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Global System of Trade Preferences: A Discussion on South-South Trade

Trade liberalization and the expansion of world economy has brought the world closer. Initiatives taken by governments, regional and multilateral organizations and other bodies to promote trade and economic growth have opened the door to numerous opportunities and helped nations develop overall. We have seen how globalization has impacted our lives, bringing a revolution in how trade works. Trade agreements between nations and regions, cultural exchange, changes in lifestyle- these have all been conducive to the astronomical shift in world trade.

The Global System of Trade Preferences (GSTP) was initiated by the United Nations Conference on Trade and Development (UNCTAD) in 1988 which aims at promoting trade among developing countries. There are 42 member countries, including 7 Least Developed Countries (LDCs)[i]. The framework of GSTP is designed in a way that enables the participants to promote economic growth and development by capitalizing on south-South trade.

South-South trade refers to the trade with and amongst developing countries. This has doubled between 2004 and 2011[ii]. This growth has been a result of several factors, and led to various outcomes.

This article seeks to discuss the Global System of Trade Preferences in the context of South-South trade and the associated aspects. It also explores how beneficial the growth of South-South trade has been, what it means for the world economy, and the issues and challenges that surround it.

The Global System Of Trade Preferences:

A Timeline
The Agreement establishing the Global System of Trade Preferences (GSTP) among Developing countries was signed on 13th April, 1988 at Belgrade, Serbia following conclusion of the First Round of Negotiations. It entered into force on 19th April 1989. The GSTP came into being after a long process of negotiations during the Ministerial Meeting of the Group of 77- at Mexico City (1976), Arusha (1979) and Caracas (1981). The group of 77 (G77) is a coalition of 134 developing countries which is designed to promote its members' collective economic interest and create an impact joint negotiating capacity in the United Nations.

The Ministers of Foreign Affairs of the Group in New York set up the GSTP Negotiating Committee in 1982. The New Delhi Ministerial meetings, held in July 1985, gave further impetus to the negotiation process. The Brasilia Ministerial Meeting held in May 1986 launched the First Round of GSTP Negotiations. Forty-four countries have ratified the Agreement and have become participants.

The GSTP establishes a framework for the exchange of trade concessions among the members of the G77. It lays down rules, principles and procedures for conduct of negotiations and for implementation of the results of the negotiations. Its coverage extends to arrangements in the area of tariffs, para-tariff, non-tariff, and direct trade measures including medium and long-term contracts, and sectoral agreements.

One of the basic principles of the Agreement is that it is to be negotiated step by step improved upon and extended in successive stages. During the First Round India exchanged concessions with 14 countries. India granted and received a number of concessions on a range of products that fulfill its export interests [iii].

For moving forward with the exchange, the second round of GSTP negotiations was launched in 1991. In 2004, the participants of GSTP decided to launch the third round negotiations, also known as the 'Sao Paulo Round'. This round of negotiations aimed at expanding and deepening the tariff concessions in order to promote and encourage interregional trade among participants [iv].

This round also resulted in the historic conclusion in December, 2010 where 8 participants exchanged tariff concessions and adopted the Sao Paulo Round Protocol (SRP). Among the participants, there were 11 countries, including 4 member States of Mercosur. During the negotiations, India unilaterally offered a tariff reduction of 25% on 77% of its tariff lines for Least Developed Countries (LDCs).

In the recent years, more initiatives have been taken and progress has been made in the development of trade among these countries through the mechanism of preferential treatment. It has certainly encouraged South-South trade and changed the scenario of world trade. Let us now get to the next part of our article, which is South-South trade.

South-South Trade

There has been a rapid growth in the South-South trade in the last decade. This has led to an increase in the share of developing countries in international trade. East Asian economies have contributed significantly to the rise in the importance of South-South trade. According to estimates, in 2013, more than 75 percent of South-South trade was carried on in the region, and China dominates it by being the biggest player in terms of exports.

The South-South relationship and the increasing significance of developing countries has also impacted the Foreign Direct Investment (FDI), as in 2014, developing countries reached a record high of USD 681 billion, constituting 55 percent of FDI flows, which was 35 percent more than in 2000.

Developments in world trade, namely the international fragmentation of production like global value chains, have been conducive to the surge in South-South trade. Other factors like technological progress, decrease in the cost of trading, and mobilization of a number of resources have contributed to the growth and expansion of South-South trade. The trend in South-South trade shows that Asia as a whole, participates on a greater level than Africa or the Americas[v].

Importance in the World Scenario
To quote Antonio Guterres, the Secretary-General of the United Nations, "Innovative forms of knowledge exchange, technology transfer, emergency response and recovery of livelihoods led by the South are transforming lives[vi]."

