A. GROWTH

An overview

    During the last thirty-five years, the developing countries as a group, in the wake of successful industrial and technological changes, have managed to increase their share of world exports of manufactures from 4.1 % (1955) to 18.75 % (1989). 113 The latter percentage exceeds that of Germany (F.R. - 14.85%), Japan (12.8%) and the most important structural changes in the world economy since the 19th century: it has broken the monopoly of industrial countries in the most lucrative market and opened the door for self-reliant growth in the South through the development of its capital goods industry.

    Between 1975 and 1990, the volume of developing country exports of manufactures increased more than five-fold, compared to a two-fold increase for developed countries.

Note: (a) Exports of Eastern Europe and USSR are not included.
Source: United Nations, Monthly Bulletin of Statistics, June 1991 and March 1992.

    The bulk of exports of manufactures from developing countries comes from a small number of economies: in 1988, five top countries accounted for 54% of total developing country manufactured exports. Nonetheless, both the number of countries exporting manufactures in significant amounts -- more than US $ 1 billion per year -- and their export volumes have been increasing rapidly.

Source: UNCTAD Secretariat, based on data from the U.N. Statistical Office and other official international sources.

    Most of the expansion of manufactured exports has been concentrated in more advanced developing countries. But industrialization drive has been almost universal, and expansion of non-traditional exports has been a policy target virtually everywhere. Perhaps the most striking and the least known development in Africa during the last two decades has been a significant growth of manufactured exports:

    Between 1980 and 1987, exports of manufactures from Sub-Saharan African countries
      rose 42% in U.S. dollar terms, or at 5.7 percent per year. For 1988, out of 33
      countries for which data are available, exports of manufactures rose in 28, and the
      overall increase for the 33 was 15.6%. For 1989, out of 6 Sub-Saharan countries for
      which data are available, exports of manufactures rose in five.

    In 1988, eleven Sub-Saharan African countries exported manufactures in excess of US
      $ 100 million each, compared to seven in 1980; in 1965 (and in 1969), there was none.

Notes: (a) 1989; (b) 1987
Sources: World Bank, Sub-Saharan Africa: From Crisis to Sustainable Growth, 1989, page 250; World Bank, World Tables 1991.

There also have been setbacks, for various reasons. But taking Sub-Sahara as a whole, to achieve a 60% increase in exports of manufactures to US $ 4 billion on a non-negligible base of US $ 2.5 billion in 1980, over an eight-year period marked by a commodity collapse and associated curtailment of the capacity to import, droughts, debt crisis, wars and policy disasters, is remarkable by any standard.
 

B. FALLING REAL EXPORT PRICES

Between 1980 and 1990, prices of manufactures exported by developing countries rose 12 percent (unit values in U.S. dollars), in money (nominal) terms. In comparison, prices of manufactures exported by developed countries rose by 35% in the same period. Furthermore, prices of manufactures exported by G-5 developed countries (Germany, Japan, U.S., U.K., and France), weighted proportionately to the countries' exports to developing countries, rose by 39%; and prices of machinery and equipment exported by Germany, Japan, U.S., and Sweden rose by 48%. The GNP deflator of G-5 countries, measuring the overall aggregate price increase in these countries, rose 58%, and the consumer price index in G-7 countries (G-5 plusCanada and Italy) rose 57%. Consequently, in real terms, prices of manufactured goods exported by developing countries fell, the size of the fall depending on the index used. Table IV shows the range of these falls. Their average, about 30 percent, can be taken as the probable fall in developing country export prices of manufactures in real terms, or 3.5 % per year.

Sources: Indices (1) and (3) from the UN Monthly Bulletin of Statistics, June 1991 and August 1911; indices (2), (4) and (5) from the World Bank, Revision of Primary Commodity Prices and Quarterly Review of Commodity Markets, 29 July 1991.

