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Recent Trends in GLOBAL TRADE of Developing Countries.

GLOBALIZATION AND THE SHIFTING BALANCE IN THE WORLD
ECONOMY.

Global trade trends:

Since the Second World War, global merchandise trade has generally grown faster than
global income, but the global crisis has left its mark on trade dynamics: Recovery in global trade
remains unfinished and uneven, while the trend toward greater trade openness of economies
came to a halt. The global crisis and uneven trade recovery have reinforced the ongoing shift in
balance in the world economy, featuring the relative decline of developed countries and rise of
developing countries. The shifting global balance is also visible in the changing distribution of
exports by destination, marked by the rising importance of trade among developing countries.
While developing countries as a whole have become the key driving force behind global trade
dynamics in the 2000s, performance varies considerably between regions and countries.
Commodity price developments since 2002 came along with sizeable changes to terms of trade.
GLOBAL CAPITAL FLOW TRENDS
After having surged to unprecedented levels in 2007 and until mid-2008, private capital
flows towards developing countries came to a sudden stop or even reversed direction as the
system went into cardiac arrest, fleeing back towards the core countries of global finance that
were the epicenter of the crisis. Most currencies experienced huge exchange rate gyrations vis-vis the United States dollar, functioning as the world's key reserve currency.

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Tentative recovery began in the spring of 2009 under continued massive policy support
from key central banks in developed countries. But volatility stayed at elevated levels and fresh
stresses emerged starting in the winter of 2010, now concentrated in the European countries that
share the euro as their currency. Developing countries experienced another surge in capital
inflows after mid-2009 followed by yet another reversal in the course of 2011 as the European
debt crisis worsened. Renewed disruptive exchange rate swings vis--vis the United States dollar
broadly mirrored the tidal flows of private capital. Global finance remains in upheaval.
Financial globalization has proceeded at an even more rapid pace than trade globalization
over the past few decades. While the developed economies continue to be the most financially
integrated, more and more developing countries have meanwhile liberalized and at least partially
opened up their financial systems. Since the early 1990s, private capital flows reached the shores
of developing countries in two strong waves. The emerging market crises of the late 1990s and
the global crisis of 20082009 provided the major breaking points that saw sharp reversals. Apart
from crises, the monetary policy and business cycle in leading developed countries provide the
other key driving force for global capital flows involving the developing world.
While more and more developing countries have become prominent destinations of
private capital inflows, especially since the 2000s, many have also experienced rising private
capital outflows.
Net private capital flows towards developing and transition economies, 1980-2010
($ millions and as percentage of recipient countries' GDP)

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Private capital flows consist of three main categories: foreign direct investment (FDI), portfolio
investment, and other investment; the latter including international banking flows. A
compositional breakdown reveals a rise in the role of FDI and portfolio flows and relative
decline in international bank lending flows.
The rise in international capital flows involving developing countries has led to a
corresponding rise in cross-border financial holdings and an expansion in their international
investment positions, recording foreign assets and liabilities. The relative rise in developing
countries gross foreign assets and liabilities provides further evidence of progressing financial
globalization. Increasingly developing countries too are becoming part of globally
interconnected balance sheets. In many developing countries, the concomitant rise in foreign
assets and liabilities has seen an improvement in their net foreign asset positions, a process
mainly driven by improved current account positions. Running a current account surplus position
allows a country to either reduce its foreign debt and/or accumulate foreign assets, including
international reserves. External debt trends over the last decade brought a continued general
improvement of developing countries debt indicators. External debt expressed as a percentage
of gross national income (GNI) and as a percentage of exports of goods and services both
declined. Helped by declining global interest rates, the debt-servicing burden of developing
countries as a group also decreased substantially.
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Apart from paying off external debt or reduced overall reliance on foreign debt, many
developing countries used improved current account positions to build up their holdings of
international reserves. Rising reserves were also sourced from net private capital inflows. While
concentrated in China, the unprecedented rise in international reserves has been a widespread
phenomenon in the developing world, commonly referred to as self-insurance.
International reserve holdings serve precautionary purposes, and common indicators thus
suggest that developing countries markedly increased their precaution in the era of progressing
financial globalization, especially in response to the crises of the late 1990s. Recourse to reserve
accumulation as self-insurance is part of a broader preference for defensive macroeconomic
policies, including avoidance of an overvalued currency. As financial globalization proved
hazardous in the experience of many developing countries, maintenance of a competitive
exchange rate became a policy focus. If foreign exchange market interventions are used to
contain pressures for currency appreciation, a build-up of international reserves arises as a byproduct.
The hazards of unfettered global finance were once again illustrated with spectacular
vehemence and reach in the global crisis. Even developing countries that had seemed to be in
excellent shape and had shored up their defences through large international reserve holdings
were caught in the global contagion; albeit generally less so than countries that were running
large current account deficit positions prior to the crisis, concentrated in Eastern Europe.
Ratio of foreign exchange market turnover divided by value of merchandise exports,
1989-2010 (Average daily turnover in April, $ billions (left scale) and ratio (right scale).

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Perhaps the rule of finance over trade in the modern age of accelerated globalization is
best illustrated by trading in foreign exchange markets. Daily foreign exchange trading has
reached over 4 trillion, including spot and forward markets and other foreign exchange derivates
that feature prominently in carry trades. While still in the teens in the late 1970s, the ratio of
yearly foreign exchange market turnover over merchandise exports had reached about 50 in the
1980s, and has doubled again since. The current ratio of around 100 implies that only about 1
percent of foreign exchange trading is actually related to merchandise trade.
The conspicuous rise of derivatives provides another indicator and symptom of the
fragility of unfettered global finance, including credit derivatives such as credit default swaps
and collateralized debt obligations. Hailed as welcome innovations in an era cherishing beliefs in
self-regulation, these products came to prove lethally destructive far beyond their centres of
origin in the developed world.

