South-South trade agreement holds key to more sustainable and inclusive growth

09 May 2023

With one more ratification, the Global System of Trade Preferences among Developing Countries will unlock the full potential of a $16 trillion market with over 4 billion people.

Workers produce shoes in Sao Paolo, Brazil.
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© Shutterstock/Alf Ribeiro | Workers produce shoes in Birigui, Brazil. 

At the end of 2022, Brazil ratified commitments under the Global System of Trade Preferences among Developing Countries (GSTP), rekindling international interest in the trade agreement, now just one ratification away from entering into force.

The GSTP’s 42 members from Africa, Asia and Latin America are home to 4 billion people and represent a combined market of $16 trillion – about 20% of global merchandise imports.

The Group of 77, a coalition of developing countries, set up the agreement more than three decades ago to boost trade among themselves.

“There is now a window of opportunity for the GSTP,” UNCTAD Deputy Secretary-General Pedro Manuel Moreno said on 8 May at the opening session of the UN Trade Forum 2023, which focused on the agreement.

The GSTP promotes trade among developing countries – also known as South-South trade – by cutting tariffs on the goods they import from each other. Such cuts reduce a product’s final price for consumers, making it more competitive.

UNCTAD estimates that if GSTP members implement the tariff cut commitments of the latest round of negotiations – known as the “São Paulo Round Protocol” – they could boost their collective prosperity by about $14 billion.

The tariff concessions would cover products from fish and food to clothing and products for machines, depending on each country’s commitments.

Faster growth than world trade

The GSTP would help unlock the full potential of South-South trade, which has grown faster than world trade.

“South-South trade – for a long time just an aspiration – has become one of the main forces responsible for growth and development over the last two decades,” said Rubens Ricupero, a Brazilian economist and former UNCTAD secretary-general.

Trade between developing countries has increased by an average annual rate of 9.8% since 2000, hitting $5.3 trillion in 2021. During the same period, world trade grew at a slower 5.5%.

Mr. Moreno highlighted that strong results were also seen for products with high added value. In 2021, he said, South-South trade accounted for nearly 60% of developing countries’ high-tech exports.

Trade partners, not competitors

The potential of the GSTP as a tool for trade cooperation is particularly evident in the agricultural sector.

The agreement’s members span the globe, meaning the crops they grow and the food they produce would complement rather than compete with each other.

For example, while South American countries export mainly oil seed, meats and cereals, India tends to export rice, crustaceans, tea and spices, while for Morocco, the main exports are fish products, vegetables, sugar and honey.

Increased agricultural trade among the members would therefore likely generate benefits for all – and help bolster food security.

Trade to address shared challenges

Besides food security, the GSTP would allow developing countries to address other shared challenges, such as climate change and pollution.

Although developing countries have historically contributed the least to global CO2 emissions, they are bearing the brunt of the effects.

The GSTP’s highest decision-making organ – the Committee of Participants – can examine and convene a new round of negotiations for trade integration in areas such as renewable energy and natural products.

Reducing tariffs on renewable energy goods and services could boost the energy transition in developing countries and help them meet their climate commitments under the Paris Agreement.

The agreement could also create a bigger market for natural plastics substitutes such as seaweed, bamboo and agricultural waste.

Many GSTP members have such materials in abundance and could use them to make eco-friendly versions of straws, food wrapping and other plastic consumer products.

Vahini Naidu of the South Centre, an intergovernmental organization of developing countries, said this is one area that “warrants further examination” with the GSTP framework.

Federico Villegas, Argentina’s ambassador in Geneva and the current president of the committee, said he plans to give the agreement “new life by revitalizing its intergovernmental process in order to implement high-impact initiatives that could allow developing countries to respond to global challenges.”