Valdai Club

As the year 2018 draws to a close, it may be termed as a breakthrough year in terms of the developing world advancing towards the goals of aggregating and structuring its economic integration platforms. The progress achieved thus far confounds the notion of a highly divided and fragmented Global South – the possibility of the formation of pan-continental integration platforms no longer appears unreachable, while the forging of cross-continental alliances already appears to have been set in motion.

In particular there is the launching of a pan-continental African free trade area, as well as the recent headway in building links between the Pacific Alliance and Mercosur in Latin America. In July 2018 the first high-level meeting took place between the representatives of the two largest trade blocks that account for nearly 90% of GDP of Latin America. One of the key aspects of the high-level meeting was the signing by the presidents of the two regional blocks of a letter of intent to create a regional trade agreement.

On the Eurasian front, recent periods witnessed the accession of India and Pakistan to the SCO in 2017, which transformed the regional grouping into one of the largest blocks in the world economy and strengthened the case for the SCO to serve as a nucleus/key platform for integration among the developing countries of Eurasia. Outside of the core of the SCO important impulses towards closer partnership are taking place among the developing countries of Eurasia. In particular, in May 2018 Iran concluded a temporary FTA agreement with the Eurasian Economic Union, with the latter also signing a non-preferential agreement with China. 

Add to this the intensification in cross-continental linkages involving the pan-continental groupings such as CELAC, which is actively developing ties with China and Russia. Another important dimension to cross-continental South-South cooperation in this respect is the strengthening of the China – Africa partnership as well as the BRICS+ initiative, which received further impetus in 2018 during South Africa’s presidency in the BRICS.

What emerges is a picture of increasing continental integration across all three continents of the South-South axis, with emphatic progress being made in 2018 in South America, Africa as well as in Eurasia. Of the three continental groups the greatest workload in completing the continental integration roadmap is in Eurasia, where much remains to be done in solidifying the SCO, endowing it with more of an economic integration agenda and extending its partnerships to other developing economies of the Eurasian world, such as Turkey, Iran, the Gulf states and ASEAN in the East. 

With the significant progression in pan-continental economic integration across all three continental platforms a new frontier opens up for the developing economies in economic integration, namely the cross-continental trajectory that ties together the pan-continental trading arrangements in South America, Africa and Eurasia. These sequential rounds of integration and liberalization will harbor the benefit of delivering strong impulses towards economic openness to a world economy slipping into increasing use of protectionist policies. Furthermore, such integration if achieved would benefit the developing world via opening faster growing markets that at the same time are relatively more protected than those in the developed world (hence the higher is the preferential margin for the developing countries involved in trade liberalization). 

The sequencing and the algorithm of how the formation of an extended South-South integration platform proceeds can follow multiple trajectories, including via the aggregation of the largest existing regional integration groupings led by the BRICS economies within the framework of BRICS+. But a short-cut of sorts in pursuing such integration could be achieved via linking together the pan-continental integration platforms in South America, Africa and Eurasia (represented by SCO+, CELAC and the African Union - referred to as the TRIA platform – see Y. Lissovolik. Imago mundi: a South-South concert of continents. Valdai club, 31 January 2018). Importantly, this integration effort would be performed not via the intermediation of global organizations or the regional groupings of advanced economies, but via a South-South exchange of trade preferences. 

The benefits of concluding a trans-continental pact across the continental platforms of the developing world resides in significantly reducing the fragmentation of economic alliances in the developing world and raising the level of aggregation to the full potential of continental geography of the Global South. What this means for the world economy is a potential move to a different paradigm of diversified development instead of the rigid “core-periphery” paradigm. It also raises the potential of the Global South to further shift the balance of economic weight into its favour as the liberalization impulses in the developing world could outpace those observed in the advanced economies.