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Table 1: World merchandise exports and shares by income group and region

Country Group
BY INCOME LEVEL
Developed economies
Developing economies
High income developing
economies
Upper middle income
economies
Lower middle income
economies
Low income economies
Of which: Least developed
countries Memo:
Developing econ, excl. China
& India
Upper middle income, excl.
China
Lower middle income, excl.
India
BY REGION
World
Developing economies
Asia
Latin America & Caribbean
Europe, Middle East & North
Africa
Sub-Saharan Africa Memo:

1980
Exports ($
bill) Share in
%

1990
Exports ($
bill) Share in
%

2000
Exports ($
bill) Share in
%

2010
Exports ($
bill) Share in
%

1,314 66.6

2,653 76.4

4,418 68.4

8,909 58.5

597 30.2

837 24.1

2,035 31.5

6,268 41.2

254 12.9

363 10.5

854 13.2

2,108 13.8

211 10.7

332 9.5

873 13.5

3,175 20.8

120 6.1

128 3.7

285 4.4

908 6.0

12 0.6
15 0.8

14 0.4
18 0.5

23 0.4
36 0.6

77 0.5
162 1.1

570 28.9

757 21.8

1,744 27.0

4,471 29.4

193 9.8

269 7.8

624 9.7

1,597 10.5

112 5.7

110 3.2

243 3.8

689 4.5

1,973 100.0

3,473 100.0

6,456 100.0

597 30.2
165 8.3
104 5.3

837 24.1
459 13.2
145 4.2

2,035 31.5
1,285 19.9
362 5.6

6,268 41.2
4,005 26.3
886 5.8

250 12.7

165 4.8

293 4.5

1,035 6.8

78 3.9

68 2.0

94 1.5

341 2.2

15,228
100.0

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Table 2: World merchandise Imports and shares by income group and region

Country Group
BY INCOME LEVEL
Developed economies
Developing economies
High income developing
economies
Upper middle income
economies
Lower middle income
economies
Low income economies
Of which: Least developed
countries Memo:

Developing econ, excl. China

& India
Upper middle income, excl.
China
Lower middle income, excl.
India
BY REGION
World
Developing economies
Asia
Latin America & Caribbean
Europe, Middle East & North
Africa
Sub-Saharan Africa Memo:

BRICS 5 countries

1980
Imports ($
bill) Share in
%

1990
Imports ($
bill) Share in
%

2000
Imports ($
bill) Share in
%

2010
Imports ($
bill) Share in
%

1,465 72.9

2,775 78.2

4,792 72.0

9,508 62.0

485 24.2

784 22.1

1,863 28.0

5,764 37.6

153 7.6

327 9.2

749 11.3

1,726 11.3

202 10.1

298 8.4

808 12.1

2,859 18.7

112 5.6

136 3.8

269 4.0

1,051 6.9

18 0.9
25 1.2

23 0.6
26 0.7

37 0.6
43 0.6

129 0.8
170 1.1

451 22.4

707 19.9

1,586 23.8

4,019 26.2

182 9.1

245 6.9

582 8.7

1,464 9.6

97 4.8

113 3.2

217 3.3

700 4.6

2,009 100.0

3,550 100.0

6,659 100.0

485 24.2
181 9.0
116 5.8

784 22.1
476 13.4
123 3.5

1,863 28.0
1,216 18.3
384 5.8

5,764 37.6
3,873 25.3
891 5.8

122 6.1

127 3.6

181 2.7

693 4.5

66 3.3

58 1.6

82 1.2

307 2.0

79 3.9

168 4.7

410 6.2

2,280 14.9

15,326 100.0

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TRENDS IN DEVELOPING COUNTRY TRADE

1980-2010
INTRODUCTION

The purpose of this paper is to review broad trends in developing countriestrade for the
last thirty years. The study is part of a more detailed analysis of the factors affecting developingcountry trade performance during this period, which considers developments in their own trade
policies as well as market access issues for their exports.
The period covered by this study, 19802010, witnessed a rapid expansion of world trade,
and an even more rapid expansion of developing countries' trade, especially in the last decade.1
The share of developing-country trade in total world merchandise trade (exports plus imports)
was appreciably higher at the end of the period than at the beginning, 31 percent as opposed to
39 percent (Tables 1 and 2). There was a sharp decline in world trade in 2009. But this was offset
by an even larger increase in 2010. Trade growth has decelerated in 2011-2012, and there are
many uncertainties about 2013, but this does not affect these broad overall trends.
A similar picture emerges, if one also considers trade in services. While the data on services are
much less complete than for merchandise trade, there is little doubt about the overall trends:
services trade grew even faster than merchandise trade; and there was a rise in the share of
developing countries exports.
As a consequence of these trends, the role developing countries play in the international
trading system has changed radically; and this has been reflected in their participation in the
moribund Doha Development Round negotiations. GDP growth during this period was much less
than the growth in trade for developed and developing countries alike. Using the ratio of total
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trade to GDP as an indicator of integration into world trade, on average developing countries
were more integrated at the end of 2010 than twenty years earlier. This was the result of another
long term trend in evidence over the past fifty years and an important dimension of the
globalization process. These overall trends however, disguise very different patterns during some
of the sub-periods and among different developing countries and groups. Broadly speaking, the
data show that, except for Asia, the 1980s were pretty much a lost decade for many different
developing countries and groups. By comparison, during the 1990s and 2000s trade for
practically all major groupings of developing countries grew faster than trade of developed
countries and, in many cases, very rapidly indeed. The Least Developed Countries (LDCs)
deserve special mention: while growth in their merchandise trade was much slower than that of
developing countries as a whole for the first twenty years (1980-2000), it was the most rapid
during the decade 2001-2010. As a result, for the first time in many decades these countries
showed an increase in their small share of total world trade.

