1.html#motion-chart

http://dgff.unctad.org/chapter1/1.1.html#motion-chart


Import side, the ranking still shows the United States in first place (13 per cent), followed

by China (9 per cent), Germany (7 per cent), and Japan (4.5 per cent) (Table) .

21


Highlights

As trade flows have generally grown faster than income since the Second World War,

countries’ openness and their exposure to external developments have increased;

Global trade collapsed in the global crisis of 2008-2009, recovery remains unfinished and

uneven; the global crisis appears to have left a marked impact on the dynamism of global

trade;

The global crisis has also brought the long-run trend of rising global integration through trade

to a halt, at least temporarily;

The global crisis and uneven trade recovery have reinforced the ongoing shift in balance in

the world economy, featuring the relative decline of developed countries;

The shifting global balance is also visible in the changing distribution of exports by

destination, featuring the rising importance of trade among developing countries;

The rise in South-South trade has been especially pronounced in East Asia;

LDCs have generally participated in these trends to a lesser extent but recovered some lost

ground in recent years;

Related to commodity price developments; many countries have experienced sizeable terms-

of-trade changes since 2002, with both winners (especially oil and metal exporters) and losers

(especially food-deficit countries) among developing countries including LDCs;

Global governance reform needs to make further progress.

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New trends in international trade:

International trade is increasingly recognized as a vital engine for economic development

(World Bank, 2005a; UNCTAD, 2004a). In 2004, the value of world merchandise trade rose by

nearly 21%, the highest growth rate in 25 years (WTO, 2005a), amounting to nearly USD 8.9

trillion. Taking account of dollar price changes, real world merchandise trade expanded by 9% in

2004, almost doubling from 5% in 2003. It continues to grow more rapidly than global Gross

Domestic Products (GDP). For example, world trade grew at nearly 6% on average in 1994-

2004, while global GDP at market exchange rates grew less than 3% in the same period. In the

meantime, a number of new trends in international trade have been observed over recent years.

Those mentioned below are among such trends which, in particular, are relevant when preparing

the Framework.

Trade in agricultural and manufactured goods

Manufactured goods, excluding mining products, recorded above average growth in

world merchandise trade during the past two decades (WTO, 2004a; 2005b). As a result, they

accounted for around three-quarters of world merchandise trade in 2003. By contrast, the share

of agricultural goods trade remained at around 9% in the three preceding years, which

represented approximately 2% below the average level in the 1990s. One of the notable trends is

that processed agricultural goods have become more important within trade in agricultural goods

over the past decade. They accounted for 48% of global trade in agricultural goods in 2001-2,

rising from 42% in 1990-1. This upward trend can be observed across countries and agricultural

product groups throughout the 1990-2002 period.

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Trade between partners of Regional Trade Agreements (RTAs)

A surge in trade between RTA partners was achieved mainly by a recent proliferation of

RTAs. According to a recent WTO report (2004b), some 220 RTAs were estimated operational

as of October 2004, of which 150 had been notified to the GATT/WTO. Nearly all WTO

Members belong to at least one RTA, and each belongs to six RTAs on average (World Bank,

2005b)2. The number of RTAs is likely to continue to increase in coming years, considering the

number of RTAs under negotiation. Consequently, it was estimated that the share of trade

between RTA partners of world merchandise trade will grow to 55% by 2005 if all expected

RTAs are concluded, rising from 43% at present (OECD, 2002a).

Developing countries trade

In 2004, the share of developing countries in world merchandise trade stood at 31%,

having increased from about 20% in the mid-1980s (WTO, 2005a; UNCTAD, 2004a). This is the

highest level since 1950. It is observed that developing countries are increasingly becoming an

important destination for the exports of developed countries. Among those, in particular, some

problems have been recognized in identifying tariff classification and assessing the Customs

value3 of second-hand goods such as used cars, computer equipment, machinery and clothing.

Also, developing countries contributed more to the 2003 growth of world merchandise trade than

developed countries. It was estimated that nearly four-fifths of the real growth in 2003 was

attributable to developing countries, including transition economies (UNCTAD, 2004a).

This trend requires caution, given that many developing countries, including African

countries, Less Developed Countries (LDCs) and Small Island Developing States (SIDS) remain

relatively marginalized from international trade (UNCTAD, 2005). However, it is observed that

new efforts are being made in order to reinvigorate their regional liberalization programmes and

take initiatives aimed at deeper integration into global trade. For example, the New Partnership

for Africa’s Development (NEPAD) in African counties was initiated in 2001. One of its primary

objectives is to “halt the marginalization of Africa in the global process and enhance its full and

beneficial integration into the global economy” (NEPAD, 2004).

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Containerized cargo

There are a number of freight containers in use within different modes, for example, Unit

Load Devices (ULDs) for aviation, Swap Bodies for road-rail carriage in Europe, and various

types of maritime containers (e.g. dry and refrigerated containers) for seaborne shipping (OECD,

2003a). Among those, maritime containers are the most numerous container types involved in

international trade. They are also used for inter-modal transportation, in which they are carried

by maritime, inland waterway, road, and rail operators.