This finding is consistent with the estimates of the World Bank and UNCTAD. The World Bank indicates that already in 1973-80 export prices of developing countries increased at a much slower pace than the export prices of developed countries (6.8 percent per year, compared to 10.7 percent); while in 1980-87, export prices of developing countries fell in money (nominal) terms -- and even more in real terms -- while developed country export prices continued to rise.114 UNCTAD shows a reduction in export until values of developing country manufactured exports in 1980-85, followed by recovery in 1986-89, 115 but the recovery was probably no higher than the price increase in developed countries. Furthermore, it is reported that in 1991 export prices of Latin American manufactures are falling both in real and in money (dollar) terms.

Why the fall in developing country export prices of manufactures? Three reasons may be listed, and all of them worked simultaneously.
 

    Devaluations in developing countries, partly under the pressure of debts and
      conditionality, forced out exports in excess of market demand at unchanged prices,
      and got the prices down.

    Slow-down in the world economy since 1980 compared to the earlier period weakened
      the aggregate demand.

    The sheer mass of additional export production placed on the market by an increasing
      number of sellers, some of them operating from export processing zones and having
      no other outlet but exports even when export demand is weak, tended to drive down
      selling prices.
 

Tariffs

    "Successive GATT rounds, and particularly the Tokyo Round, have succeeded in lowering tariffs considerably in the industrial countries. The post-Tokyo weighted average most-favoured-nation rates (MFN rates) have fallen to 5.6, 5.5 and 4.8 percent respectively in the EEC, Japan and the U.S. In all these markets exports of Third World countries face higher average MFN rates than exports of industrial countries. Average also blur substantial discrepancies and peaks. In the EEC, Japan and U.S., tariffs above 10 percent still account for 21.5, 17.1 and 16.0 percent respectively of all tariff lines. Most of these high percentages are concentrated in food and textile and clothing categories, items of most interest to the Third World. Also, bound tariffs in agricultural items are small, which means industrial countries can raise them at will. There are also problems of tariff peaks and tariff escalation at every stage of processing." 116 Chart I shows the bias against processed products in the tariff structures of industrial countries.

Non-tariff barriers

    It is non-tariff measures (NTMs) which have been the main obstacles to expansion of developing country manufactured exports. They have proliferated during the last several decades and now affect some of the key product groups in which developing countries have a major advantage. In the assessment of the World Bank staff, almost one-half of OECD imports in 1986 was affected by non-tariff measures: 54% in the European Community, 45% in the U.S., and 43% in Japan.117 The 1986 aggregate OECD restriction effect was double the level in 1966. 118

    Table V sets forth the 1990 incidence of selected non-tariff barriers, as computed by UNCTAD. These measures affect more than 22% of non-fuel developed country imports from developing countries; this is a proportion one-third higher than in the case of imports from other developed countries. An analysis of a detailed breakdown for 1988 shows that the most important single non-tariff measure affecting developing countries is the Multi-fibre Agreement (MFA), which restricts developing countries exports of textiles and clothing: it affects some US $ 36 billion worth of trade, of which US $ 14 billion corresponded to agricultural products. Countervailing and anti-dumping actions affected about US $ 8 billion of trade, covering a wide range of products. Price control measures, including variable levies, affected about US $ 4.5 billion of trade, covering principally agriculture. Some US $ 8 billion worth of trade was covered by "voluntary export restraints" (VERs).

    The figures quoted above and the percentages shown in Table V are only illustrative. They show the trade that was affected; they do not show the potential of trade that would have taken place on the basis of new investment and associated employment if non-tariff obstacles had not existed in the first place. It is a testimony to the vitality of developing country export industries -- and to the existence of loopholes in the protective legal system in developed countries -- that manufactures have shown such rapid export growth in the past; but there is no doubt that a much larger export flow, particularly in textiles and other light industry, steel, shipbuilding, and electronics would have taken place had it not been for the barriers and the severity with which they have affected the developing countries. At the end of 1990, there were in existence 284 export-restraint-type arrangements involving GATT members. An many as 107 of these covered product groups in which developing countries are substantial actual or potential exporters: agricultural products (59), textiles and clothing (51), steel and steel products (39), electronics (37), and footwear (21 arrangements).119

