Promoting Intraregional Trade: A Strategic Approach for Developing Countries

Article excerpt

Trading patterns in the world change continuously in terms of both composition and direction. While current trends point to an increasing globalization of world trade, trading links are also being strengthened in some cases at the regional and subregional levels, through efforts by groupings of countries to reinforce commercial ties with neighboring markets. Although this pattern has been the most noticeable among certain groups of developed countries, the same phenomenon has been apparent in several developing areas.

In many instances trade among developing countries in the same region is negligible and amounts to only a fraction of those countries' total foreign trade. Does that mean that neighboring countries lack the necessary complementarities in economic structures for trade to develop? Or that the regional trading environment is more restrictive than the global one? Not necessarily. The potential for trade expansion among developing countries is considerable, as has been evidenced through research and field work conducted by ITC. This potential is an important basis for developing economic cooperation among developing countries based on mutually beneficial trade and investment opportunities.

This article describes some of ITC's experiences in developing trade among countries and enterprises in a given developing region. The methodology that has been used in this work may be applicable to trade promotion organizations and chambers of commerce in other areas interested in expanding mutual trade a a regional or subregional level.

Three-step approach

The reasons for limited trade among neighboring countries differ from one region to another. One factor is common to all such situations, however: information on existing market opportunities is insufficient and not easily accessible. Because of this lack of information it is generally believed that regional market potential is negligible. Foreign trade development initiatives thus tend to have a bias towards more transparent but also more competitive global markets.

What can be done to develop regional market potential in a systematic way? A three-step approach has been successfully applied in several ITC projects that could have a more general application, with suitable adaptation. It starts with a trade flow analysis. This is followed by a series of supply and demand surveys. A third step is organizing buyer-seller meetings.

This approach has most recently been used by ITC in projects in the African region, with the Preferential Trade Area for Eastern and Southern African States (PTA) and the Economic Community of West African States (ECOWAS). The activities have been successful in generating extensive new business among the participants. The potential for similar intraregional trade development exists in other developing areas as well.

Trade flow analysis

The first and most important step in this approach is to identify the products that, in theory, could be traded among countries in a given region. Such a product inventory serves as a basis for planning further trade promotion action. It is also essential for demonstrating that quantifiable trade potential exists and for convincing all relevant parties, both public and private, that efforts for intraregional trade promotion are justified.

An effective way of identifying such products is through a trade flow analysis, scanning the import and export trade between a group of countries and the rest of the world, or between the group and another group of significant trading partners, to identify specific products currently traded. Such an assessment is carried out on the assumption that if the same products that the group as a whole imports from third countries are likewise exported by the group to the rest of the world, trade potential among members of the group theoretically exists. In other words, the fact that such products are imported into the region indicates existing demand, and their export reflects a possible surplus availability under competitive conditions. …