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A Comment on South to South Trade Development

Xingmin Yin, China Center for Economic StudiesFudan University, Shanghai, China

International Conference on Linkages between Trade, Development & Poverty Reduction

Civil Society Organization & Aid for Trade:Roles & Realities

Nairobi, Kenya, 15-16 March 2007

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1. LDCs and the Doha Development Round2. LDC export profile and implications3. Discussion on opportunities for LDCs: Case

of China-Africa trade development4. Aid for Trade: new practice5. Suggestions for South-South trade capacity

building

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1. LDCs and the Doha Development Round The Doha Development Agenda (DDA) is aimed at b

etter integrating developing countries, especially least developed countries (LDCs), in the multilateral trading system.

By many accounts, LDCs face great challenges under the current system of trade rules.

LDCs need debt relief, aid, and trade to help them to alleviate poverty and achieve sustainable development.

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A Comment on Ministerial Declaration Adopted on 18 December 2005, HK

Aid for Trade should aim to help developing countries, particular LDCs, to build the supply-side capacity and trade-related infrastructure that they need to assist them to implement and benefit from WTO Agreement and more broadly to expand their trade.

Aid for Trade cannot be a substitute for the development benefits that will result from a successful conclusion to the DDA, particularly on market access. However, it can be valuable complement to the DDA.

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What Steps for the Doha Round?

The Doha Round should bring tangible benefits to LDCs in terms of enhanced opportunities for trade and business.

Key players in the Doha Round should start taking LDC demands seriously.

No doubt, the action is better than discussion for multilateral trade development.

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2. LDC Export Profile and implications Much has been made of the low share of LDCs in world trade.

LDCs as a group accounted for only 0.6 per cent of world exports and 0.8 per cent of world imports.

In terms of market concentration, the EU (15) and the United States absorb the majority of LDC exports. In 1995 their share was almost 60 per cent. By 2004 this figure had dropped to 52 per cent, but the dramatic increase in LDC exports to China has resulted in the top three markets (China: 17.8%, EU: 29.2% and US: 22.7%) accounting for 69 per cent of total exports.

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Share of Major Markets in LDCs Merchandise Exports, 1995-2004

05

10

15202530

354045

95 96 97 98 99 2000 2001 2002 2003 2004

EU US Chi na Japan

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Market Access Issues: Duty-free and Quota-free

Achieving duty-free and quota-free market access in developed country markets for all products originating from LDCs has been aspiration of the international community for some time.

According to WTO, Japan and the United States maintain positive duties on a significant share of LDC exports in contrast to other developed countries.

An interesting trend is the growing importance of developing countries, such as China, as markets for LDC products.

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The Case of China In September 2005, China announced new measure

s in favor of LDCs. The estimated impact of these measures is to increase the total duty-free figure from 93.3 per cent to 95.2 per cent, and non-oil figures rises from 48.4 per cent to 62.3 per cent.

…… International debate on China’s trade policy to Afr

ica

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3. Discussion on Opportunities for LDCs: China-African Trade Development China has become the third largest trading

partner for Africa after the EU and the United States in 2005, and will be the second after the EU, at least, before the end of 2008.

The value of African trade to China in terms of the US dollar has more than tripled in both directions since 2002 and that China’s imports from Africa exceed its exports to Africa.

China has hoped to expand the trade with African countries to US$ 100 billion by 2010 more than double the 2005 year level of US$ 40 billion.

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3.1 China-African Trade Growth

US$ Million

0

5000

10000

15000

20000

25000

2000 2001 2002 2003 2004 2005

I mports Exports

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New Trends Sino-African trade amounted to nearly US$ 40

billion in 2005, up 35 per cent from the previous year. Fifteen years ago, bilateral trade was only US$ 1.66 billion.

Structure of trade: The product structure of Africa’s merchandise exports has always been strongly affected by price development.

China’s major trading partners in Africa can be calculated by country.

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Top Import Partners of China in Africa, 2001-2005, US$ million

Rank Partners 2001 2005 2001-05

1 Angola 722 6582 153142 South Africa 1173 3442 106853 Sudan 938 2614 78584 Congo 181 2278 50945 Eq. Guinea 509 1438 37396 Gabon 259 352 15447 Libya 54 942 14558 Nigeria 227 527 1410

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China main import partners are African oil-producing countries except South Africa.

China’s imports of agricultural goods and manufacturing products accounted for 8.1 per cent and 6.9 per cent of total imports in 2005 respectively.

Is it possible to change the structure of trade between China and Africa? How to change?

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Top Export Partners of China in Africa 2001-05, US$ million

Rank Partners 2001 2005 2001-2005

1 South Africa 1014 3826 108702 Nigeria 549 2303 72743 Egypt 805 1934 59374 Algeria 173 1404 34265 Morocco 278 1206 34236 Sudan 158 1294 29667 Benin 370 953 28918 Ghana 106 672 17569 Togo 80 538 1389 10 Kenya 133 457 1320

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In terms of export accumulation, South Africa has remained the first rank of China’s exports to Africa during the 2001-2005 period.