    One of the severe non-tariff barriers have been anti-dumping and countervailing actions taken against imports. The number of outstanding cases world-wide, of which the over whelming number is in developed countries, stabilized between 1987 and 1990, but within this table total, the number of cases against developing country exports increased 20%. Developing country exports accounted for 35% of the total number of antidumping and countervailing cases in 1987; by 1990, the proportion rose to 45%.120 These proportions are very much larger than the shares of developing countries in total world exports and in world exports of manufactures.

Source: UNCTAD Data Base on Trade Control Measures. Reproduced in: Protectionism and Structural Adjustment, op.cit.

(a) Ratios have ben computed using as far as possible 1988 trade weights; otherwise trade statistics for 1986 (or 1989 in the calculations regarding the United States) were used.; (b) The "broad" group of NTMs includes certain para-tariff measures, surcharges, variable levies, anti-dumping and countervailing actions, quantitative restrictions (including prohibitions, quotas, non-automatic licensing, state monopolies, "voluntary" export, restraints and restraints under MFA and similar textile arrangements), import surveillance, automatic licensing and price control measures. The "narrow" group of NTMs excludes from the "broad" group defined above, para-tariff measures, antidumping and countervailing actions, automatic licensing and import surveillance measures.; (c) Australia, Austria, Canada, EEC (12), Finland, Japan, New Zealand, Norway, Sweden, Switzerland and the United States.

    In the time remaining for the conclusion of the Uruguay Round of trade negotiations, the developing countries are facing a formidable undertaking of persuading the developed countries to make substantial progress in opening their markets to developing country exports.
 

D. IMPORT LIBERALIZATION AND INTERNATIONAL TRADE NEGOTIATIONS

    In reporting to the GATT Council in April 1991, Dr. Dunkel, Director-General, stated that some 30 developing countries and several Eastern European countries had liberalized their imports since the beginning of the Uruguay Round in 1986.121 Professor Henderson, Head of the Economics and Statistics Department of OECD, stated in May 1991 that "For the first time in economic history the impetus to trade liberalization is not coming from industrial countries which profess to accept liberal norms, but rather from countries whose past tradition has been to reject them."122 The representative of Brazil in trade negotiations, speaking on behalf of a group of developing countries, said on 30 July 1991 that "without waiting for the conclusions of the Uruguay Round, we have opened our markets: we have reduced our tariffs, we have given away our non-tariff measures and our exceptions for balance of payments protection. We have not kept waivers, derogations, grey area measures as bargaining chips for the last stage of negotiations."123 In a number of cases, import liberalization has been motivated by the country's belief that rigid trade and foreign exchange controls introduce distortions, may adversely affect exports, and are difficult to enforce. In most cases, import liberalization has been one of the key conditions for financial support extended by the IMF and the World Bank in its structural adjustment loans.

    Countries which dismantle or reduce their import restrictions unilaterally do not obtain "credit" for these actions automatically at GATT negotiations,124 and possibly in their bilateral trade negotiations as well. As of mid-1991, the situation at GATT was unresolved. In its July 1991 report on GATT activities in 1990, and referring to the unsuccessful Uruguay Round meeting held in Brussels in early December 1990, the Secretariat states that "while there were significant {concession) offers on the table, serious problems remained... differences remained on the approach to be used to give credit for tariff bindings, and the appropriate level of recognition to be accorded to autonomous liberalization measures taken since the start of the Round. A number of developing and East European countries had taken such measures."125

    A sea of ink has been spilled in trying to convince the developed countries to reduce and eventually eliminate their trade barriers on developing country exports, in the interest of these latter countries' growth, as well as in the interest of improvement of welfare in the developed countries themselves. Without these writings, the situation today may have been worse; but it is difficult to see any improvement, The reason for ineffectiveness of arguments and appeals was stated by Sir Edmond Dell, the former British Trade Minister, succinctly and clearly:

