Transcript Relative Importance of North-South and South-South Trade Bipul Chatterjee Deputy Executive Director, CUTS International (www.cuts-international.org) & Director, CUTS Centre for International Trade, Economics &

Relative Importance of North-South and South-South Trade
Bipul Chatterjee
Deputy Executive Director, CUTS International (www.cuts-international.org)
&
Director, CUTS Centre for International Trade, Economics & Environment (www.cuts-citee.org)
Presented at the OECD Global Forum on Trade
A Trade Policy Dialogue on the Multiple Dimensions of Market Access and Development
Organised by
OECD Trade Directorate, World Bank and the Government of Mexico
Mexico City, 23-24 October 2006
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Introduction

Currently there is more trade between North and South (N-S), but South-South
(S-S) trade is rising – though it is lopsided

There is a growing realisation in the South to enhance cooperation among
themselves (through bilateral preferential trade agreements (PTAs) and
regional integration)

Political and macroeconomic structure of many developing countries do not
permit “deep integration” free trade agreements (FTAs) and/or comprehensive
economic cooperation agreements (CECAs) – strong political will and
institutional apparatus for policy-making and implementation are required
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South-South Cooperation

PTAs are mostly focusing on increasing merchandise trade by minimising
exclusions, adopting less restrictive rules of origin provisions and trade
facilitation at the border

However, many of these countries suffer from their small market size and
similar economic conditions rarely provides incentives for more trade

Monitoring mechanism (impact assessment) are often inadequate and do not
receive sustained, high-level political attention

The effectiveness is severally constrained by negative list, complicated rules of
origin provisions, inverted duty structure, less awareness among consumers,
etc (other than high tariffs)

Services: cross-border projects help deeper cooperation (e.g. Highway Project
in the GMS Region) – requires huge political will
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North-South Cooperation

These agreements are expected to score better on implementation

They can integrate economies with different technological capabilities and
different factor endowments

However, tighter rules of origin, more restrictive exclusion of particular
sectors can reduce benefits – especially for Southern producers and Northern
consumers

Many developing countries feel that such cooperation will bring increased
investment in their economies, but empirical evidence is unconvincing –
investment (especially FDI) is a different game
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Domestic Preparedness

Negotiations and implementation of initiatives like India-Sri Lanka, IndiaThailand FTAs show inadequate preparation on issues like rules of origin,
negative list of products

Protection through the so-called “negative list” needs to be reduced –
significant scope for rent-seeking

Vulnerability of specific sectors are to be factored into the process of
negotiations through sustainability impact assessment (economic, social,
environmental and political sustainability of PTAs, including sectoral studies)
before an agreement is entered into force and also during the process of
implementation (for taking appropriate measures for changes through
renegotiations – as an in-built mechanism) – systematic collection, storage and
analysis of data is required, so that there is less scope for rhetoric
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Options for Developing Counties

Promote multilateral trade liberalisation

Promote policy coherence – trade ministry should have a separate unit on
“policy coherence”

Promote regional trade integration by harmonising rules and procedures with
concomitant reduction of MFN tariffs – regional economic communities
should be institutionally strengthened and involve local communities

Promote awareness among the actors involved in cross-border informal trade
– formalisation of informal trade will be a win-win situation for those engaged
and the governments

Relatively more flexible attitude (greater political will) at national and regional
level is required for services liberalisation – focus on those sectors, which
benefit the poor most
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Conclusions

Whether PTAs/FTAs between North-South and/or South-South contribute or
undermine the MTS depends on specific content of each agreement – should
be made WTO-compatible before an agreement comes into force

The original motive for economic cooperation between countries (whether N-S
and/or S-S) was political (and will remain so) and these agreements have
become a tool to pursue some significant political strategies by some major
players, including a developing country like India

Large developing countries should provide duty-free, quota-free access to
products from least developed countries – with a minimum number of items in
the “negative list” – operationalising South-South trade cooperation
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
Trade liberalisation should be benchmarked with domestic preparedness (a
dynamic process) – relationship between trade liberalisation and domestic
regulatory reforms should be looked at closely (policy coherence)

Liberalisation of services should be done first at the regional level – for
instance, there is a huge scope for cooperation in transport and logistic
services, energy services in South Asia – largely untapped and could be a
significant source of pro-poor growth in future – involve civil society with the
process of liberalisation so as to have a better political buy-in, especially at the
local level
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