9:01 AM Mar 27, 1996

MERCHANDISE TRADE GROWTH SLOWS DOWN SLIGHTLY

Geneva 27 Mar (Chakravarthi Raghavan) -- The world merchandise trade increased by eight percent in volume in 1995, according to the first estimations by the World Trade Organization, based on statistics available in early March.

But the volume growth in trade in goods in the first year of operation of the World Trade Organization, was less than the 9 1/2 percent recorded in 1994.

WTO estimates that growth in volume of goods trade will slow down to about seven percent in 1196.

In value terms, the merchandise trade rose by 19% to reach $4900 billion, while the total crossborder trade in goods and commercial services reached $6,000 billion.

The WTO says that trade in clothing expanded significantly less than the average for all manufactured goods, while agriculture trade expanded at a rate well below that of all merchandise trade.

But the WTO has not referred to the obvious explanation that is known to most trade diplomats and observers.

These two sectors, and the WTO rules applicable to their trade, while promising liberalisation in a distant future (10 years for textiles and clothing and very much beyond for agriculture), have been identified in several studies as having enabled the major importing countries to tighten up their market access.

The United States, the largest importer of clothing, for example, in its integration scheme for textiles and clothing, has high tariffs and will remove quotas and other restrictions on most products subject to restraint in 1994 only in year 2005. The European Union, which has so far published its integration time-table for the first integration period of 36 months, but all indications are its subsequent programme will be equally tight.

Also, the US in fact has also used transitional safeguards of questionable legality to restrict imports of clothing. As a result, its clothing imports which recorded a 26% increase in 1994 (when the MFA regime was in place) slowed down to record a 7-1/2% increase in 1995.

And in agriculture, the liberalisation process has been muddied by what is known among trade officials as 'dirty tariffication' -- the conversion of the various support and non-tariff barriers into very high tariffs, thus restricting market access beyond existing levels.

The WTO first estimation records a more modest world modest output growth of three percent in 1995, compared to the 3-1/2% the previous year and points out that following the pattern set since 1990, expansion of world merchandise trade exceeded by a wide margin the expansion of world merchandise output.

This higher trade growth to output growth is often cited by economists to indicate "globalization" and "integration" of the world economy -- a phenomenon though which is not however new, but something that also characterized the late 19th century, except for the increased capital mobility now and reduced or restricted labour migrations.

However, the estimations of merchandise output growth, based on production indices for agriculture, mining and manufactures, excludes services and construction, which are included in GDP estimations.

Many of the 'service' activities of manufacturing corporations, originally included in 'goods', have been externalised since the 1980s, particularly by the TNCs.

The WTO report says that one of the factors behind the strong excess of trade growth over output growth is the "rapid expansion of processing trade" -- manufacturing units, often owned or subcontracted by TNCs, which import parts and components, and re-exported after some processing. The report notes this type of trade - with components, often crossing borders more than once before reaching a final buyer -- has become a significant factor for trade of some countries.

It cites in this connection Mexico's exports from the maquilladora industries (mostly along the border with US) which has increased from one-third Mexican exports in 1990 to 40% in 1995. The corresponding imports of the maquilladora units rose from 25% in 1990 to 35% in 1995.

In the case of China, by 1995 its exports originating in processing and assembly factories had risen to nearly 50% of total exports, while China's imports destined for further processing reached 45%.

For some smaller traders, the proportion can be still higher.

For Tunisia, one of the fastest growing exporters in Asia, exports under special rules for processing trade accounted for 63% of merchandise exports in the first nine months.

It is this type of 'globalization' trade, with in fact very little or low value added, mostly in wages, and with TNCs in home countries getting incentives for this through tax treatment, that has now created a backlash in the industrial world among labour -- giving rise to demands for a social clause links in the WTO.

In value terms, the world trade grew in 1995 by 19 percent, accelerating from the earlier year's 13%, pushing the value of world merchandise exports to nearly $4900 millions.

This acceleration in growth is due primarily to strong depreciation of the US dollar visavis the Japanese yen and the European currencies, as well as some price recovery of major commodities including crude oil and non-ferrous metals. The WTO estimates world exports of commercial services rose by 14 percent reaching a figure of over $1200 billion in 1995.

Travel and transportation services appear to have increased less, while other private services -- insurance, banking, telecommunications etc -- expanded faster than total services.

In volume terms, North American, Latin American and Central European economies registered higher export growths than imports. For western Europe, exports grew by seven percent while imports grew by 7.5%.

The acceleration of export growth and 'dramatic slowing' down of imports in Latin America, compared to 1994, is directly related to the crisis in Mexico and Argentina, the WTO says. Import growth dropped to 4.5% compared to 13.5% in 1994, while export growth rose from a 9.5% in 1994 to a 11.5% in 1995.

In Asia, imports grew 13% by volume, faster than exports at 9.5%. While the 13% import growth in 1995 is less than the 13.5% in 1994, it is still higher than the world average of a 8.5% import growth in 1995 compared to a 10% the previous year.

Largely as a result of increase in crude petroleum prices, Africa and the Middle East registered a better export performance. Africa's exports rose by 14% in 1995 compared to a three percent growth in 1994. That of the Middle East registered a 12.5% growth compared to a mere 0.5% in 1994

Within Asia, Japan's imports (volume) rose by 11.5% while its exports rose by only 2.5%. The six east Asian trading entities (Hong Kong, South Korea, Malaysia, Singapore, Taiwan and Thailand) had a 15% import and a 14.5% export.

In value, Asia's imports rose by 23% and exports by 18%. Japan's imports grew by 22% against an export growth of 11.5%, China's by 14% against exports of 23% and the six East Asians imports by 26% as against a 23% exports.