"Trade negotiations are about reciprocity, that is an exchange of reciprocal concessions, not about unilateral gestures or 19th century liberalism.126"

• Except when they decide that unilateral import liberalization is in their direct national interest, developing countries should resist external pressures for such liberalization since they need it is a bargaining asset in trade negotiations with developed countries. By the same token, their lenders should reconsider their conditionality requirements, in the interest of their borrowers and thus of themselves: why should they, pressing for unilateral import liberalization, deprive their customer of the opportunity to obtain a wider foreign market and better prices?
• Developing countries are not likely to get a significant opening of developed country markets without counter-concessions in trade in goods and services. Since the developed country markets are much larger than those of developing countries, the latter will be a net gainer, under good negotiating circumstances. The developing countries' negotiating strength will increase if they negotiate as a group, since they would be offering a broader market. This would be more practicable in regional groupings across products, or in particular products across countries, than globally with respect to both countries and products; although the latter would be desirable.

E. EXPANSION OF TRADE AMONG DEVELOPING COUNTRIES

    Another avenue for widening the market of developing countries and reducing the pressure on their export prices is expansion of South-South trade. This has been a long-standing objective. In an important respect, of fundamental nature, conditions for its realization are now nearer than before. As stated by the South Commission:

"Progress within the South can give new substance to the process of cooperation among developing countries. Many of them have greatly diversified their economies in the last three decades. High levels of industrialization have been achieved, giving rise to new complementarities among developing countries, both within regions and interregionally. These broaden the potential scope for flows of trade, technology, and capital between developing countries on mutually beneficial terms. The newly industrializing economies of the South have now established their competitive credentials in a broad range of manufactured products, and in some cases are outselling the North in world markets. The increasing sophistication of the South's exports [is indicated by their growing] research and development intensity. Thanks to the high quality of its exports, the traditional prejudice against products from the South in the world at large, including the South itself, in breaking down."127

    The need for expansion of South-South trade has been put forward recently by professor Singer, a well known development economist and social scientist:

"It is an anomaly that the 75 percent or so the world's population who live in Third World countries should only do some 7 percent of their world trade with each other whereas the 12 percent or so of the world's population living in the western industrialized (OECD) countries should do over 79 per cent with each other. There is no economic rhyme or reason for this. Third World countries have become more dissimilar to each other in the post-second world war period while industrial countries have become more similar. And it is a well-established theorem of foreign trade, ever since the days of Adam Smith and Ricardo, that foreign trade flourishes on the basis of different endowments. So why is it that, over the past two decades, the volume of developing countries' intra-trade has only increased by 3.9 percent per annum whereas that of developed countries has increased by 5.2 percent."128

    A Global System of Trade Preferences (GSTP) has been envisaged as a major instrument of South-South trade cooperation. It became effective in April 1989, after a process of negotiations started in 1976. A system for promoting interregional trade among developing countries, it is based on the principle of mutual advantage. In order to ensure that all participants benefit equitably, it takes into account differences in levels of industrial and economic development and trade, and contains special provisions to favour the least developed countries. The scheme is seen as complementing existing regional and subregional preferential trading arrangements. The GSTP Agreement establishes a global framework of rules for the reciprocal exchange of concessions as regards tariff, para-tariff, and non-tariff measures covering all types of products, for direct trade measures including medium-and long-term contracts, and for sectoral agreements. However, the trade liberalization implicit in the first round of negotiations within the GSTP, in which countries exchanged bilateral concessions in April 1988, is not very significant. As of now, the GSTP is largely of symbolic value, concludes the South Commission, and sets a challenge that it evolve a coherent strategy so as to ensure that by the year 2000 the GSTP will cover a substantial proportion of the intra-South trade. a href=#foot129>129

