Statement by Mr. Carlos Fortin,
Officer-in-Charge of the Untied Nations Conference on Trade and Development (UNCTAD),
at the High-level Forum on Trade and Investment
(Doha, 5 December 2004)

Mr. Chairman,
Distinguished Delegates,
Ladies and Gentlemen,

It is my great pleasure to address this High-level Forum on Trade and Investment on behalf of UNCTAD.

UNCTAD had the honour to assist in the preparations of the last South Summit held in Havana, Cuba in 2000, and in the finalization of the South Programme of Action agreed at that meeting. The South Programme identified important trends and potentialities in both South-South and South-North economic relations. I think today we can confirm that a new phenomenon is emerging in the international economic arena whereby the South is moving steadily from the periphery to the center of world trade and economic relations, reflecting changes in the traditional patterns of the international divisor of labour. This phenomenon is not yet entirely understood, not even fully described but it has great potential for the future economic relations among developing countries and between them and developed countries.

During the deliberations at UNCTAD XI and subsequently at the 51 st session of the Trade and Development Board, particular focus was given to the emergence of what is described in the current debate as the “New Geography of International Economic Relations”. That heading is most often applied to international trade – the new geography of trade – as an expression of the extent to which trade among developing countries has grown in importance. However, we feel that the potential scope of the phenomenon is considerably wider, and covers such areas as the flows of investment, technology, services, commodities and finance. Furthermore, the phenomenon involves not only relations among developing countries, but also relations between developing and developed countries.

In the mid-1960s at the time of the creation of both G77 and UNCTAD, North-South trade relations were essentially understood in terms of the South – the developing world – being a producer and exporter of commodities and raw materials to, and an importer of manufactured products from, the North. For the majority of developing countries, this situation is still the reality. Despite progress made in the diversification of many developing countries’ exports over the last two decades, many of them, including almost all LDCs and many small economies, continue to depend to a very large extent on a few primary commodity items for their export revenue. Indeed, at present, some 30 developing countries, most of them LDCs, rely on a single commodity for over half of their export earnings.

However, the continuing dominance of commodity in developing countries’ exports should not overshadow the dramatic growth, during the last two decades, in the share of the South as a whole in global trade and investment flows. Three fundamental features of this development are worth noting.

First is the growing importance of the South as a producer, trader and consumer in global markets. As such, the South represents a potential engine of growth and dynamism for the global economy. Let us look at some figures, which are also presented in the two background notes prepared by the UNCTAD secretariat for the workshops on trade and investment. Some of the figures are very striking. In the mid-1980s 20% of global trade was accounted for by developing countries. Now, 20 years later, that figure is 30% - an enormous increase. In 2003, the US imported more from developing countries than from developed countries, and exports to developing countries increased to over 40% of total US exports. In the case of Japan, about half of its exports go to developing countries and in the case of the EU – if you exclude intra-community trade – about one third of exports go to developing countries.

Second, trade among developing countries has also grown dramatically. Over 40 per cent of developing country goods exports, including basic commodities and manufactures, are destined for other developing countries and such trade is increasing at an annual rate of 11 per cent (nearly twice the growth rate of total world exports). In other words, an interesting feature of the new internationalization is coexistence of a trend in which developing countries are increasing their importance as trading partners of developed countries and while at the same time becoming significant trading partners for other developing countries.

Third, the composition of the trade from developing countries has changed. It is not longer the case that developing countries export raw materials and primary commodities, and important manufactures: developing countries are increasingly exporting manufactures. The share of manufactures in developing country exports grew steadily from 20 per cent of their exports ($115 billion) in 1980, to nearly 70 per cent (1,300 billion) in 2000.

Diverse factors have contributed to the impressive performance of the South. These include strategic policies and actions (including a careful balance in the role of the State and the market) by the successful developing countries and their firms; changes in TNC strategies and the internationalization of the production systems; increasing liberalization which made mobility of factors of production and business relatively easier; changes in demand patterns and market access conditions; shifts in factor intensify of tradeables; cost competitiveness, and technological changes (including ICTs).

The growing importance of the South in the global economy is not confined to trade relations alone. Similar patterns are also emerging in international investment flows. Annual foreign direct investment (FDI) outflows from developing countries have grown faster over the past 15 years than those from developed countries. Negligible until the beginning of the 1990s, their outward FDI accounted for over one-tenth of the world stock and some 6% of world flows in 2003 ($0.9 trillion and $36 billion, respectively). More importantly, in the 1990s, many developing countries emerged as significant sources of FDI in other developing countries. Some firms from developing economies already have an established track record as outward investors while others are at the take-off stage. The number of developing economies that are now large investors by global standards has increased. In 2003, for instance, Hong Kong ( China) had a larger outward FDI stock than Italy or Spain, while Singapore ranked ahead of Denmark or Norway. Increasing amounts of outward investment from developing countries are going to other developing countries and the rate of South-South international investment is growing faster than from developed to developing countries.

Today, the more successful developing countries are better able to leverage these changes and the resulting shifts in international division of labour. The off shoring of manufacturing since the 1980s and, more recently that of services, reflect this trend. Many developing countries are able to participate in the international production system organized by TNCs in which the value chain in the production process is sliced up into different activities to be located in different places and coordinated in integrated international production systems. Such a system may not have been thought viable some forty or fifty years ago, but developments in the last two decades including the removal of trade barriers, liberalization of investment policies across countries and rapid advances in technology have made it possible.

As companies shift from national-based production structure towards regional and global production strategies, new opportunities are created for developing countries and new demands are placed on these countries to foster competitive production capacity and economic growth. As a result, developing countries are beginning to feature more prominently in the league of top export performers. For example, between 1985 and 2000, among the top 20 winners in world exports include 9 Asian economies; two from Latin America (Mexico and Chile); 3 from Central and Eastern Europe and a few developed economies (notably the United States, Ireland and Spain).

The downside of entering production and export markets through the international production system is the uncertainty associated with it as companies can easily relocate or restructure activities – implying that no country can take for granted that today’s competitive activities will be competitive tomorrow. Rapid technological change furthermore accentuates the pressure on countries to keep up with skills, investment in infrastructure and access to markets. Only countries that have managed to acquire the capability needed to add value (rather than simply assemble imported inputs) can secure long-term benefits from their involvement in the international production system. There are countries that have managed to increase their share in world trade while, at the same time, increasing their share in world manufacturing value added.

All this said, we should not forget that, as I indicated already, these new trends have so far only benefited a relatively small group of developing countries and that for a majority of countries in the South much has not changed in the last four decades. The social and economic concerns that occupied the focus and attention of the founders of UNCTAD and the G77 are still with us. The developed world remains dominant in the international economic relations and is the main source of demand for world imports. Market access barriers in the North as well as difficulties and high costs of market entry and anti-competitive market structures still hamper the trade and growth potential of most developing countries.

UNCTAD will continue do it parts in building on the emerging trends in South-South trade and investment flows and in pursuing work on South-South cooperation, including the space for policies needed to enhance productive capacity, economic growth and competitiveness and best practices in good economic governance, as mandated by the outcomes of UNCTAD XI.

Thank you.