SOUTH-SOUTH REGIONALISM AND TRADE COOPERATION IN THE ASIA-PACIFIC REGION

This study of regional South-South (S-S) trade and cooperation in East, South and South-East Asian countries (ESSEA) aims to provide an economic rationale for S-S trade; shed some light on the extent and pattern of S-S trade in the ESSEA region; examine the dynamic forces behind the expansion of such trade, and its shortcomings and vulnerabilities; propose policies for enhancing and strengthening regional cooperation; and identify areas for further research. The main conclusion of the study is that, while the rapid expansion of trade among ESSEA countries has been mainly the result of industrialization and industrial collaboration in the form of production sharing, it has not been driven through the operation of market forces alone. South-South trade can also be used as a policy-driven vehicle for industrialization in lower-income countries, and is linked to the principle of dynamic comparative advantage. The resultant expansion of supply capabilities and diversification of the structure of production and trade, in turn, potentially leads to further expansion of S-S trade and to the geographical diversification of trade for the countries involved, with a positive impact on their bargaining power. However, enhancing S-S trade requires proactive policy measures for cooperation that go beyond tariff reduction and trade agreements. The paper begins by providing a rationale for S-S trade as a vehicle for promoting industrialization and development. It goes on to show that regional trade has expanded rapidly in ESSEA mainly through intra-industry trade in the form of production sharing in electrical and electronic products. The region has become not only the most dynamic area for S-S trade, but also a major force in international trade in general. Nevertheless, intraregional trade among ESSEA countries has led to three main developments that these countries need to consider collectively and address through joint policy initiatives in order to further promote industrialization and development.