Towards a Free Trade Area for the Global South

The expanded format of the BRICS+ dialogue conducted by China in June 2022 as well as the rising number of large developing economies expressing willingness to join the BRICS core grouping sets the scene for more ambitious steps directed at strengthening South-South economic cooperation.

At the same time, rising protectionism across the global economy, looming risks of stagflation and the division lines emerging along the Global North-South axis raise the expediency of greater economic openness and trade liberalization among the developing economies. An ambitious goal in advancing such South-South cooperation may be the creation of a free trade area (FTA) for the Global South economies with particular care accorded to the needs of the vulnerable developing nations, including the world’s least developed countries (LDCs).

The attainment of such an ambitious goal as the creation of a Global South FTA will not be possible in a single stroke – it will most likely necessitate an assembly process that involves time and sequencing. In terms of the mechanics and technology of assembly, the “integration of integrations” of the existing regional free trade agreements of the Global South may prove to be the most effective operational framework. Such an approach may allow for an integration among all of the main three pan-continental platforms of the developing world: Africa + Latin America + Asia/Eurasia. Accordingly, one possible abbreviation for the Global South FTA could be “Triple AAA FTA” that denotes the tripartite alliance between the developing economies of Africa, America and Asia. In terms of sequencing, it may be expedient to start the construction of a South – South FTA with the smaller continental platforms, increasing the scale of integration with every following step of the assembly process.

The first pan-continental free trade area in the developing world has been achieved in Africa with the launching of the African Continental Free Trade Area (AfCFTA). This step, in effect, allowed for the creation of a framework for co-integrating the numerous regional integration arrangements on the African continent. The next possible step towards a pan-continental free trade area could be observed in the coming years in Latin America, where regional conditions are improving for continental initiatives to be advanced.

The next stage in progressing towards a free-trade area for the Global South would be to link up the pan-continental free trade arrangements in Africa and Latin America. The two pan-continental blocs are broadly similar in terms of the size of GDP – in 2021 Africa’s GDP totaled around USD 2.7 trn, while for South America’s 12 economies the total in 2021 was around USD 3.25 trn. Furthermore, there is already a track-record of Africa-Latin America cooperation in the sphere of “integration of integrations” via the signing of a preferential trade agreement between MERCOSUR and the South African Customs Union (SACU) in 2008-2009 – the trade deal entered into force in April 2016.

In recent years links between Latin America’s regional organizations and Africa have further strengthened. On 7 September 2021, leaders from the African Union and the Caribbean Community (CARICOM) convened the 1st Africa CARICOM Summit.

Furthermore, in 2021 in the context of Argentina’s Presidency Pro Tempore, MERCOSUR and the African Union undertook steps to boost bilateral relations between the two regional blocs. In particular, “the Secretary for International Economic Relations, Jorge Neme, chaired the first Mercosur-African Union Meeting, aimed at strengthening relations between the blocs, renewing political ties, further reinforcing cooperation mechanisms and fostering economic relations”.

The more complicated steps will involve the incorporation of Asia, most notably China, into the common South-South FTA platform. The difficulty emanates from the fragmentation of the regional integration patterns in Asia as well as the asymmetries in terms of size: Asia accounts for over 80% of the Global South total GDP, while China alone accounts for well over a third of the total economic mass of the Global South. Another factor is competitiveness: China exerts a competitive edge in a wide range of industries compared to its Global South peers, making the prospect of free trade more difficult to digest politically and economically. One possible option in attenuating these competitive pressures may be to precede the FTA with a preferential trade agreement across the South-South platform that does not involve the creation of a full-scale trade liberalization in the very near term, but rather a sequential, step-wise lifting of barriers in key priority sectors. There will also be a need to include provisions that protect the interests and needs of the least developed economies of the Global South.

Estimates from the United Nations ESCAP suggest that the potential dividends from the creation of a South-South FTA may be substantial – “such a scenario would enhance South-South trade significantly. Most of the South countries would experience rise in export to other South countries”. One of the possible guides in this respect may be the progression of the AfCFTA project – according to the estimates of the World Bank, “by 2035 the AfCFTA is set to lift 30 million Africans out of extreme poverty and 68 million from moderate poverty”. A more recent study by the World Bank finds that “under deep integration, Africa’s exports to the rest of the world could rise by 32% by 2035, while intra-African exports could grow by 109%, led by manufactured goods”.

The platform for a comprehensive FTA across the Global South may be based on the BRICS+ framework whose evolution since 2017 is increasingly geared towards bringing together the main regional integration blocs from the Global South. The BRICS+ summit and the foreign ministers’ BRICS+ meeting in 2022 brought together developing economies that represented regional blocs such as the African Union, CELAC, SCO, GCC and ASEAN – this in effect was the widest outreach exercise covering the vast majority of the Global South and representing a platform that could prove instrumental in advancing greater economic openness across the developing world. In particular, going forward the BRICS+ summits could be complemented by official discussions of the progress achieved in South-South economic integration as well as the signing of key trade/investment accords related to the building of a comprehensive South-South economic cooperation platform.

The key factor that renders the creation of a South-South FTA feasible and in fact expedient is the high degree of undertrading along the “South-South” axis compared to the potential based on distance and respective country GDP levels (indications of the gravity model). Another factor is the “integration gap” – namely the significantly lower scale and quality of integration in the developing world compared to the advanced economies. The South-South FTA accordingly could serve to bridge this gap and foster “catch-up integration” or “integration convergence” vis-à-vis the developed world.

In the process of such “integration convergence” the evolution of the assembly process of a Global South FTA will need to be flexible in allowing for plurilateral trade accords to be incorporated into the common South-South platform . The common South-South platform should also be innovative and in sync with global trends – there will be a need to devise provisions governing South-South cooperation and integration in the digital sphere (most notably in e-commerce) as well as in areas pertaining to environment and economic sustainability.

In the end, an FTA across the wide expanse of the Global South is an undertaking that is well worth pursuing in light of the greater momentum towards trade cooperation in the developing world and the protectionist measures introduced by advanced economies. A South-South FTA will significantly boost economic growth and consumption across the developing world without excessive competitive pressures emanating from the developed economies. It will also contribute to global economic expansion in view of the significant scope for trade liberalization in the Global South as well as the sizeable economic growth potential in the developing world. A common platform for dialogue and trade will also facilitate other Global South initiatives, including the creation of new international reserve currencies and payment systems. Finally, greater economic integration across the Global South should also be conducive to a more constructive pattern of North-South economic cooperation.