WEAKENING LINKS BETWEEN EUROPE AND THIRD WORLD-

Dec 8, 1984

WEAKENING LINKS BETWEEN EUROPE AND THIRD WORLD-

GENEVA, DECEMBER 6 (IFDA/CHAKRAVARTHI RAGHAVAN) -- Trade links between The Third world and Europe have weakened over the last two decades, while the links between the Third World and non-European industrial economies have tended to strengthen, according to the Economic Commission for Europe (ECE).-

In its economic bulletin for 1984, the UN Regional Commission covering west and east Europe and U.S.A. and Canada in North America, has analysed the structural changes in north-south trade.-

"As a whole the relevance of the north to the south has decreased, while south-south trade has intensified", ECE says.-

The increasing product diversification of the southern exports will probably reinforce these trends, ECE adds.-

"Changes in the import demands of Third World countries", ECE says, "are likely to be more significant for North America than for Europe".-

In the last two years, the import cuts in a number of Latin American countries affected North American exports more strongly than those of western Europe.-

For the ECE region as a whole, the underlying trend has been for a decline in its export orientation towards the Third World, implying that the impact on the region of changes in the Third World's imports has fallen.-

Over the last two decades the share of the Third World in world trade has increased from 20 to 30 percent.-

While partly due to relative price changes, particularly of oil, the share of these countries in the trade in manufactures has also increased from six to ten percent.-

While great concern has been expressed about the penetration of Industrial country markets by exports from the south, less attention has been paid to the fact that the Third World now takes more than 20 percent of northern exports, ECE notes.-

While the volume of world trade rose at an annual average of about 6.5 percent over 1965-80, the volume of imports into the Third World increased by an annual eight percent.-

The widespread view that the share of the south in the imports of the north has increased significantly is not supported by statistics, ECE says.-

This phenomenon seems to be limited to trade in manufactures, and concerns a small number of exporting countries and only in specific northern markets - North American and Japanese.-

Though "alarming figures" are sometimes cited for the Third World share of markets in the north for particular products, and often very narrowly defined products, their share of the total markets for manufactures is still so small that it can hardly be considered "a serious threat to the viability of the manufacturing industry in the north", ECE comments.-

And if market penetration is defined in terms of apparent consumption of manufactured goods by the north, the Third World share "continues to be rather small" - about three percent in 1980 for the major Developed Market Economy (DME) countries, four percent in Europe and two percent in North America.-

For clothing and footwear the Third World share was some 16 percent. But it was only two percent for electrical machinery.-

Traditionally, ECE says, north-south trade was largely an exchange between manufactures fabricated in the north and primary commodities produced in the south.-

This pattern of specialisation, together with a presumably high supply elasticity of goods exported by the south, tended to make export growth in the Third World highly dependant on the prosperity of the north.-

But changes in the composition of exports from the south may have weakened this link, with many Third World countries, in the post-colonial period, pursuing import-substitution policies that have made them less dependant on imports from their former European metropolis.-

The widening differences among the Third World countries and the increasing importance of south-south trade may have also weakened the relationship between growth in the north and export expansion in the south.-

During 1974-80, the volume of imports into the Third World increased at an annual eight percents while the volume of imports into the north grew only by an annual three percent.-

As a result, in current prices the share of the Third World in the exports from the north increased by one-third in the period, while between 1965-73, it has fallen by about 15 percent.-

In constant prices, the share of the Third World in the imports of the Centrally Planned Economies (CPEs) increased slightly before 1973 and fell sharply thereafter.-

In 1981-83, there was a fall in the share of the Third World in the imports of the DME countries, and a slight rise in their share in the CPEs.-

The former reflected the fall in the share of the oil exporters (members of OPEC, Mexico, Oman and Bahrain) in all the northern markets excepting Eastern Europe.-

But the share of exporters of manufactures (Argentina, Brazil, Taiwan, Hong Kong, South Korea and Singapore) in the DME and that of other Third World countries in all northern markets increased in this recent period.-

The weight of the DME in the exports of the Third World has however declined since 1965. This was so for all groups of Third world countries, and due principally to a steady fall in the share of western Europe.-

In 1983, the share of Western Europe in the southern exports was almost half of that of the mid-60’s. But their share in North America increased from 20 to 22 percent and in Japan from eight to 15 percent.-

The increased U.S. imports is partly due to intra-trade of the transnational corporations, which was 41 percent from Latin America and 3e percent from Asia and Africa, in 1975.-

The European CPEs continue to take a small share of Third World exports - in 1983 eastern Europe took in about two percents and the Soviet Union about three percent.-

The counterpart of this decline in the share of the north from the south was the expansion of south-south trade, due to product diversification among Third World countries.-

In terms of "trade intensity coefficients" (defined as the share of the Third World in different northern markets relative to their share of the world markets), ECE says that the intensity of western Europe’s imports from the south declined almost continuously since 1965, in respect of each of the group of Third World countries.-

Partly this reflected the weakening of the colonial era trade links and the increase in intra-European trade.-

But the decline continued and accelerated in 1980-83, reflecting the drop in west European imports of oil and the increasing importance of North America and Japan, relative to western Europe, as markets for the Third world.-

Also, with Europe lagging behind North America and Japan in recovery, this has entailed differences in the strength of the import demand and the rise in protectionism, particularly against imports from the Third World.-

The intensity of imports into the U.S.A. from exporters of manufactures has tended to increase till 1972, and since then has been erratic. But imports from other Third World countries has tended to intensify since 1972.-

In the case of Japan, the increase in its share is due mainly to imports of oil. The intensity of imports of Japan from other exporters of manufactures tended to increase up to 1973, but has declined significantly since then.-

For the Third World as a whole, the share of oil in imports of the north grew, reflecting the relative prices of the products.-

While the share of manufactures also grew, the increase was accounted mainly by the exporters of manufactures - from 30 percent in 1965 to 70 percent in 1980.-

The share of imports of manufactures from other Third World countries grew in the same period from 15 to 25 percent.-

For all Third World countries, the share of manufactured exports to the DME, rose from 26 to 55 percent, while in the south-south trade this grew from 39 to 62 percent.-

The relative specialisation of "other developing countries" in manufactures trade is higher in the south-south trade than in exports to the north, while it is the other way round for exporters of manufactures.-

In 1965, textiles accounted for nearly 51 percent of Third World manufactured exports to the DME countries, and non-ferrous metals for a further 30 percent. To the CPEs, these were respectively 82 and five percent.-

Machinery and transport equipment in 1965, accounted for only one to two percent of southern exports to the north, while in south-south trade it was 16 percent.-

During 1965-80, the share of textiles and non-ferrous metals fell considerably, and there was a rapid increase in the share of machinery and transport equipment - accounting for as much as 27 percent in 1980.-