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TRENDS IN MERCHANDISE TRADE

Developing country merchandise exports grew at an annual rate of 8.2 percent for the
period 1980-2010 compared with 6.6 percent for developed countries (Table 3). But the
performance was very different in the 1980s compared to the 1990s and 2000s. In the 1980s,
developing-country exports grew only at 3.4 percent while exports of developed countries
expanded at over 7 percent per annum. This reflects in large part the slower growth of the world
economy during this period as well as the debt problems encountered by many groups of
developing countries especially in Latin America and Africa. In the last two decades the situation
was reversed with developing-country export growth at more than 10 percent per annum
compared with about 6 percent for the developed countries. The trends in merchandise imports
parallel those in exports both for developed and developing countries alike. But in both periods,
the developing countries imports grew faster than their exports (Table 3).
Chinas exceptional trade performance throughout the period, and Indias in the last two
decades, are well known. What is not always understood is that other groups of developing
countries trade also grew very rapidly during the past twenty years, especially since 2000.
Indeed, since the beginning of the 21st century, growth in the trade of all major developing
country groupings whether classified by income level or by region was faster than that of
developed countries. For the thirty years 1980-2010, only the developing countries in SubSaharan Africa and the group of developing countries in Europe, Middle and North Africa
whose exports are dominated by oil, experienced trade growth slower than that of developed
countries.
Table 3 also shows the performance of different regions of developing countries. In
practically all cases and periods, Asia as a region has shown the greatest growth with Latin
America second. But Sub-Saharan Africa and Europe, Middle East and North Africa grew fastest
in the last decade.
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In the 1980s and 1990s, with the exception of China, trade grew fastest for the higher and
middle income developing countries and more slowly for the lower income countries and the
LDCs. This relationship however, did not hold up in the 2000s when LDC exports expanded very
rapidly, indeed more rapidly than any other group, except for the upper middle income
economies whose performance is dominated by China.
As noted in many studies, the trade performance of the various groups of developing
countries depends very much on the composition of their exports as between manufactures and
primary commodities and foodstuffs and the direction of their trade. Overall, growth of
developing countries manufacturing exports and imports has exceeded that of developed
countries for practically all groupings of developing countries for last two decades and for the
period as a whole (Table 4). The same holds true for non-manufacturing tradeexcept that in
this case LDC exports of raw materials and minerals lagged those of developed countries in the
1990s. In the 2000s however, increased demand and rising prices of raw materials led to very
rapid (14.6 percent per annum) increase of LDC non-manufacturing trade.
Within manufacturing, developing country export growth was especially rapid in
machinery and transport as well as chemicals. Practically all developing country groups shared in
this growth (Table 5) but it was especially rapid in the upper middle income countrieseven
excluding China, as well as the BRICS and Latin America.
Growth of manufactured exports in the developing world was in part prompted by the
development of value chains which took advantage of labor cost differentials. Developing
countries benefited from large investments by both multinationals and local entrepreneurs in
assembly or production of final consumer goods based on the importation of intermediates. It is
difficult to estimate how much of this happened in different parts of the developing world. One
proxy for intermediates is given by an indicator consisting of 75 parts and component products at
the SITC-2 to 5-digit level. The results of this analysis are shown in Table 6.
In 1980 the share of parts and components in total manufacturing imports was only
slightly higher in developed countries than in developing. In the next two decades this share
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grew in both groups of countriesbut much faster in developing countries than in developed.
The aggregate share of parts and components in total imports fell in the both developed and
developing countries in the decade 2001 - 2010. At the end of 2010 the shares were higher the
higher the developing country income grouping.
But not all groups of developing countries followed this pattern over time: for example,
low income economies and the least developed did not see an increase in the share of parts and
components until the decade of the 1990s. Sub-Saharan Africa, Europe, Middle East and North
Africa (EMENA) as well as the LDCs actually had lower ratios of parts and components in their
imports at the end of the thirty years than at the beginning. By contrast, the BRICS raised their
share drastically more than doubling in the decade of the 1980s and maintained their growth,
almost uninterrupted until 2010. These findings suggest an obvious imbalance in the importance
of the value chains in different developing countries: lower income developing economies, SubSaharan Africa and the LDCs appear to have benefited much less than middle and higher income
countries.
A significant portion of the growth in developing countries exports of manufactures as
well as of commodities is the result of expanding trade among the developing countries
themselves. Chinas growth has been instrumental in this but trade among developing countries
has grown rapidly in other regions as well. Part of this growth may be the result of preferential
regional arrangements, but part can be explained by the fact that during most of the 1990s and
2000s growth in incomes in most developing country groupings outpaced that of developed
countries. Table 7 shows that South-South trade grew faster than any other trade over the last 30
years. Indeed the share of this trade in the total world quadrupled over this period.
The improvement in the export performance of developing countries during the 1990s
was due mainly to increased demand in the commodities they exported and to a much lesser
extent to diversification or increases in the market shares of their traditional exports. While this
is true for the developing countries as a whole, different regions had different experiences: both
Asia and Latin America improved their competitive position. By contrast Sub-Saharan Africa
experienced slow growth in world trade for its export basket, reflecting the continued decline in

