Nov 8, 1989


GENEVA, NOVEMBER 7 (BY CHAKRAVARTHI RAGHAVAN) — Third world countries have increased their share in the world's manufactured exports, but "complacency will be ill-founded", the UN Conference on Trade and Development warns.

For protectionist activity in industrial markets have not abated and market access faces a proliferation of non-tariff barriers.

Moreover, the bulk of exports of manufactures comes from a small of third world economies - just four of them (South Korea, Taiwan, Singapore and Hong Kong) accounting for 60 percent manufactured exports of the third world in 1987.

In a report (TD/B/C.2/228) to the committee on manufactures, the UNCTAD secretariat notes that in the 1970's manufactured exports from the third world increased rapidly, by an average 26 percent a year in current values and above the rate of expansion of world exports of manufactures.

This expansion slowed down to about nine percent a year in the first half of the 1980's, but picked up to achieve a 15 percent growth in 1986 and 24 percent in 1987.

In both years, the import demand in the industrialised countries was a strong force for expansion.

The share of the third world in world manufactured exports rose from 5.5 percent in 1970 to 14.5 percent in 1987. Manufactures which in 1970 accounted for about 29 percent of third world total exports, excluding mineral fuels, expanded to 47 percent in 1980 and reached almost 69 percent in 1987.

Warning against complacency, the report however notes that there are still no signs of abatement of protectionist activity in the OECD countries, and there has been a proliferation of non-tariff barriers in sectors of particular export interest to the third world.

The debt problem was also forcing the indebted countries into attempts at increasing exports at cost of reduced profitability and lowered prices in foreign currencies.

While unit values for exports of manufactures of OECD countries rose by 23 percent in the period 1980-1988, the unit value of such exports for the third world remained unchanged.

Similarly, the terms of trade indices for 1988 of the major exporters of manufactures among third world economies fell from 100 in 1980 to 99 in 1988, whereas the indices for OECD countries rose from 100 in 1980 to 113 in 1988.

The dominant share in world trade in manufactures continues with the OECD countries who account for nearly 80 percent of world exports and 72 percent of world imports.

"The economic policies of these countries crucially influence the vagaries of international trade, while the leverage of third world economies to influence this trade will remain weak, unless supported by an effective multilateral trading system", UNCTAD comments.

Within the third world as a group, about 14 economies, each with an annual manufactured export of two billion dollars, together accounted for about 85 percent of manufactured exports of the third world as a whole in 1987.

The other group of third world countries are not yet major exporters of manufactures and most of them are still at the earlier phases of industrial development.

While unskilled and labour-intensive products (leather and leather manufactures, wood manufactures, textiles, clothing and footwear) accounted for a relatively high share (one half) in exports of the first group in 1970's, by 1987 the share of these had fallen to one-third, mainly due to the steep decline in the relative importance of textiles due to rising barriers in the industrial countries.

But clothing still remained a main export item.

Electrical machinery, apparatus and appliances requiring skilled labour and technology in many production lines and unskilled labour in assembly operations, had already accounted for a 11 percent share in the 1970's.

But this had risen to nearly one-fifth in 1987, and was the leading export item. The supply capability of the major exporters in industrial machinery and transport equipment, requiring higher capital and technology inputs, also expanded.

But the other group of third world economies however have made little progress in upgrading their supplies of manufactures to the OECD economies, and have continued to rely on manufactures of natural-resource based products and on unskilled-labour-intensive goods.

Textiles, clothing, chemical elements and compounds, non-metallic mineral manufactures and primary forms of iron and steel accounted for about 70 percent of total sales of manufactures by this group of third world economies in 1970 and 1987.

Among these, clothing has been growing as a dynamic export item, while that of textiles has declined.

There has been no significant growth in skill-, capital- or technology-intensive exports.

Moving up the "ladder of comparative advantage" is a longer-term process is only part of the explanation, UNCTAD comments.

"More significantly, further industrial and export development is seemingly hamstrung by the scarcity of investible resources and lack of technology prevailing in the large majority of developing countries".

