The developing world’s trade outlook - Yusuf H Shirazi - Wednesday, April 06, 2011

All the stresses and strains of development planning and contradictions between rapid growth and external viability are depicted in foreign trade, more than in any other national endeavour. This is particularly so in the case of Pakistan, where foreign trade acquires greater importance than economic development. Pakistan’s foreign trade has some significant peculiarities of its own, but most of its basic problems are similar to those of other developing countries.

The present economic situation for developing countries is far from satisfactory. Over two-thirds of world trade is between the developed countries themselves. The United Nation’s development initiative for the developing countries’ trade outlook has already turned into disappointment. The increase in world exports was proportionately much higher in the developed countries vis-a-vis developing ones.

The developing countries’ lag is due to the following factors: a prolonged and steady drop in the prices of exportable raw materials, tariff and quota barriers, and easy access of exports of the developed countries into developing ones, particularly of machinery and manufactured goods.

Such imports put a burden on developing countries in the shape of non-equivalent exchange advantage for the developed world. Besides the harsh trading policies of the advanced countries, the developing countries also have to contend with the stiffer terms of loans and credits.

Growing difficulties in the procurement of foreign aid are restraining their capacity to import goods essential for development. The progressive deterioration of trading conditions for the developing countries as a result of discrimination by the developed countries is bringing them less foreign exchange, despite considerable expansion of their production of raw materials and manufactures for export.

The role played by the world market in depriving the less developed countries of the fruits of their labour is borne out, for instance, by their diminishing share in the volume of world trade. According to UN statistics, exports from the developing countries accounted for less than the total value of exports into the developed world. This diminution in the percentage share of world trade for developing countries occurred despite the fact that a considerable proportion of exports by the developed countries are financed by government loans or private credits.

The factors hindering the development of mutually advantageous trade between the developed and the developing countries is due to the systematic excess of the developed countries’ exports to the developing countries. This is rationalised through the developed world’s slogan of Liberation, Deregulation and Privatisation. Ironically, the slogan is imposed upon the developing countries and barely followed in the developed world itself. The developing countries thus have a permanent trade deficit.

Yet, it is obvious that the increased income of the developing countries from their own exports is an important source from which they could pay for their imports, including machinery equipment and the much-needed technical services.

Moreover, the world market prices for the traditional export commodities of the developing countries have shown a downward trend, while the prices of manufactured goods, in particular, those of machinery and equipment, remain stable or move upward. These price scissors operate in the interests of the cartels and the monopolies of the developed countries. The losses of the developing countries and the corresponding gains of the developed countries due to price changes are enormous.

In addition, the net annual loss of the developing countries due to the deterioration in their trade terms is enormous. This worsening of the general trade imbalance is caused, first and foremost, by the developed countries’ policies of foreign economic expansion. The seizure of the developing world’s foreign trade enables the developed world to fix export and import prices, ensuring maximum profit for themselves.

In the trade expansion of developed countries in developing world markets, unequal exchange rates play an important role. Theoretically, this boils down to equal quantities of produce exchanged on the world market for unequal values.

Unequal exchange occurs due to unequal productivity of labour in different countries. The causes of the unequal exchange thus lie not in the sphere of circulation but in the sphere of production. Owing to the unequal exchange, foreign trade is an important means of enrichment for the developed countries. The unequal exchange is emphasised still further by the emergence of monopolies and cartels in the developed countries, which exert a decisive influence on the trend and the prevailing level of prices.

The annual losses incurred by the developing countries through unequal exchange vis-a-vis the developed countries is huge. This sum is twice as large as the net aid rendered by the developed countries. Therefore, in totality the developed countries appropriate a high amount of the national incomes of the developing countries. The unequal exchange deprives the developing countries of a sum exceeding their annual capital investments.

This injustice can be eliminated only by the developing countries enhancing their national economies and productive forces. This would necessitate a sufficient amount of investment, production and export. This would result in equitable employment, consumption and acceleration of GDP growth. The fruits of this endeavour will lie in the shape of poverty-alleviation and self-reliance.

There is nothing for man but what he has striven for. -- Surah An-Najm Verse 39

The writer is the founder/chairman of the Atlas group of companies.


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