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primary commodity prices and slow demand growth for these commodities. The same was true
for the least developed (World Bank, 2000).
In the decade of the 2000s, the trends of the 1990s continued in many ways except, of
course, for the increase in African exports of raw materials, a relatively rapid growth of Latin
America exports of foodstuffs and an expansion of exports of fuels from developed countries and
the BRICS (See Appendix Tables B-1 and B-2). During this period practically developing
income groups and regions improved their competitiveness with respect to developed countries
Overall and in most sectors (Hanson, 2011). The overall weak export performance of the
LDCs, in the 1980s and 1990s was largely due to their dependence upon a small range of
primary commodities (usually two or three), for the bulk of their export earnings. On average the
top three LDC export commodities account for over 70 percent of the each countrys exports, and
with the exception of Bangladesh, few countries have any significant exports of manufactures.
On average, manufactures, mainly textiles and clothing, constituted about 20 percent of total
LDC exports in the 1990s (WTO, 1997). Although these exports grew substantially over this
period, it was not possible to overcome the weak performance of primary commodities which
accounted for the bulk of LDC merchandise exports. The situation changed drastically in the
2000s: both the volume and the prices of their primary commodity exports rose very rapidly and,
while their manufacturing exports also increased, the share of primary commodities in their total
exports rose from 58% in 2000 to 75% in 2011 while clothing fell from 18% in 2000 to 11% in
2011. China was the main force in this growth and Sub-Saharan LDCs the main beneficiaries:
Chinas share of LDC exports rose from 9% in 2000 to 22% in 2011, while the share of
developed countries decreased by almost the exact same percentage (Ancharaz, 2012).
TRADE IN SERVICES
Data on trade in services are far weaker than data on merchandise trade. Indeed many countries
do not report data on certain service categories (Goswami, Mattoo and Saez, 2012; Mattoo,
2005; Whichard, 1999), and data are simply not available for a number of countries for certain
periods.3 Nonetheless, it is clear that growth of world trade in services in the thirty years 19802010 was faster than that for goods. Developing country service exports grew faster than those of
developed countries for the period as a whole (9.7 percent compared to 7.7 percent) and for the
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last twenty years; their growth was only marginally lower in the 1980s. The same trends hold
true for service imports except that the differences are less pronounced (see Tables 8-10).
The regional growth patterns in services trade were similar to those in goods. The Asian
developing countries trade grew the fastest and Sub-Saharan Africas the slowest with Latin
America and the Europe, Middle East and North Africa the Mediterranean, in between (Table
10). Growth over the period as a whole was associated with the per capita income levels of the
various developing country groups, especially if you take India out of the lower middle income
group (Table 10).
Different developing countries have been successful in exporting different kinds of
services: India is well known for its exports of software and business services. In Latin America,
Brazil, Costa Rica, Chile, Mexico and Uruguay are among successful cases of exporters of
information technology, communication and distribution services. Kenya and South Africa are
among Sub-Saharan Africa countries exporting professional services to Europe; and a range of
different countries in Asia, Latin America and the Middle East and North Africa are exporters
of health services (Goswami, Mattoo and Saez, 2012).
Table 11 shows the growth rates of service exports by main sector for different
developing country groupings. The growth in financial and insurance services in the 1990s for
countries in Asia and the BRICS during the last decade is especially noteworthy. Similarly there
was very large growth in the export of information technology exports in the period 2000-2010
in practically all developing country groups except for Sub-Saharan Africa.
The picture regarding service imports is very similar to that of service exports with only
one interesting difference: LDC service imports for the period as a whole as well as for all subperiods tended to grow much faster than for non-LDC low income economies. This is probably
due to very rapid expansion of service imports by Bangladesh.
The overall conclusion that emerges from these findings, are that the patterns of growth
both for exports and imports of merchandise trade and commercial services have been very
similar for different developing country groupings whether by region or by income level. There

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is particularly striking similarity in their growth performance in the 2000s which far outpaces
that of developed countries during this period.

INTEGRATION IN WORLD TRADE

A key indicator of a countrys integration into world trade is the ratio of the total trade in
both goods and services (exports plus imports) to GDP. Essentially it shows how much of a
countrys economy is directly affected by international trade. This indicator is especially useful
in determining the links between a countrys economy and international trade over time, but it
has to be used with caution when making comparisons between countries. This is because large
countries tend to have smaller ratios of trade to GDP than small economies. Also, the existence
of large enclave type export sectors in some developing countries may give the false impression
that the economy is well integrated into the world trading system, while in practice the bulk of
economic activity may be subsistence domestic production.
Tables 12 and 13 show the evolution of this indicator of integration in developing
countries, grouped by income level and over time for the period 1980- 2010. After stagnating
during the 1980s (and declining for some groups), the trade/GDP ratio recovered, rose rapidly
and was substantially higher for all developing country income groupings by the end of the
1990s and increased further in the last decade. Since 2000 the ratio is higher for all developing
country groups than for developed countries.
One study (Frankel and Romer, 1999) using earlier data estimated that the ratio of trade
to GDP is strongly and positively related to growth in incomes: an increase in the ratio by one
percent can raise the level of income by anywhere between 0.5 and 2 percent. It is unclear
whether the experience of the last decade would support this finding, as a number of very large
countries with relatively low ratios of trade to GDP grew very rapidlyas did some small and
poor countries.
Interestingly, with the exception of the high income developing countries, the data show
an inverse relationship between the level of per capita income and the share of trade to GDP. As
noted earlier however, inter-country comparisons of this indicator are risky: some of the most
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rapid growth in the LDCs resulted from booming commodity exports which had little impact on
the rest of their economies. The only thing can be stated definitively is the very strong evidence
of globalization at every developing country income level and grouping.

