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Amid the faltering global economic recovery, many emerging economies are exploring South-South economic cooperation, particularly in trade, in search for untapped opportunities in new growth markets.
The Jakarta Post’s Linda Yulisman recently talked with Patricia Francis, executive director of the International Trade Center, a joint agency of the World Trade Organization and the United Nations that provides support and facilitation of exports for small businesses in developing economies, about the revival of South-South ties and other issues. Here are excerpts from the interview.
Question: The International Trade Center is endorsing more South-South cooperation. Can you elaborate on why this is so important?
Answer: It’s something that has been talked about for a long time, something that has accelerated because of the financial and economic crisis in the North.
Project forward and look at, for example, Europe, which has an aging population. You’ll find not quite such an aging population in the United States, but almost as serious as in Europe. You may think about how this aging population is going to remain dynamic for the future; where is the energy to drive these economies in the next 30 years? Unless they change their immigration policies, it’s difficult to see where that’s going to come from. That’s one issue.
Compare that to the South, where you have young populations, a growing middle class, a greater level of spending capability and new consumers. There is also the big trend you look at, the profit of companies in the North is coming from the profit generated in the South.
So, you have these trends that are taking place. At this point in time, it’s mainly not our own companies benefiting from this expansion of trade in the South, but they should be if you think about the future. The South should be thinking about taking control of its own destiny. We should be looking at how we cooperate among ourselves for our own benefits. This is, of course, not to the exclusion of people in the North.
So, South-South cooperation and South-South trade is also a trend that we have been seeing and observing over a number of years. At this point in time, resource-based exports from Africa into Asia mainly comprise oil and gas commodities, which are driving industrial development in China, Indonesia, Japan and also Brazil and all the countries in South America. But these new markets that are developing and that Northern companies are exploiting are opportunities for indigenous companies in the South to invest in and take advantage of. South-South is about the market, but it’s also about the South grabbing new opportunities and not letting them pass by.
I think South-South is the future. We have spent a lot of time with the North-South and, in fact, the barriers to trade are greater between South-South than North-South. So now, we have to look at what we must do to break down some of those barriers, begin to work together, and see how we can prosper and take advantage of the future because markets in the North are stagnating.
Based on what we can see, it will take 10 to 15 years before they can recover. So, are we in the South going to reverse our progress? In order not to reverse our progress, we need to begin to move into the markets in the South.
Will we see more integration between South and South in the next few years?
Regarding South-South trade, Indonesia has been trying to boost exports to non-traditional destinations, such as Africa and South America. In what ways will its efforts most benefit the country?
Like everything else, when you enter a new market, you have to understand the nuances and the culture of that market.
Today we can see, based on what happened with North American and European companies coming into Southeast Asia and Asia as a whole, and South America, those who succeeded were those who adapted to local circumstances.
How do you make yourself local?
That’s the same challenge for Indonesian companies going out into any market, if you are not the one selling the commodities any more.
Let’s say, for example, you now export a huge amount of coal; China is buying a huge amount of your coal and you don’t have to adapt the coal to meet Chinese needs. But, when you start selling shoes, clothing and other manufactured products, you have to begin to understand what your customers really need. And, you have to be able to speak to your customers in a way that they will understand. So, that’s the level of adaptation that mostly takes place. Successful companies will be the ones that adapt to the market.
So, identifying what the market is and how to adapt to it is the key challenge.
Many developing countries still face obstacles to expand exports to developed economies, particularly non-tariff barriers. How should these issues be addressed?
Well, this is why public-private partnerships are so important. With these partnerships, the government, civil society institutions and private sector must work as a team because the forces of an individual company going into a market are not necessarily strong enough to negotiate the challenges that you’re speaking about.
That needs advocacy, and business associations along with the government should go to the market and negotiate the tariffs or the non-tariff measures, whichever they may be. The first thing is, it should be evidence-based because sometimes the reason you’re unable to get into a market is because you don’t know the rules and regulations.
But, we recognize that there are some non-tariff measures that one can defend, while there are others that we know are just created. So, the first thing to do is to differentiate between what is real and what is an obstacle.
Let’s take health and safety as an example. We have heard a number of companies complain about the standards they have to meet in order to go into a particular market. But when you think about it, the standards ensure that consumers are safe. It’s probably a good thing for the domestic market if it has those requirements as well.
For us in the developing world, it is important to try and attach these kinds of quality standards within our own market, but for those things that are just hurdles, then we need public private partnerships. We need our government to protest to the government that is imposing an obstacle. And, for that, we have a World Trade Organization mechanism, which allows us to lodge a protest saying that a measure is unreasonable.