The increasing political dialogue and financial cooperation has promoted a large number of knowledge and expertise exchanges through various programs, projects, and initiatives and helped in solving country-specific problems in the Global South. Trade barriers have reduced as a result of bilateral agreements and regional integration of countries.

The flow of trade and mutually beneficial agreements have also improved the political relationships between countries and helped to promote industrialization in the countries.

Issues and Challenges
Even though there have been many positive developments since the GSTP came into existence and focused on encouraging trade among developing countries, the South-South trade has its own challenges that create barricades in its holistic success. There are certain limitations which will be discussed below:

Dominance of relatively developed countries
Although the goal of South-South trade was to bring parity among countries of the world by providing opportunities to the least developing countries to grow through trade, as in everything else, the stronger countries of the south have taken advantage of their strength over the weaker countries.

China has been a prime participant in the South-South trade, and with its advantage, also participates in exploiting the relatively less developed countries. It has also set such terms of agreements with African countries during projects that unfairly favour it[vii]. Further, in the course of these projects, it does not employ local people, but the workforce is sourced from China. Such practice denies local people the right to jobs that they deserve, and creates more disparity[viii].

Environmental and Health Implications
As progressive as it is that there has been significant increase in the participation of developing countries in the global trade market, it comes with its own implications on the environment of those countries and the health of the citizens. A disadvantage of industrialization has been the disregard of environment and what it does to those who are constantly in contact with chemicals, fumes, and other hazardous elements associated with industrialization.

The extraction of natural resources with ignorance of their implications has been a common practice of several international oil companies. Toxic wastes that are carelessly dumped result into pollution of agricultural lands around oil fields. This affects the food production, leading to food shortage, and it also creates health problems for those who inhabit the oil-producing areas[ix].

Lack of conditionality
The principle of non-conditionality is an important principle of the South-South trade system, which encourages partnership and assistance, whether tangible or intangible, without any strings attached. However, unfortunately, this principle is misused by some countries in the sense that they ask for financial assistance in pretext of implementing some or the other project that is supposed to be impactful, but they have ulterior motives and plans instead.

Under the South-South cooperation, monitoring and evaluation is considered inappropriate as it raises the question:
Monitoring for who and the evaluation for what?
But, for any system to work effectively and fairly, it is actually somewhat required that it is regularly monitored or kept a check on, and that its effectiveness and efficiency is evaluated from time to time. When there is a lack of both things, the resources and aids are prone to be misappropriated, leading to the failure of well-intended aids and exchange of unnecessary assistance.

Principle of Non-Interference
While the principle of non-interference exists to provide a liberal environment to the participants, it comes with its own limitations. The strict and unwavering obedience to this principle has led to countries not using their economic leverage to pressure other countries to stop civil wars. This non-interference limits the numerous opportunities that could be sought if such wars and internal troubles were not going on.

Conclusions And Recommendations
The dynamic growth of South-South trade has impacted the global system of trade and the world economy in general. It promises wider expansion and economic benefit to the countries involved as they all work on a common cause and seek to achieve similar goals.

The disparity that we see around the world, for example, between the Scandinavian countries and the countries in Middle-East, or between continents like North America and Africa, and the gap in all socio-economic statistics, has to be narrowed so that people belonging to these regions are not left behind as the world progresses. Developing countries require all the cooperation and assistance that they can get in boosting their economy and moving towards further development.

For this, exchange of trade and commerce among the countries of the Global South is vital to bring together the resources, knowledge, and intelligence that they have, as this would lead to a paradigm shift in the overall economic, social, and political growth of the world community.

The South-South trade comes with its own issues and challenges as has been discussed in the article. Misuse of privileges, or taking advantage of one's position in trade leads to widening of the disparity. Countries should realize that sharing resources and being transparent in their conduct as part of a mutually beneficial unit is essential for the success of South-South trade.
Further, cooperation between the North-South and international cooperation in general is an ideal way of overall growth and development of the developing countries, and it also benefits the North as the array of resources and knowledge that the South has to offer enters their system and makes it more effective and efficient.

Globalization has paved the way for the world community to come closer. There is exchange of culture, language, art, trade etc. and the South-South trade increases the representation of developing countries on the global platform.

  1. Trade Agreements, UNCTAD,
  2. (accessed on 27th September, 2021)
  3. Global System of Trade Preferences, EEPC India,
  4. Ibid.
  5. South-South Trade in Asia: The Role of Regional Trade Agreements, UNCTAD, 2008
  6. What is South-South cooperation and why does it matter?, Dept. of Economics and Social Affairs, United Nations, 2019
  7. South-South Cooperation: Experiences and Challenges, Research and Information System for Developing Countries, 2018
  8. Ibid.
  9. Ibid

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