POLICY ISSUES
This strong overall trade performancewith some exceptions, for example Sub-Saharan
Africa in manufactures-- raises a lot of questions about the factors responsible, the implications
for the architecture of the trading system as well as its sustainability.
How much of this growth was due to the developing countries own policies? To what
extent improved market access resulted from the implementation of multilateral trade
liberalization following the Uruguay Round Agreements as well as the establishment of
numerous regional preferential arrangements? Following the 2008 crisis, protectionism has
reared its ugly head againbut much less than had been feared (Wolf, 2011; Dadush, Ali and
Odell, 2011).
To what extent does the robust developing country performance reflect the strengthening
of their capacity to export, although weaknesses in trade institutions and infrastructure continue
to be a problem in many low income developing countries and the least developed? And what
does about the impact of this growth on poverty and income inequality?
Partly as a consequence of the strong trade performance, in the last decade the role
developing countries play in global trade relations has changed dramatically; and they have
become increasingly assertive in global trade negotiations in the WTO. What does this mean for
the future of the WTO?
Finally, to what extent are these trends sustainable? The slow-down in Chinas and
Indias growth, Europes continued problems with the euro and USs slow recovery pose obvious
dangers. Commodity trade booms are often followed by busts. While protectionism has not been
as bad as it has been feared, the cumulative effect of protective measures may have an impact
over time.
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All these issues create obvious risks for the sustainability of the surge in developing
country trade. But we should not allow these risks to overshadow what has been accomplished in
the last thirty years. The world tomorrow will be very different from the world of the 1980s and
developing countries will play a much more important role in the future trading system because
of what they have accomplished already.
Overall averages disguise stagnation in many countries. On the other hand, the successful
performance of many countries, several of which are low income, suggests that marginalization,
stagnation and poverty are not inevitable. Countries can integrate in the world economy, grow
and alleviate poverty. The key questions have to do with the policies and institutions both in the
countries themselves and in the international environment that can support this objective; and in
this context, the role played by international trade and the WTO.

APPENDIX A
COUNTRY GROUPINGS

There is no formal developing country definition in any of the major international

organizations such as the World Bank or the World Trade Organization. The former uses for
statistical purposes a per capita income grouping which does not distinguish between developed
and developing countries which is used in part in this analysis. The WTO has no official
breakdown of developed versus developing countries. For operational purposes developing
countries use the principle of self selection. The breakdown between developed and developing
countries used in this analysis follows roughly the breakdown used by the WTO for statistical
purposes with a few changes to be noted below.
Developed countries in our analysis include 47 countries in all of Europe (including
Belarus, Kazakhstan, Russia and Ukraine, but not Armenia, Azerbaijan, Georgia, or Moldova),
Australia, Canada, Israel, Japan, New Zealand, Turkey and the US. This is pretty close to the
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WTO definition with the exception that South Africa, which the WTO classifies as developed in
our case is in the developing country groupwhile Turkey, classified by WTO as developing is
in our analysis with the developedas it is applying for association with the EU. Also, Armenia,
Georgia and the Kyrgyz Republic classify themselves in the WTO as transition economies- a
category that had been used in the past but which is of doubtful usefulness in this analysis. All
three countries are classified as developing as is Moldova, Tajikistan, Turkmenistan and
Uzbekistan.
All remaining countries and territories are considered developing. For merchandise trade,
the analysis has data for 145 countries. 46 are in Sub-Saharan Africa, 42 in Asia, 35 in Latin
America and Caribbean, and 22 in Europe, Middle East and North Africa. The latter region
includes the five North Africa countries (Morocco, Algeria, Tunisia, Libya and Egypt) and
stretches all the way East to include Iraq and Iran (but not Afghanistan -- which is in Asia). It
also includes Armenia, Azerbaijan, Georgia and Moldova. Far less service data are available for
developing countries. In this case our analysis includes information for 132 developing countries,
46 in Sub-Saharan Africa, 33 in Latin America and the Caribbean, 33 in Asia, and 20 in Europe,
Middle East and North Africa.
OPEC consists of 12 members as follows: Algeria, Angola, Libya, Nigeria, Indonesia,
Iran, Iraq, Venezuela, Kuwait, Qatar, Saudi Arabia, United Arab Emirates.
The income level analysis uses the same definition for developed countries as above.
Developing and transition economies are then grouped into five categories using basically the
World Bank definitions of groupings and per capita income in 2012 for 192 economies/countries,
except that the Least Developed countries (LDCs) which are the 48 countries in the UN list are
shown as a separate category; Low income countries -- those with per capita income less than
$1,025 (except the LDCs); Lower Middles Income $1,026-4,035; Upper Middle Income $4,03612,475; and High Income $12,476 or more.
For merchandise trade sectoral breakdown data are available for 161 countries from UN
COMTRADE with 42 LDCs (6 LDCs are missing data); but information for service sectors is
available for 173 countries in 2010, only 46 for developed countries and 127 for developing
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economies. Similarly, the low income group includes 22 countries for merchandise trade but 32
for services. The number of developing countries in the other groups is as follows: Lower Middle
Income: 41 for merchandise trade and 44 for services; Upper Middle Income, 34 and 37 and;
High Income, 17 and 14 respectively.