It was estimated that that over 6 billion tons of goods were traded by sea in 2003

(UNCTAD, 2004c). This accounts for over 80% of world trade by weight (OECD, 2003a). With

36% for tanker cargo (i.e. crude oil and oil products) and 24% for bulk cargo (e.g. steel, iron ore

and coal), non-bulk cargo accounted for 40% by weight of the total seaborne cargo, most of

which was carried in maritime containers (UNCTAD, 2004c). It was also estimated that there

were 10.8 million maritime containers in circulation worldwide in mid-2003 (World Shipping

Council, 2003).

Air Cargo; Express cargo

It is reported that world air cargo accounts at present for a small portion of world

merchandise trade by weight, but a significant portion by value. World air cargo traffic has

rapidly grown at a rate of over 10% during the past decade, and it is expected to continue to grow

rapidly in coming years. For example, air cargo traffic has doubled over the past decade as

measured in Revenue Tonne-Kilometres (RTKs: weight multiplied by distance for charged

cargo). Within air cargo, the share of express cargo has also grown rapidly from 4.1% in 1992 to

nearly 11% in 2003 in terms of RTKs (Boeing, 2004).

This important growth in express traffic can be attributed to several factors: globalization

and associated Just-In-Time production and distribution systems; increased trade in high-value

low-weight products; and the provision of a service that assists SMEs to compete effectively in

an increasingly global market.

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E-commerce

Electronic commerce (e-commerce, described as “doing business electronically”) has

become a dominant factor in international trade and business, although traditional methods of

trade and business continue to be utilized widely. For example, the use of Information and

Communication Technology (ICT) such as Internet communication has made cross-border

activities easier and more practical (OECD, 2002c). It can reduce business costs in seeking

potential foreign business partners, as well as improve a firm’s visibility in global marketing

services, in particular for SMEs. In addition, it allows sellers to reach potential buyers for their

products beyond their national borders. In other words, it enables firms to take more

opportunities to expand their business in global markets. As a result, trade patterns are changing,

for example, smaller shipments are increasing, and different goods are exported to and imported

from more countries.

However, the so-called digital divide - a technology gap in terms of ICT infrastructure

including Internet usage between developed and developing countries - is often raised. Various

international and national efforts to combat the digital divide are being made. In addition, it is

pointed out that the latest technology, such as wireless communication technology, may offer a

reasonable solution for developing countries to quickly bridge the gap. It is also worth noting

that the digital divide looks different when it is viewed from different angles: Public Services,

Businesses or SMEs use of ICT internally and externally, and general access to Internet by

citizens.

Emerging business model

Business models in international trade may vary from industry to industry and company

to company involved in the international movement of cargo. However, there are general

observations on several emerging business models in the supply chain. Brief research into some

of them, which is relevant in preparing the Framework, is provided below.

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Just-in-time system

The just-in-time system of goods delivery is widely accepted in international trade, in

particular in the context of manufactured goods. It requires inventory to reach a production place

precisely when it is needed. Thus, a supply chain is designed to reduce problems in the flow of

materials, components, and finished goods across the parties involved in the international

movement of cargo. For example, it was estimated that large companies in the United States on

average reduced inventory from 1.57 months in the early 1990’s to 1.36 months in 2001. Then, it

was estimated that over USD 100 billion was saved by the logistics efforts alone in the United

States during the past decade (OECD, 2003a).

In order for the supply chain to function, all the parties concerned need high performance

in terms of punctuality, rapidity and reliability in addition to the traditional criteria of price and

operating time. Also, each link of the chain needs to be synchronized, otherwise there would be

little gain5.

Supply chain security

The loss of cargo shipments through theft and misrouting used to be a main security

element in the supply chain. In the light of increasing threats of terrorism, however, it has

emerged that the mantra of the international supply chain “getting the right product to the right

place at the right time” has been modified by adding “without compromising the national

security”(Waduge, 2003). The whole security level of a supply chain is heavily affected by the

level of security in all the parties concerned (Dulbecco and Laporte, 2003). In other words, any

security effort might be in vain if a party in the supply chain fails to achieve a minimum level of

security.

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Just-in-case system

Considering recent natural, political or technological disruptions to the international

supply chain, the system has moved away slightly from reliance on “just-in-time” delivery to the

“just-in-case” system, in which a supply chain has a certain degree of flexibility with a sound

contingency plan (Waduge, 2003; Brown 2003). There is a need to consider just-in-case

suppliers, vendors, or logistics as well as justin- case inventory. It is increasingly recognized that

it is too dangerous to rely heavily on a single source or logistics. A back-up system may be

needed to mitigate uncertainty. As the just-in-case system may raise costs, it may be necessary to

consider the balance between the level of security and extra costs in the supply chain.

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Benefits of trade for developing countries:

Trade can help boost development and reduce poverty by generating growth through

increased commercial opportunities and investment, as well as broadening the productive base

through private sector development.

