South-South Trade: Tapping the Potential

Article excerpt

CHALLENGES

Developing countries don't fully exploit good business matches among their firms.

Exporters still tend to focus on traditional markets in industrialized countries. These markets are highly competitive and difficult to enter, whereas for many developing country firms, neighbouring markets offer immediate opportunities.

ITC has been promoting South-South trade for over 30 years. The untapped potential is great among developing country firms. What is holding them back?

The answer is a mix of related facts and perceptions.

First, it's often believed that developing countries produce similar goods - mainly raw materials and commodities - and therefore don't have trade complementarities. The lack of reliable trade information perpetuates this belief. In fact, from blankets to school textbooks and mobile phone operators, developing countries produce a wider range of goods and services than conventional wisdom would have us believe.

second, there's a notion that low gross domestic product levels reflect limited market potential. However, developing countries import - often at high cost - from developed countries.

Third, while trade between developing countries is currently growing by 10% a year, the pace could pick up if trade barriers between them fall. On average, trade barriers among developing countries are three times higher than those imposed by the developed world. For manufactured goods, they are six to eight times higher.

Fourth, countries do not usually have a trade promotion infrastructure to encourage bilateral and multilateral trade, such as reciprocal chambers of commerce or mutual recognition of standards and inspection procedures. Developing countries also lack basics such as reliable transport and telecommunications links, and corresponding banking facilities.

South-South trade can be a "training ground" for developing and transition economies to enter the global trading system. …