Globalisation and shifting balance in the world economy

In the context of the global crisis international merchandise trade International
merchandise trade includes goods which add or subtract from the stock of material resources of a
country

by

entering

(imports)

or

leaving

(exports)

its

economic

territory.

registered its greatest plunge since the Second World War: Between the fall of 2008 and the
spring of 2009 global trade collapsed by 20 per cent in volume Reference to Volume disregards
changes in prices and exchange rates. Volume movements are determined by holding the price
constant.
Having initially rebounded sharply beginning in mid 2009, growth in international
merchandise trade then slowed again in the course of 2010. While regaining its pre-crisis peak
level in that year, the global crisis appears to have left a marked impact on the dynamism of
global trade, keeping the volume of global trade well below its pre-crisis growth trajectory
World merchandise exports volume, January 2000-November 2011 (Index numbers, 2000=100)

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Apart from remaining unfinished, the trade recovery has also been rather uneven. By
the end

of

2011,

in

developed countries as well as in South-East Europe and the Commonwealth of

Independent States (CIS), where the trade collapse had been sharpest, merchandise
trade in volume terms has yet to even reclaim its
pre-

crisis
level. By contrast, the volume of both imports

Imports of merchandise are goods that add to a country's stock of material resources by entering
its statistical territory. It is recommended that merchandise imports be reported c.i.f. (cost,
insurance and freight) more and exports of merchandise are goods leaving the statistical territory
of a country. It is recommended that merchandise exports be reported f.o.b. (free on board)
more in most groups of developing countries had already exceeded their pre-crisis peak in the
course of 2010, with East Asia, China in particular, leading the expansion.
Globalization features the rise in global exports relative to global income, while
individual countries see their respective exports and imports rise as shares of national income
(Motion chart) Is an animated bubble chart which shows data using the x-axis, y-axis, and the
size and color of the bubble over time. In other words, a rising proportion of global production
of goods and services is being traded across borders rather than sold at home. The global crisis
has brought the long-run trend of rising global integration through trade to a halt, at least
temporarily. The pre-crisis trend toward more openness and ever-deeper trade integration might
well firmly reestablish itself in due course. But persistence or trend reversal seem also possible.
At a time of high unemployment, fiscal austerity, and complaints of currency wars, the threat of
rising trade protectionism is looming large.

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Import side, the ranking still shows the United States in first place (13 per cent), followed
by China (9 per cent), Germany (7 per cent), and Japan (4.5 per cent) (Table) .

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Highlights

As trade flows have generally grown faster than income since the Second World War,
countries openness and their exposure to external developments have increased;

Global trade collapsed in the global crisis of 2008-2009, recovery remains unfinished and
uneven; the global crisis appears to have left a marked impact on the dynamism of global
trade;

The global crisis has also brought the long-run trend of rising global integration through trade
to a halt, at least temporarily;

The global crisis and uneven trade recovery have reinforced the ongoing shift in balance in
the world economy, featuring the relative decline of developed countries;

The shifting global balance is also visible in the changing distribution of exports by
destination, featuring the rising importance of trade among developing countries;

The rise in South-South trade has been especially pronounced in East Asia;

LDCs have generally participated in these trends to a lesser extent but recovered some lost
ground in recent years;

Related to commodity price developments; many countries have experienced sizeable termsof-trade changes since 2002, with both winners (especially oil and metal exporters) and losers
(especially food-deficit countries) among developing countries including LDCs;

Global governance reform needs to make further progress.

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New trends in international trade:

International trade is increasingly recognized as a vital engine for economic development
(World Bank, 2005a; UNCTAD, 2004a). In 2004, the value of world merchandise trade rose by
nearly 21%, the highest growth rate in 25 years (WTO, 2005a), amounting to nearly USD 8.9
trillion. Taking account of dollar price changes, real world merchandise trade expanded by 9% in
2004, almost doubling from 5% in 2003. It continues to grow more rapidly than global Gross
Domestic Products (GDP). For example, world trade grew at nearly 6% on average in 19942004, while global GDP at market exchange rates grew less than 3% in the same period. In the
meantime, a number of new trends in international trade have been observed over recent years.
Those mentioned below are among such trends which, in particular, are relevant when preparing
the Framework.

Trade in agricultural and manufactured goods

Manufactured goods, excluding mining products, recorded above average growth in
world merchandise trade during the past two decades (WTO, 2004a; 2005b). As a result, they
accounted for around three-quarters of world merchandise trade in 2003. By contrast, the share
of agricultural goods trade remained at around 9% in the three preceding years, which
represented approximately 2% below the average level in the 1990s. One of the notable trends is
that processed agricultural goods have become more important within trade in agricultural goods
over the past decade. They accounted for 48% of global trade in agricultural goods in 2001-2,
rising from 42% in 1990-1. This upward trend can be observed across countries and agricultural
product groups throughout the 1990-2002 period.

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Trade between partners of Regional Trade Agreements (RTAs)

A surge in trade between RTA partners was achieved mainly by a recent proliferation of
RTAs. According to a recent WTO report (2004b), some 220 RTAs were estimated operational as
of October 2004, of which 150 had been notified to the GATT/WTO. Nearly all WTO Members
belong to at least one RTA, and each belongs to six RTAs on average (World Bank, 2005b) 2. The
number of RTAs is likely to continue to increase in coming years, considering the number of
RTAs under negotiation. Consequently, it was estimated that the share of trade between RTA
partners of world merchandise trade will grow to 55% by 2005 if all expected RTAs are
concluded, rising from 43% at present (OECD, 2002a).

