Weakness in trade among developing countries

Trade among developing countries is still at a much lower level, both absolutely and comparatively, than is generally realized. That which does occur takes place largely between countries of the same region or continent and is considerably inferior, in value terms, to trade with developed countries. Intra-region trade in the South is held low because of trade barriers in developing countries and loss of market penetration due to increased competition with developed country exporters. High transportation and communications costs and inadequate export financing have made it difficult to many developing countries to compete. Severe anti-export bias within the developing countries has added to the problem.

As industrial requirements alter, intra-region trade presents supply problems in the exporting countries as well as in the composition of exports. There is also an inability of developing country exporters to compete with the terms on which some commodities were being made available under aid-in-kind programmes of developed market economies. Another obstacle is the fact that the less advanced developing countries are less able to derive rapid benefits from, and bear the short-term burden of, regional cooperation than the more advanced ones, no matter how great the long-term benefits may be. This is frequently accompanied by insufficient linkages between trade liberalization measures, cooperation in production, insufficient channels of communication, restricted sources of finance, inadequate monetary arrangements and links, etc. However, it is true since the 1980s that the overriding difficulties encountered in financing intra-trade are attributable to balance-of-payments difficulties, the accumulation of arrears and foreign debt servicing.

The low level and slow growth of trade among developing countries is largely determined by their past economic and political relationships with the industrialized part of the world. Historical links such as the flow of trade information, transport and communication systems, and export credit facilities all tend to encourage existing North-South trading patterns. The type of products that dominate developing countries' exports (primary products) find their most important markets in the developed countries. The imports of the developing countries come mainly from developed countries because they are very often more efficient sources of supply or the only sources for many goods vital for the development process; the goods produced in other developing countries, on the other hand, are very frequently similar to those produced domestically and are, therefore, kept out by protective measures.

The volume of trade among developing countries represents only a small proportion of their total foreign trade. It is estimated at about 20%. Characteristics of that trade is that it is low in primary commodities (excluding petroleum); that it is limited to the same region or same continent, and that it covers a narrow range of items.

In 1981, the value of exports to the developing countries amounted to US$ 488,000 million, or about 25% of world exports. South-South exports in the same year made up 41% of the exports to the South. Although the bulk of developing country exports still consists of primary commodities, the main lag in intra-trade was in foodstuffs and raw materials (except petroleum, over 80% of developing country imports of which still comes from developing countries). For all the regional groupings of the developing world, intra-trade shrank at an annual rate of 2.8% between 1980 and 1985 (even more than the average fall in total exports of 0.5% per year).

Following the cessation of communist control, there was a collapse of trading between the countries of Eastern and Central Europe in parallel with an abrupt opening of trading with the West. This added to the vulnerability of industry and wages.