Trade enhances competitiveness by helping developing countries reduce the cost of inputs,

acquire finance through investments, increase the value added of their products and move up

the global value chain.

Trade facilitates export diversification by allowing developing countries to access new

markets and new materials which open up new production possibilities.

Trade encourages innovation by facilitating exchange of know-how, technology and

investment in research and development, including through foreign direct investment.

Trade openness expands business opportunities for local companies by opening up new

markets, removing unnecessary barriers and making it easier for them to export.

Trade expands choice and lowers prices for consumers by broadening supply sources of goods

and services and strengthening competition.

Trade plays a role in the improvement of quality, labour and environmental standards through

increased competition and the exchange of best practices between trade partners, building

capacity in industry and product standards.

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Trade contributes to cutting government spending by expanding supply sources of goods and

services and strengthening competition for government procurement.

Trade strengthens ties between nations by bringing people together in peaceful and mutually

beneficial exchanges and as such contributes to peace and stability.

Trade creates employment opportunities by boosting economic sectors that create stable jobs

and usually higher incomes, thus improving livelihoods.

Trade Facts

The economics are clear: trade liberalization, combined with pro-market, developmental

domestic reforms, enhances the economic growth potential of developing countries.

The World Bank has reported that per capita real income grew nearly three times faster for

developing countries that lowered trade barriers more (5.0 percent per year) than other

developing countries (1.4 percent per year) in the 1990s.

Trade liberalization and domestic reforms go hand in hand. Studies show that openness is linked

to key macroeconomic and governance policies that enhance growth.

Developing countries are potentially large beneficiaries of an ambitious

outcome to the Doha Round of WTO negotiations.

According to a World Bank study, roughly half of global economic benefit from free trade

(goods only) would be enjoyed by developing countries. The estimates for the increase in

developing countries annual income by 2015 are:

o Static measurement - $142 billion of $287 billion (49 percent)

o Dynamic measurement - $259 billion of $461 billion (56 percent)

30


Developing countries would receive nearly two-thirds (63 percent) of the potential benefits of

eliminating agriculture distortions (tariffs and trade-distorting subsidies) by developing and

developed countries.

The benefits for development lie in a strong market access outcome.

Modeling by World Bank economists indicates that 93 percent of the global welfare gains (and

for developing countries, virtually all of the gain) from removing distortions to agricultural trade

globally would come from reducing import tariffs, while only 2 percent is due to export subsidies

and 5 percent to domestic support measures.

Development benefits are reduced if flexibilities operate to erode ambition.

The same modeling by World Bank economists shows that the welfare gains from global

agricultural reform would shrink by three-quarters, if as little as 2 percent of agricultural tariffs

in developed countries (and 4 percent in developing countries,) are classified as sensitive, and are

thereby subject to a 15 percent tariff cut.

To realize this benefit, developing country market opening is essential.

The World Bank also estimates that low and middle income countries would realize 50 percent

of their potential economic gains from global free trade in goods, by the elimination of their own

barriers.

Trade barriers in developing countries are higher than in developed countries.

The IMF finds that developing country protection is 4 times higher than in high-income

countries.

The U.S. average industrial tariff is below 3 percent. Developing countries’ average allowed

tariff is nearly ten times higher (28.5 percent).

The World Bank estimates that 70 percent of the burden on developing countries’

manufactured exports results from trade barriers of other developing countries.

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A recent Carnegie Endowment study, showed that under a full liberalization outcome in the

Doha Round, all developing countries are winners, with estimated gains for developing

countries as a group ranging from $45.6 billion to $76 billion.

The potential gains from liberalization in services are enormous as well.

Because the barriers to trade in services are extensive, the payoffs for reducing them are great.

A University of Michigan study estimates that services liberalization would produce over

two-thirds of the global economic welfare gain from the elimination of trade barriers. These

gains would go to developing and developed countries alike, with percentage gains to GNP

greater for the developing countries studied.

Services are the future of developing countries, as they are the fastest-growing component of

their total GDP and the largest component of foreign direct investment.

Services account for 61 percent of global FDI, increasing from 869 billion to 6.1 trillion from

1990 to 2005.

Eliminating global trade barriers could have a profound impact on poverty.

A study by White and Anderson (2001) found that openness to trade is associated with

significantly higher income growth for each income group except the top 20 percent of the

population, and that the greatest effects proportionally are for the lower income groups – that

is, the benefit of openness is progressive.

World Bank estimates that global free trade could lift tens of millions out of poverty. A study

by the International Institute of Economics estimates that global free trade could lift as many

as 500 million people out of poverty and inject $200 billion annually into the economies of

developing countries

Columbia University Economics Professor Xavier Sala-i-Martin estimates that the number of

people globally living in poverty declined by 350 million over the last three decades. China, a

country that has aggressively opened its markets and expanded its trade saw poverty decline

by 377 million. Poverty in Africa, on the other hand, increased by 227 million.

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Recent Trends in GLOBAL TRADE of Developing Countries

Documents

global crisis

global trade dynamics

global capital flows

global trade trends

shores of developing

global merchandise trade

european countries

global income