Nigeria, which had imported not so many goods from China, moved to the second position, next only to South Africa, in 2004 and 2005.

……

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3.2 Geographical Distribution of African Trade

Africa’s merchandise exports are largely destined to Europe, but Europe’s share has decreased markedly in recent years from one-half in 2001 to about 43 per cent in 2005.

Africa’s exports to Asia are estimated to have increased by 20 per cent with shipments to China rising by more than one-third.

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African Exports to Major Partners

0

10000

20000

30000

40000

50000

60000

70000

2001 2002 2003 2004 2005

Chi na EU US Japan

US$ million

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Geographical Features of African Trade

The EU-Africa trade: the ratio of four North African countries (Algeria, Tunisia, Morocco and Egypt) exports to the EU accounted for 58.58 per cent; another major trading partner is South Africa, which accounted for nearly 24 per cent of Africa’s exports to the EU in 2004.

The United State imports from Africa are highly concentrated in Algeria (46.87%) and South Africa (29%) in 2004.

It seems hardly possible to apply this trade model since most African countries have a very limited access to the market of developed countries.

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Growth Rates of African Exports to Major Partners

Year China % US % EU % Japan %

2001 4793 -14 15372 45721 2265

2002 5427 13 14406 -6 48244 6 2805 24

2003 8360 54 20088 39 58826 22 4965 77

2004 15646 87 16168 -20 60161 2 4963 ~

2005 21100 35 5786 17

Unit: US$ Million.

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3.3 China-Africa Trade in Regards to Regional Distribution China’s major import partners are Asian

countries (66.9 per cent) in 2005. The ratio of China’s imports from Africa

increased from 1.84 per cent in 2002 to 3.19 per cent in 2005, by increasing 70 per cent.

North America and Europe accounted for 8.51 per cent and 14.61 per cent of China’s total imports, by decreasing 3 percentage points and 4 percentage points within 2000-2005 period, respectively.

……

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Export Partners of African LDCs, 2001-05, US$ million

LDCs GNI p.c. Population China EU US

Benin 380 644 335 119a n.aKenya 350 3074 55 2406b 149Sudan 340 3169 10685 716 n.aZambia 320 1028 553 2149 59Ghana 300 1971 277 n.a n.aNigeria 290 12691 1410 n.a n.aTogo 270 465 107 243 n.aUganda 260 2279 42 775 52Madagascar 260 1598 55 n.a n.aBurkina Faso 200 1155 320 n.a n.a

a: no data of 2002; b: no data of 2005. GNI: Gross national income.

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Discussion Demand side: there is no strong evidence of

the regional diversification for the developed country trade with African countries.

Supply side: many African countries remain highly dependent on the export of a small number of agricultural raw materials or commodities.

What is the choice for African countries?

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4. Aid for Trade: New Practice China would further open up its market to

Africa by increasing the number of tariff-free products from 190 to 440.

China will establish five export-processing zones in Africa, and may expand these zones to more African countries.

What are implications of Chinese model of export-orientation to Africa?

What kinds of policy of Aid for Trade will be taken by China in the coming decades?

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China’s Direct Investment in Africa

Country 2004 2005 Accumulation at the end of 2005

%

Algeria 11.2 84.9 171.2 10.73

Sudan 146.7 91.1 351.5 22.04

Guinea 14.4 16.3 44.2 2.77

Madagascar 13.6 0.14 49.9 3.13

Nigeria 45.5 53.3 94.1 5.90

South Africa 17.8 47.5 112.3 7.04

Africa 317.4 391.7 1595.3 100.0

Unit: US$ million.

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Areas for China’s Direct Investment

Mining Commercial agricultural and agro-processing Textile and garments manufacturing, and Infrastructure development

More areas should be considered for China’s direct investment in African countries……

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5. Suggestions for South-to-South Trade Capacity Building

Economic growth: the gains from economic growth are much larger, whether as importer or exporter, and the gains as an exporter are dramatic.

The changes of development strategy from import-substitution to export-orientation for developing countries are urgently needed.

The importance of industry policy for LDCs…… Special treatment for LDCs is required. ……

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GDP and Trade Development in Africa, China, 2000-05

2000-05 2001 2002 2003 2004 2005

GDP growth rate 4.0 3.4 3.2 4.1 4.6 4.7

Merchandise

Exports 15 -7 3 25 30 29

Imports 14 4 1 20 29 19

China-Africa

Exports 20 15 46 36 36

Imports

GDP growth rate 9.5

-14

8.3

13

9.1

56

10

86

10.1

35

10.2

Unit: Annual percentage changes.

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How to build LDC capacity for exports under the Doha Development Round?

In contrary to Africa, Asia’s merchandise exports and imports expanded by 9.5 per cent and 7.5 per cent respectively. Asia’s trade developments and predominantly shaped by the performance of emerging economies: China ……

From the standpoint of balance of payments concerns, for LDCs, economic growth will translate into more exports than imports—with a significant part of gains resulting from the increased exports to emerging markets such as China, India ……

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Thanks!