Developing countries trade

In 2004, the share of developing countries in world merchandise trade stood at 31%,
having increased from about 20% in the mid-1980s (WTO, 2005a; UNCTAD, 2004a). This is the
highest level since 1950. It is observed that developing countries are increasingly becoming an
important destination for the exports of developed countries. Among those, in particular, some
problems have been recognized in identifying tariff classification and assessing the Customs
value3 of second-hand goods such as used cars, computer equipment, machinery and clothing.
Also, developing countries contributed more to the 2003 growth of world merchandise trade than
developed countries. It was estimated that nearly four-fifths of the real growth in 2003 was
attributable to developing countries, including transition economies (UNCTAD, 2004a).
This trend requires caution, given that many developing countries, including African
countries, Less Developed Countries (LDCs) and Small Island Developing States (SIDS) remain
relatively marginalized from international trade (UNCTAD, 2005). However, it is observed that
new efforts are being made in order to reinvigorate their regional liberalization programmes and
take initiatives aimed at deeper integration into global trade. For example, the New Partnership
for Africas Development (NEPAD) in African counties was initiated in 2001. One of its primary
objectives is to halt the marginalization of Africa in the global process and enhance its full and
beneficial integration into the global economy (NEPAD, 2004).

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Containerized cargo
There are a number of freight containers in use within different modes, for example, Unit
Load Devices (ULDs) for aviation, Swap Bodies for road-rail carriage in Europe, and various
types of maritime containers (e.g. dry and refrigerated containers) for seaborne shipping (OECD,
2003a). Among those, maritime containers are the most numerous container types involved in
international trade. They are also used for inter-modal transportation, in which they are carried
by maritime, inland waterway, road, and rail operators.
It was estimated that that over 6 billion tons of goods were traded by sea in 2003
(UNCTAD, 2004c). This accounts for over 80% of world trade by weight (OECD, 2003a). With
36% for tanker cargo (i.e. crude oil and oil products) and 24% for bulk cargo (e.g. steel, iron ore
and coal), non-bulk cargo accounted for 40% by weight of the total seaborne cargo, most of
which was carried in maritime containers (UNCTAD, 2004c). It was also estimated that there
were 10.8 million maritime containers in circulation worldwide in mid-2003 (World Shipping
Council, 2003).

Air Cargo; Express cargo

It is reported that world air cargo accounts at present for a small portion of world
merchandise trade by weight, but a significant portion by value. World air cargo traffic has
rapidly grown at a rate of over 10% during the past decade, and it is expected to continue to grow
rapidly in coming years. For example, air cargo traffic has doubled over the past decade as
measured in Revenue Tonne-Kilometres (RTKs: weight multiplied by distance for charged
cargo). Within air cargo, the share of express cargo has also grown rapidly from 4.1% in 1992 to
nearly 11% in 2003 in terms of RTKs (Boeing, 2004).
This important growth in express traffic can be attributed to several factors: globalization
and associated Just-In-Time production and distribution systems; increased trade in high-value
low-weight products; and the provision of a service that assists SMEs to compete effectively in
an increasingly global market.

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E-commerce
Electronic commerce (e-commerce, described as doing business electronically) has
become a dominant factor in international trade and business, although traditional methods of
trade and business continue to be utilized widely. For example, the use of Information and
Communication Technology (ICT) such as Internet communication has made cross-border
activities easier and more practical (OECD, 2002c). It can reduce business costs in seeking
potential foreign business partners, as well as improve a firms visibility in global marketing
services, in particular for SMEs. In addition, it allows sellers to reach potential buyers for their
products beyond their national borders. In other words, it enables firms to take more
opportunities to expand their business in global markets. As a result, trade patterns are changing,
for example, smaller shipments are increasing, and different goods are exported to and imported
from more countries.
However, the so-called digital divide - a technology gap in terms of ICT infrastructure
including Internet usage between developed and developing countries - is often raised. Various
international and national efforts to combat the digital divide are being made. In addition, it is
pointed out that the latest technology, such as wireless communication technology, may offer a
reasonable solution for developing countries to quickly bridge the gap. It is also worth noting
that the digital divide looks different when it is viewed from different angles: Public Services,
Businesses or SMEs use of ICT internally and externally, and general access to Internet by
citizens.

Emerging business model

Business models in international trade may vary from industry to industry and company
to company involved in the international movement of cargo. However, there are general
observations on several emerging business models in the supply chain. Brief research into some
of them, which is relevant in preparing the Framework, is provided below.

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Just-in-time system
The just-in-time system of goods delivery is widely accepted in international trade, in
particular in the context of manufactured goods. It requires inventory to reach a production place
precisely when it is needed. Thus, a supply chain is designed to reduce problems in the flow of
materials, components, and finished goods across the parties involved in the international
movement of cargo. For example, it was estimated that large companies in the United States on
average reduced inventory from 1.57 months in the early 1990s to 1.36 months in 2001. Then, it
was estimated that over USD 100 billion was saved by the logistics efforts alone in the United
States during the past decade (OECD, 2003a).
In order for the supply chain to function, all the parties concerned need high performance
in terms of punctuality, rapidity and reliability in addition to the traditional criteria of price and
operating time. Also, each link of the chain needs to be synchronized, otherwise there would be
little gain5.

Supply chain security

The loss of cargo shipments through theft and misrouting used to be a main security
element in the supply chain. In the light of increasing threats of terrorism, however, it has
emerged that the mantra of the international supply chain getting the right product to the right
place at the right time has been modified by adding without compromising the national
security(Waduge, 2003). The whole security level of a supply chain is heavily affected by the
level of security in all the parties concerned (Dulbecco and Laporte, 2003). In other words, any
security effort might be in vain if a party in the supply chain fails to achieve a minimum level of
security.

