Regional integration

Friday, 11 October 2013 00:00 -     - {{hitsCtrl.values.hits}}

South-South trade, regional integration, emerging markets – these are the buzz words of international trade today. Read any research report of any trade related international agency, these are shown as the way to go, particularly for developing countries. In ways more than one, the downward trend in the developed world has been responsible for these changes in international trading patterns. Past dependence on developed markets, encouraged also by various preferential tariff regimes, did certainly help developing countries to earn foreign exchange, improve labour and manufacturing skills and achieve export diversification. Skills thus obtained, instead of going waste can now be turned in South-South directions. A recent report by UNCTAD – Key Trends in International Merchandise Trade – explains the importance of export diversification. If a country can diversify its exports into more sophisticated, higher value added products, that would signal advancements along the technological ladder and often potentially higher rates of economic growth. The UNCTAD report also points out that technological content is generally higher in the case of intra-regional trade than for extra regional trade and suggests that intra-regional trade could represent an important stepping stone to achieve technological upgrading .This is an important factor to be taken into consideration if a country is to prepare to get into the stream of investments which are expected to flow to Asia in the coming years. The UNCTAD report also notes that during the last five years, South-South trade has grown at a faster pace than South-North or North-South trade in all developing regions and South Asia has been the fastest growing region in terms of imports and exports with imports exceeding exports, indicating growing demands. However, as compared to other developing regions, South Asia has the lowest regional integration while, the region has more trade with other South-South areas. This is not surprising considering the political and other differences in the region. However, efforts to ease trade contacts within the region might bear fruit in the long run. The combined population of South Asia together with the rising young and affluent middle class and skilled human resources are expected to make the region an attractive location for investment. A recent report by McKinsey Global Institute states that nearly half of the Fortune global 500 companies are likely to be based in developing countries by 2025, shifting the global corporate landscape. New players from emerging markets such as Chinese telecom networking giant Huawei and India’s industrial conglomerate Aditya Birla Group are asserting their presence, according to the report, “and many more are soon to follow”. By 2025, there would be 15,000 large companies (revenue of over US$ 1 billion), out of which more than 45% could be based in emerging regions (up from 5% in 1990 and 17% in 2010), the report said. This situation is likely to undergo a sea-change as by 2025, an additional 7,000 companies would grow to this size (revenue of over US$ 1 billion) and seven out of 10 of these new entrants are likely to be based in emerging regions, it added. For an island nation like Sri Lanka, where borders do not cover countries, regional integration can start with the closest neighbour who is a leader among the emerging economies. Getting into their value chains from now on would undoubtedly help in the long run. The Comprehensive Economic Partnership Agreement which has not been signed as yet would have been a step in the right direction to get into regional value chains as well as in preparing to be absorbed in the investment flows coming towards Asia. (Manel de Silva holds an Honours Degree in Political Science from the University of Ceylon, Peradeniya and has engaged in professional training in Commercial Diplomacy at ITC and GATT. She has served as a trade diplomat in several Sri Lankan Missions overseas and was the first female Head of the Department of Commerce as Director General of Commerce.)

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