Free trade among developing countries?

Last week, as the “Economist”: reports, the Brazilian President signed a preferential trade agreement between the Mercosur countries (Brazil, Argentina, Uruguay, Paraguay) and India. da Silva described it as the first step toward a full free-trade agreement among the G-20 developing countries led by the IBSA coalition[⇒ related story]. bq. “India and Brazil can together create a political force able to help change the global trade geography to better meet the interests of the planet’s poorest people,” Mr Lula da Silva said. bq. “The developing countries need to join forces to defend our interests on an equal footing, whether in trade negotiations, international security, or peace issues,” the former union leader said. (“Financial Times”: This is heady stuff and not particularly new: it’s a fanciful idea belonging to the old UNCTAD agendas of the 1970’s. Free-trade agreements that have any hope of meeting the WTO’s reasonable requirements (no higher barriers to countries outside the region, coverage of ‘substantially all’ trade, generally complete within a decade) are very difficult to negotiate even among economies that are geographically and economically aligned, trade intensively and already have low barriers to exchange with each other.

Although the volume and value of ‘south-south’ trade has been growing more rapidly in the past decade than world trade, more than two-thirds of this intra-developing country trade originates in developing Asia, according to the WTO’s 2003 “World Trade Report(summary page and download links)”: This is because: # The economies of Asia are growing more strongly than other developing economies
# The economies of Asia are more open to trade than other developing economies While most of the developing world accounts for only one third of south-south trade because of high protection against south-south trade the da Silva idea is simply not a realistic economic project. But, of course, it’s a political gesture aimed, without doubt, at dressing-up the global stage for the Brazilian President at the eleventh UNCTAD meeting in Sao Paulo in June this year. Such grandiose gestures are the wearisome fare of UNCTAD meetings and harmless, one might say, because impractical and irrelevant. This proposal is, however, harmful in one important respect. It is a misdirected and inadequate and response from one of the world’s strongest and most sophisticated developing country governments to the real and reasonable demand of the other member economies of the WTO for the giant developing countries of IBSA and China to shoulder greater responsibility (and leadership) in the multilateral trading system. The “force able to … better meet the interests of the planet’s poorest people” is, all the evidence suggests, freer trade on a global non-discriminatory basis. Not impractical ideological coalitions.

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