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Just-in-case system
Considering recent natural, political or technological disruptions to the international
supply chain, the system has moved away slightly from reliance on just-in-time delivery to the
just-in-case system, in which a supply chain has a certain degree of flexibility with a sound
contingency plan (Waduge, 2003; Brown 2003). There is a need to consider just-in-case
suppliers, vendors, or logistics as well as justin- case inventory. It is increasingly recognized that
it is too dangerous to rely heavily on a single source or logistics. A back-up system may be
needed to mitigate uncertainty. As the just-in-case system may raise costs, it may be necessary to
consider the balance between the level of security and extra costs in the supply chain.

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Benefits of trade for developing countries:

Trade can help boost development and reduce poverty by generating growth through
increased commercial opportunities and investment, as well as broadening the productive base
through private sector development.

Trade enhances competitiveness by helping developing countries reduce the cost of inputs,
acquire finance through investments, increase the value added of their products and move up
the global value chain.

Trade facilitates export diversification by allowing developing countries to access new

markets and new materials which open up new production possibilities.

Trade encourages innovation by facilitating exchange of know-how, technology and

investment in research and development, including through foreign direct investment.

Trade openness expands business opportunities for local companies by opening up new
markets, removing unnecessary barriers and making it easier for them to export.

Trade expands choice and lowers prices for consumers by broadening supply sources of goods
and services and strengthening competition.

Trade plays a role in the improvement of quality, labour and environmental standards through
increased competition and the exchange of best practices between trade partners, building
capacity in industry and product standards.

Trade contributes to cutting government spending by expanding supply sources of goods and
services and strengthening competition for government procurement.

Trade strengthens ties between nations by bringing people together in peaceful and mutually
beneficial exchanges and as such contributes to peace and stability.

Trade creates employment opportunities by boosting economic sectors that create stable jobs
and usually higher incomes, thus improving livelihoods.
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Trade Facts
The economics are clear: trade liberalization, combined with pro-market, developmental
domestic reforms, enhances the economic growth potential of developing countries.
The World Bank has reported that per capita real income grew nearly three times faster for
developing countries that lowered trade barriers more (5.0 percent per year) than other
developing countries (1.4 percent per year) in the 1990s.
Trade liberalization and domestic reforms go hand in hand. Studies show that openness is linked
to key macroeconomic and governance policies that enhance growth.

Developing countries are potentially large beneficiaries of an ambitious

outcome to the Doha Round of WTO negotiations.
According to a World Bank study, roughly half of global economic benefit from free trade (goods
only) would be enjoyed by developing countries. The estimates for the increase in developing
countries annual income by 2015 are:
o Static measurement - $142 billion of $287 billion (49 percent)
o Dynamic measurement - $259 billion of $461 billion (56 percent)
Developing countries would receive nearly two-thirds (63 percent) of the potential benefits of
eliminating agriculture distortions (tariffs and trade-distorting subsidies) by developing and
developed countries.

The benefits for development lie in a strong market access outcome.

Modeling by World Bank economists indicates that 93 percent of the global welfare gains (and
for developing countries, virtually all of the gain) from removing distortions to agricultural trade
globally would come from reducing import tariffs, while only 2 percent is due to export subsidies
and 5 percent to domestic support measures.
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Development benefits are reduced if flexibilities operate to erode ambition.

The same modeling by World Bank economists shows that the welfare gains from global
agricultural reform would shrink by three-quarters, if as little as 2 percent of agricultural tariffs
in developed countries (and 4 percent in developing countries,) are classified as sensitive, and are
thereby subject to a 15 percent tariff cut.

To realize this benefit, developing country market opening is essential.

The World Bank also estimates that low and middle income countries would realize 50 percent of
their potential economic gains from global free trade in goods, by the elimination of their own
barriers.

Trade barriers in developing countries are higher than in developed countries.

The IMF finds that developing country protection is 4 times higher than in high-income

countries.
The U.S. average industrial tariff is below 3 percent. Developing countries average allowed

tariff is nearly ten times higher (28.5 percent).

The World Bank estimates that 70 percent of the burden on developing countries

manufactured exports results from trade barriers of other developing countries.

A recent Carnegie Endowment study, showed that under a full liberalization outcome in the
Doha Round, all developing countries are winners, with estimated gains for developing
countries as a group ranging from $45.6 billion to $76 billion.

The potential gains from liberalization in services are enormous as well.

Because the barriers to trade in services are extensive, the payoffs for reducing them are great.
A University of Michigan study estimates that services liberalization would produce over twothirds of the global economic welfare gain from the elimination of trade barriers. These gains
would go to developing and developed countries alike, with percentage gains to GNP greater
for the developing countries studied.
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Services are the future of developing countries, as they are the fastest-growing component of

their total GDP and the largest component of foreign direct investment.
Services account for 61 percent of global FDI, increasing from 869 billion to 6.1 trillion from
1990 to 2005.

Eliminating global trade barriers could have a profound impact on poverty.

A study by White and Anderson (2001) found that openness to trade is associated with
significantly higher income growth for each income group except the top 20 percent of the
population, and that the greatest effects proportionally are for the lower income groups that

is, the benefit of openness is progressive.

World Bank estimates that global free trade could lift tens of millions out of poverty. A study
by the International Institute of Economics estimates that global free trade could lift as many
as 500 million people out of poverty and inject $200 billion annually into the economies of

developing countries
Columbia University Economics Professor Xavier Sala-i-Martin estimates that the number of
people globally living in poverty declined by 350 million over the last three decades. China, a
country that has aggressively opened its markets and expanded its trade saw poverty decline
by 377 million. Poverty in Africa, on the other hand, increased by 227 million.

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