What is the source of bargaining power of BRICS?

Mehdi Shafaeddin

Five countries (Brazil, Russian Federation, India, China, and South Africa-BRICS) have been exchanging views for nearly ten years in order to cooperate, inter alia, on trade issues. But so far they have taken little concrete measures, collectively, as far as their economic relation with developed countries is concerned.

There is a long history of meetings between representatives of some developing countries for cooperation. The call for the establishment of new international economic order (NIEO) in 1974/1975, is the most important one. But it is not the only one: the Lima Declaration and Plan of Action (1975), the North-South Summit (1981) and the recent APEC conference are a couple of examples, among many others. Developing countries have been also involved in NAM (non-allied movements) since the Bandung Conference in 1955. They have established the South Centre as their own secretariat. Except for the South Centre which has undertaken some intellectual work, despites its limited resources, and some coordination in negotiations during the Doha Round of trade negotiation, developing countries have not gone far beyond expressing intentions for actions as far as their trade relations with developed countries is concerned (OPEC is the main exception). They need to mobilize their bargaining power and strengthen their position.

In an article in 1984, I explained how developing countries can use international trade itself as a means of bargaining power (“Import Capacity as a Bargaining Tool of Developing Countries”, UNCTAD Trade and Development Review, 1984). I argued that universal coalition of developing countries can achieve little because of their large number and their diversity of interests. Hence, they could agree only on the lowest common denominator. I suggested that initially they could get together in a number of small groups of countries with common interests and potential bargaining leverage. BRICS is such a group. Although Russia and China are not as such developing countries, they have some common interests with the others as far as their economic relations with developed countries are concerned. Hence, for the sake of argument in this brief we regard them also as developing countries.

Why do BRICS countries need to mobilize their bargaining power? What are their bargaining assets and liabilities? What sort of measure can they take to use trade itself as a means of bargaining? In this and the subsequent piece we will briefly provide some tentative answers to these questions.

Developed countries usually apply their full leverage in their economic relationship with developing countries. Thus, developing countries also need to mobilize their bargaining leverage-however small it may be. Of course, I am aware that statesmen may employ various means of leverages (both economic and non-economic) simultaneously for achieving their objectives. But here we are concerned with trade issues such as access to market and sources of supply of imports of goods and technology. Further, we will concentrate, here, on bargaining with governments-although Trans National Corporations (TNCs) are also very important in international trade and production.

Both exports and imports of a country can be regarded as a source of its bargaining assets and liabilities. The importance of developing countries as markets for exports and sources of supply of imports of developed countries has increased considerably during the last decades. For example, the share of developing countries as a destination for exports of developed countries has increased from 18.8 per cent in 1969/71 to 28.1 per cent in 2010. Currently, the main developed countries depend on the market of developing countries for the bulk of their exports and sources of supply for their imports as is shown in table 1. And BRICS account for an important proportion of trade of developing countries with developed countries; they are, in fact, also important in world trade as a whole (table 2) .

Table.1: Developing countries as a market for exports and sources of supply of imports of developed countries in 2010 (%)

Exports                                    Imports

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Japan                                       66.4                                         64.8

USA                                         51.2                                         58.2

EU : total                                 48.5                                         42.9

All developed                           28.1                                         34.8

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Source : based on UNCTAD ; Handbook of Statistics, 2011, various tables

Table 2: Share of BRICS in international trade (%)

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Exports                        Imports

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Share in  trade of developing countries 38.5                 37.1

(Hong Kong included)              44.8                 44.3

Share in World trade                            16.1                 14.5

(Hong Kong included)              18.97               17.72

Source : as table 1

Relatively large size and rapid growth of their GDP (supply capabilities) and international trade are important source of bargaining asset of BRICS. In 2010, they accounted for 18.4 per cent of world GDP (18.75 if Hong Kong is included), and their annual average growth rate of GDP for the period 2000-10 was 10.8, 7.9,5.2,3.9,3.7 (per cent) in the cases of  China, India, Russia, South Africa and Brazil, respectively-as against 1.7 per cent for developed countries. To the extent that some products have strategic value for a developed country (e.g. petroleum or some minerals), they provide sources of bargaining power because their shift of supply to other countries could inflict harm on the importing countries. Note that we are considering shifts of demand and supply and not restrictions which can be prohibited by WTO rules. An example is a shift of demand for airplanes from Boeing to Airbus.

But a developed country as a source of supply of imports to a developing country can be also the bargaining asset of the developed country and bargaining liability of the developing country if alternative sources of supply are not available. But if the BRICS can shift demand from one developed country to another or to alternative sources-if available-it will be its asset.

In my next Triple Crisis piece I will go into more detail about the use of trade as a bargaining tool of BRICS.

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