Asia-Pacific exports on upswing but region needs to rethink trade-led development, UN report says

Asia-Pacific exports are making a strong recovery from the global economic crisis but the region needs to rethink the role of trade in development, according to a new report released today by the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP).

The 2009 Asia-Pacific Trade and Investment Report (APTIR) says while exports are forecast to rise by 6.3 per cent in 2010, and that the export-led model will remain important for the region – which owes its development to a large extent to trade – the crisis offers opportunities to explore new approaches to economic growth.

“We cannot assume business as usual. There is a need to make trade work for the poor by linking trade directly to job creation and poverty reduction rather than promote trade for its own sake,” says Noeleen Heyzer, United Nations Under-Secretary General and ESCAP Executive Secretary.

“The crisis has shown that Asia-Pacific needs to rebalance its sources of growth and stimulate domestic demand. However, domestic demand needs to complement rather than substitute exports as a source of growth,” Dr. Heyzer adds.

Ravi Ratnayake, Director of ESCAP’s Trade and Investment Division, says intraregional trade can play a large role in reducing poverty but barriers to trade among the region’s developing countries remain relatively high. “By simply eliminating all tariffs among each other, the region can reduce the number of people living on less than $1 a day by 43 million.”

Although regional and bilateral trade agreements can be a useful way to reduce those barriers provided they are properly formulated, their number keeps growing and businesses can no longer see the benefits of these pacts, Dr. Ratnayake adds.

“It is time to try to consolidate at least some of these agreements and undo the ‘noodle bowl,’” he says, pointing to the Asia-Pacific Trade Agreement (APTA), which groups the three Asian economic powerhouses of China, India and the Republic of Korea together with selected other Asian developing countries in one single trade agreement and has the potential to be a force for regional integration. Mongolia recently applied for membership in APTA.

Simplified trade procedures bring greater benefits than tariff reductions

Dr. Ratnayake also highlights the need to reduce red tape on cross-border trade, as fulfilling export and import procedures in most developing countries of the region still takes at least 50 per cent more time than it does in developed economies.

“Our research finds that average gains from simplifying trade-related procedures in the Asia-Pacific region far exceed those that can be achieved through further tariff liberalization,” he says, adding that smaller firms would have then have an opportunity to trade internationally and ultimately reduce poverty even further. The report finds that the region’s lack of effective trade finance institutions has contributed to the severity of the crisis.

The report also stresses the importance of small- and medium-sized enterprises, which bear the brunt of the crisis and need urgent assistance, in employment generation and poverty reduction. Enterprises drive regional integration and intraregional trade through the ever-expanding regional and global production networks. However, in order to make trade pro-poor and more sustainable, the report also sees the need for changing determinants of competitiveness, including the adoption by businesses, large and small, of principles of corporate social responsibility and a “green” approach in formulating competitive strategy.

Despite strong expansion in 2010, Thai exports are still far from full recovery

According to the report, Thailand will begin a solid recovery in 2010 by expanding exports by 6.07 per cent, following the regional trend. Despite this strong figure, Thai exports will still be far from full recovery, as they have been the most heavily-hit in the region after Japan, with exports plunging by over 17 per cent in 2009. Thailand is currently ranked the eighth-largest exporter in Asia (17th in the world).

Thailand ranks second after Singapore in Southeast Asia (2008), and ninth in the Asia-Pacific region (2007) as the major exporter of commercial services. Thailand services exports amounted to more than $33 billion in 2008, which represented a growth of over 10 per cent over the previous year.

From 2005 to 2008, foreign direct investment (FDI) inflows to Thailand increased by 7.8 per cent – amounting to over $10 billion – compared to the previous four-year period between 2000 and 2005. This growth was barely above half the average of Southeast Asia.

Trade procedures have become faster and cheaper over the last few years in Thailand. The average time for completing customs clearance and logistics procedures has been reduced to 13.5 days in 2009, from 23 in 2005 – the second fastest in Southeast Asia after Singapore (4 days), and eighth in the Asia-Pacific region as a whole. Costs of trading with Thailand have also been reduced by about one third over the 2005-2008 period, currently taking an average of $590 to complete customs procedures.