Emerging markets have been a driving force in the global economic cycle over the past two decades, fuelled by their strong domestic growth and demographic dividends. Economic openness is an important determinant of growth, job creation and poverty reduction. Economic openness consists of three major aspects: global trade, investments and the free movement of people. Openness to trade is perhaps the most significant for emerging economies, as it opens up new markets, strengthens domestic productivity and encourages efficient and innovative practices to keep firms competitive. The evolution of trade over the past three decades has led to the development of Global Value Chains (GVC), whereby production processes are disbursed widely across the globe, to enable firms to take advantage of internalization costs. Trade is critical for emerging markets’ inclusion into GVCs and for them to be competitive.
Globalisation is in full swing and there has been intense opposition across the globe with numerous calls for protectionism and tighter immigration rules. However, the core driving force of globalisation is shifting from developed to emerging economies. It is, thus, very important for states in emerging markets to open up and take advantage of the current and upcoming waves of globalisation. This is because increased trade relations will allow them to grow. This is true despite the relative slowing in the international trade of goods purchased in US Dollars, which can be attributed to less American reliance on foreign oil, as well as the significant drops in global commodity prices. The current trend in globalisation represents the impact of technology and does not entirely rely on natural resources, leading to increasing competition amongst states. One of the key projects going forward will be the Chinese ‘Belt and Road Initiative’ that seeks to open up the West to the East, and foster the movement of goods and people. China is strongly determined to open up markets and trade relations that were previously hard to reach, and other emerging economies should try and find a role in this new global trade sphere.
China is one of the fiercest supporters of a free global trading system, as it has been one of the largest beneficiaries of this system, increasing its share of global exports to 13% in 2018 from a mere 4% in 2001, when it joined the World Trade Organisation (WTO). Certain Chinese provinces have become indispensable to many GVCs. Areas bordering the Chinese coast, such as Guangdong, Fujian and Zhejiang, are prospering as a result. The state has played a vital role in ensuring the Chinese population receives its fair share from their global trade, as wealth has increased and vulnerable sections of the population have escaped poverty. This has largely been achieved through the enablement of a productive environment by enhancing infrastructure and education across China. Trade openness has played its part in building up the Chinese economy, and if replicated, can have the same effect in other emerging economies.
Trade amongst African states has been abysmal, considering that the African Union (AU) has 55 member states and accounts for only 18% of African exports. Many African states maintain stronger trade relations with former colonial powers than with their fellow African states. In March, this year, the AU hosted negotiations on the Continental Free Trade Area (CFTA), which resulted in 44 African states signing an agreement to establish such a union. The African case is quite interesting, as opposed to other emerging and developed markets. This is because tariffs are not the biggest stumbling block; rather the obstacle is a lack of standardization of regulations and licenses across the continent. The opening of trade relations could be a game changer for export intensive economies and could further spur the developing services industry in many African countries, like Ethiopia, Kenya, South Africa and Nigeria. The importance, from an African perspective, is the development of a strong institutional framework, similar to that of the European Union, to ensure that the single market is successful.
The Association of South East Asian Nations (ASEAN) is perhaps the largest potential driver of trade openness from emerging markets. ASEAN currently holds significant free trade deals with massive export intensive economies, such as China (2005), and India (2010). Moreover, member states are taking part in a large variety of bilateral deals, in particular Singapore, which hosts a range of Economic Partnership Agreements (EPA) and Free Trade Agreements (FTA), that strongly signal the commitment toward trade openness in the bloc, and amongst its individual members. Similar to the AU, ASEAN is currently in the middle of negotiating the Regional Comprehensive Economic Partnership (RCEP), that, if ratified, would be the largest free trade deal in the world. The major issues of contention are external conflicts of interest and trade tensions, which are slowing the deal down. Leaders of the bloc have recognised the need to enhance intra-ASEAN trade as there is a strong growing middle class with significant purchasing power. The RCEP is set to bring together the 10 ASEAN states, plus: China, Japan, South Korea, India, Australia and New Zealand.
The examples from China, Africa and Asia, as a whole, demonstrate an intention from many emerging economies to liberalize and open to trade. However, there is a significant disparity between idea and the implementation. The key viewpoint to consider is the impact of open trade on the growth of emerging economies. This is because those that choose not to open up may be left behind and lose out on not only trade relations, but also investment and productive labour. With every passing quarter, there seem to be more negotiations of FTAs and EPAs between developed and emerging economies. This clearly demonstrates the need for a collaborative approach going forward, to ensure that all parties have, at the very least, relative gains from a more open global trading system.
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