    The key question in trade expansion and in South-South economic cooperation generally is that of finance. This became clear during the intensive work on this cooperation in the early 1980s, when the proposal for the establishment of a South Bank was formulated.130 It envisaged an institution with a broad mandate, covering trade financing, support to payments arrangements of developing countries, commodity stabilization, investment (project) finance and balance of payments finance. The governments of developing countries have not yet reached agreement on the establishment of the bank. South Commission has supported the proposal, with a suggestion that its different functions may evolve gradually, starting with export financing and support to payments arrangements.131 In July 1991, UNCTAD organized a meeting of an Expert group on trade financing mechanisms in and among developing countries. The meeting concluded that:

• Many developing country exporters suffer an acute paucity of foreign exchange resources for trade financing. This paucity of credit exists for all classes of exports, especially non-traditional exports for a wide range of developing countries in different stages of development.
• In most developing countries there are functional and institutional gaps in the financial

infrastructure which cannot be met by domestic resources. Consequently, there are real merits to the idea of establishing an International Trade Financing Facility (ITFF) as complementary to national institutions and initiatives.
• A facility which finances and refinances in foreign exchange developing country exports can be commercially feasible. It should initially concentrate on short-term credit and increase gradually its medium-term credit. A broadly based shareholding would be highly desirable. The initiative for launching the Facility must come from developing countries and their institutions, public and private. The participation of developed countries and their institutions, public and private, and the appropriate multilateral funding institutions, would be crucial for its success and market credibility.132

    No order of magnitude of finance required for the Facility has yet been indicated.
 

F. A POSSIBLE GROWTH MIX

    If sufficient export outlets are not found either in developed country markets or in an expanded South-South trade, real export prices of manufactures of developing countries would continue to be under pressure, leading to further devaluations. This would partly sustain a competitive position in exports, but it would also stimulate import substitution. Furthermore, in light of possible losses on exports (private losses and official losses in the form of export subsidies) and resistance to devaluations, attractiveness of the domestic market may increase, both for market agent and for public authorities. There would be a partial shift away from almost exclusive emphasis on export growth, which has dominated the scene in the past decade, to a mixed pattern of production expansion both for the export and for the home market, but the latter under protection considerably lower than in the past.

    The table below shows tariff and non-tariff barriers in developing countries in 1987, i.e. before the liberalization of recent years.

Notes:NTBs, non-tariff barriers. Data are unweighted tariff averages for tariffs. For NTBs, percent of all imports affected.
Sources:World Development Report (World Bank) 1991, page 98, based on UNCTAD data for 1987 on eighty-two individual country sources. For Republic of Korea, World Bank estimates.

    With the liberalization of recent years, it is probable that the average level of tariff on manufactures has fallen from 34% in 1987 towards a 25-30 % range. (I have not seen any specific estimate.) This remains much higher than the present average tariff in developed countries of about 5%; but we have also the Iglesias' statement of 15 November 1991 that "effective protection levels in Latin America now are nearly as low as in the industrialized countries."133 Historically, average tariff on manufactures in twelve industrial countries ranged from 11 to 32 percent between 1820 and 1950: 22 % in 1820, 11-14 % in 1875, 17% in 1973, 19% in 1925, 32% in 1931, and 16% in 1950.134 The fall to the 5% level is of a very recent vintage and is offset, partly or fully, by the rise in non-tariff barriers.

    In non-tariff barriers, the average 1987 proportion in developing countries of 27-28% has now probably been brought down to under 25%. At this level, it is quite close to the proportion of imports affected by selected non-tariff barrier in developed countries of 20-22 % (see Table V). The World Bank's World Development Report 1991 suggests that the developed country NTBs could be higher than the level estimated for developing countries in 1987 if the coverage was identical.135 For 1986, the Report has estimated the developed country barriers as affecting almost one-half of their imports (see page 6).

    An up-to-date estimate on a comparable basis is needed on both tariffs and non-tariff barriers in both developing and developed countries.