The GSTP São Paulo round: a significant step in South-South cooperation

5 September 2011

Trade among developing countries has come to offer genuine economic opportunities. South-South exports grew at a rate of 14 percent between 1995 and 2009, far outpacing the growth of world total exports (9 percent). The value of South-South trade increased five-fold from just $0.6 trillion in 1995 to $3.1 trillion in 2008, and its share in developing countries total exports rose from 43 percent to 53 percent. In 2009, 21 percent of total world trade was conducted among developing countries. South-South trade has received further impetus with the historic conclusion in December 2010 of the Third Round of the Global System of Trade Preferences (GSTP) negotiations, known as the "São Paulo Round".

The GSTP in a nutshell

The GSTP was established in 1989 as a framework for preferential tariff reductions and other measures of cooperation, including para-tariffs, non-tariff measures, direct trade measures including medium and long-term contracts and sectoral agreements, to stimulate trade between developing countries. In recognition of special needs facing LDCs, the Agreement incorporates Special and Differential Treatment (SDT) provisions in their favour. Today, its membership extends to 43 developing countries, including Mercosur, the first sub-regional grouping having acquired full membership. (1) The idea of a common institutional platform for South-South cooperation was originally conceived and developed in a developing country coalition - the Group of 77 - throughout the 1970s-1980s. The two previous rounds were held in 1986-1988 and 1991-1998, which however had only limited results. Legally, the GSTP Agreement is notified and covered under the Enabling Clause of GATT 1994, which allows developing countries, through "regional or global arrangements", to exchange preferential reduction and elimination of tariffs among themselves without being obliged to extend them to other countries, as a derogation from the MFN principle of GATT Article I. UNCTAD secretariat has provided substantive and technical support to the operation of the GSTP agreement.

What has been agreed in São Paulo?

The São Paulo Round was launched in 2004 on the occasion of the quadrennial conference of UNCTAD ("UNCTAD XI") in São Paulo, Brazil. After years of intensive negotiations, the parameters of the tariff-cutting formula were agreed at a ministerial meeting held in Geneva in December 2009. It consisted in reducing applied tariffs by 20 percent on at least 70 percent of dutiable products, thereby combining effective tariff cuts (as tariffs are cut from applied rates, rather than WTO bound rates) with policy space and flexibilities. The modalities provided for some differential and more favourable treatment, including for those in the process of WTO accession. The Round was concluded at a ministerial meeting bringing together the participants, held on 15-16 December 2010 in Foz do Iguaçu, Brazil. The resulting tariff concessions have broadened product coverage to 47,000 tariff lines (2), compared to some 650 products included in the previous two rounds.

Twenty-two of the 43 GSTP members participated in the São Paulo Round. Eleven of these 22 participants agreed on tariff concessions, and signed a Protocol concluding the Round. These countries are: Argentina, Brazil, Paraguay and Uruguay (together forming Mercosur), the Republic of Korea, India, Indonesia, Malaysia, Egypt, Morocco and Cuba.  Some of the remaining 11 countries are also expected to join the Protocol at a later date. The changes will enter into force with the ratification of at least four countries. As of June 2011, India and Malaysia have completed the ratification procedures. Beyond tariff concessions, GSTP participants will also further examine the possibility of modifying the existing GSTP rules of origin that are based on value-added methods (i.e. requirement that foreign contents of a product should not exceed 50 percent of its value), including the option of complementing them with other origin determination methods, such as the "change in tariff heading" method.

Possible positive impacts of the new Round

The GSTP represents significant opportunities for its beneficiaries. Collectively, the 43 GSTP economies represent a market of $9 trillion in 2009, having grown at a rate of 5.5 percent during the 2000s, nearly twice the world average, and some are among the most dynamic emerging economies. These economies generated an import demand of about $2.2 trillion in 2009, or nearly 20 per cent of total world imports. Imports by the 11 countries signing to the São Paulo Round results alone were around $1 trillion, of which 10 percent was intra-group trade. UNCTAD's estimates find that, despite the reduced number of countries exchanging tariff concessions, the São Paulo Round results will have a significant positive welfare effect. Eleven participants will see welfare gains of $2.5 billion with an associated increase in exports and employment, and they could be further increased to $5.8 billion if all 22 countries that participated in the Round undertake tariff reduction. Dynamic effects can be even more significant. LDCs did not participate in the Round. In the future, GSTP can provide important trade opportunity for them

Conclusion

The São Paulo Round has opened a new era for South-South trade cooperation.  It has demonstrated the vitality of the GSTP as a platform sustaining South-South trade cooperation. The successful conclusion of the Round demonstrated developing countries' ability to negotiate an agreement that provides new trade opportunities, so as to simulate intra-group trade in a balanced and inclusive manner. It also proved developing countries' ability to take leadership in the international trade arena. It is symbolic of the structural transformation currently underway in the international trading system whereby economic power and opportunities increasingly shift towards the South. Expanding liberalisation and cooperation, including on non-tariff barriers, providing opportunities for LDCs, and addressing trade facilitation, trade finance and eventually services trade, could significantly enhance the potential of the GSTP. Capitalizing on the Round's achievement and harnessing such potential will help provide a strong boost to South-South trade and turn it into a real engine of growth and development.

Authors: Mina Mashayekhi is Head, Trade Negotiations and Commercial Diplomacy Branch, and Taisuke Ito is Economic Affairs Officer, in the Division on International Trade in Goods and Services, and Commodities, UNCTAD secretariat, Geneva. The views expressed are those of the authors and do not necessarily reflect those of the UNCTAD secretariat.

(1)  The 43 GSTP participants are: Algeria, Argentina, Bangladesh, Benin, Bolivia, Brazil, Cameroon, Chile, Colombia, Cuba, the Democratic People's Republic of Korea, Ecuador, Egypt, Ghana, Guinea, Guyana, India, Indonesia, the Islamic Republic of Iran, Iraq, Libyan Arab Jamahiriya, Malaysia, Mexico, Morocco, Mozambique, Myanmar, Nicaragua, Nigeria, Pakistan, Peru, Philippines, Republic of Korea, Singapore, Sri Lanka, Sudan, Thailand, Trinidad and Tobago, Tunisia, the United Republic of Tanzania, Venezuela, Viet Nam, Zimbabwe, and Mercosur. The 22 participants in the São Paulo Round are: Argentina, Brazil, Paraguay and Uruguay (forming Mercosur), Algeria, Chile, Cuba, Democratic People's Republic of Korea, Egypt, India, Indonesia, Iran, Malaysia, Mexico, Morocco, Nigeria, Pakistan, Republic of Korea, Sri Lanka, Thailand, Vietnam, and Zimbabwe.

(2) 47, 000 tariff lines of all the countries that have signed the Protocol concluding the Round.

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