Within the third world, south and south-east Asia continues to be the major and most dynamic supplier of manufactures to the OECD countries, accounting in 1987 for nearly three-quarters of the value of all manufactured products supplied by the third world to the OECD area.

The increase has been quite dramatic in recent years: from 77 billion dollars worth in 1985 to 130 billion in 1987.

But the main contribution came to this from just four: South Korea, Taiwan province of China, Singapore and Hong Kong.

While rapid industrialisation and dynamic growth of major exporting economies of south and south-east Asia are frequently attributed to adoption of economic policies with a "liberal outlook" and given "free play to market forces", these are "misperceptions", UNCTAD comments.

Policy reforms, UNCTAD notes, have been important.

In the 1970's and 80’s, the major exporting countries of the region avoided an anti-export bias in their policy structure, and provided roughly equal incentives to exports and domestic sales.

But manufacturing industries have assisted substantially through a variety of policy measures, often within the framework of sectoral strategies designed to accelerate structural change and foster internationally competitive production.

"Hence, outward-oriented trade regimes did not necessarily correspond to a free operation of domestic markets, but rather to an interventionist industrial policy approach - Hong Kong being the only exception".

"Equally important, the major exporting economies had already developed strong industrial base of physical and human capital at the outset of their export drive in the late 1960's. Their industrial base had been growing since the 1950's at respectable rates owing to import substitution in light manufacturing and non-durable consumer goods".

The share of Latin America in manufactured imports of the OECD was 16 percent in 1987, lower than the 17 percent in 1970.

The product composition mirrored the relatively more advanced industrial supply capabilities of these economies - with machinery, electrical apparatus and appliances and transport equipment occupying a prominent place - nearly one half of total supplies of manufactures from Latin America.

Textiles and clothing have been less important in relative terms.

However, the dynamic expansion and sheer size of exports from south and south-east pose a challenge for the manufacturing export sectors of Latin America.

In 1987, imports of machinery, electrical apparatus and transport equipment by OECD economies from south and south-east Asia amounted to about 38 billion dollars compared to some 14 billion from Latin America.

Exports by manufacturers in Latin America to increase investment will be important for expanding and diversifying productive capacities and improving productivity and international competitiveness, UNCTAD adds. As regards the Caricom economies, their export-oriented manufacturing activity is mainly low-skill and labour intensive assembly operations, particularly in the clothing and electronics sector, with most of production inputs imported.

Much of the production is off-shore operations of transnational using low-cost labour.

With a few exceptions, Caribbean basin countries provide enclave industry status to enterprises, which produce exclusively or mainly for export, markets outside the region.

These countries might get "stuck" at the early stages of industrialisation if they continue with the most elementary types of enclave industry.

The African region, always a small exporter of manufactures, has seen its share decreasing slightly in the 1970's and more rapidly inly in the first half of the 1980's. Manufactured products from Africa accounted for three percent of manufactured imports of industrial countries in 1985 compared to 5.4 percent in 1980. Imports also declined in value terms, from 3.7 billion in 1980 to 3.3 billion in 1985.

Since then import growth has accelerated, with the OECD countries buying six billion dollars worth from the region in 1987.

"The accelerating decline in Africa’s relative importance as exporter of manufactures within the group of developing economies in the first half of the 1980's reflected not only adverse world market conditions, "but also stagnation in Africa’s process of industrialisation and growth of productive capacity and productivity," UNCTAD says.

While domestic policies did play a role, "major contributory factors were the growing foreign exchange constraints due to rising debt service obligations and emergence of natural catastrophes in sub-Saharan Africa", UNCTAD says.

The expansion and diversification of manufactured exports from Africa will, in many countries and industrial sectors, require rehabilitation of a large part of the productive apparatus, restoration of productivity of existing enterprises and increased investment in new capacity.

Also, Africa’s poor infrastructure as well as high transport costs to major overseas markets, in particular north and Latin America and the pacific region, where Japan is a potential outlet remain formidable obstacles to manufactured export expansion and export market diversification.