Opinion News
December 03,2017

The strains for trade

Yusuf H Shirazi

All the strains of development planning and the contradictions between the objectives of rapid growth and external viability are more graphically depicted in foreign trade than in any other field of national endeavour.

This is particularly so in the case of Pakistan where foreign trade acquires importance for the simple reason that economic development would have been unthinkable without the large-scale import of machinery, capital goods and the other sinews of modern technology. Pakistan’s foreign trade has some significant peculiarities of its own. But most of its basic problems are common in present-day developing countries.

The First UN Development Decade has already turned into a decade of disappointment. During this period, world exports increased by 101 percent, with a 116 percent increase in industrially-developed countries, a 75 percent rise in oil-producing countries and a mere six percent in developing countries. The next two decades did show better results. However, the position isn’t altogether healthy.

The lag of developing countries has been triggered by factors such as the prolonged and steady drop in the prices of exportable raw materials, the tariff and quota barriers in developed countries against imports from developing countries –particularly the import of manufactures – and their non-equivalent exchange and unequal position on the world market. Besides the harsh trading policies of developed countries, developing countries also have to contend with the stiffer terms of Western loans and credits. Continuing or, perhaps, growing difficulties in the procurement of foreign aid are restraining their capacity to import essential development goods.

The progressive deterioration of trading conditions for developing countries as a result of discrimination by developed countries is bringing them less foreign exchange. This is despite the considerable expansion of their production of raw materials and manufactures for export. The one notable exception to this is the emergence of China, which has managed to attain sizeable trade surpluses due to its export-oriented economic structure.

Pakistan has also undergone a similar phenomenon as other developing countries and the present economic situation is far from satisfactory. The trade balance for Pakistan, which was about nil till 2004, has dropped down to Rs300bn.

The role played by the world market in depriving the less developed countries of the fruits of their labour is borne out by their diminishing share in the volume of world trade. The share of world exports in developing countries was 38 percent in 1980, slowly grew to 40 percent in 2000 and gradually rose to 48 percent in 2010.

According to UN statistics, export from developing countries accounted for less than the total value of exports in the developed world. This decrease in the percentage share of developing countries in world trade came despite the fact that a considerable proportion of exports by developed countries are financed by government loans or private credits that amount to over $6 billion a year.

The factors hindering the development of mutually advantageous trade between the developed and the developing world include the systematic excess of exports from developed countries and imports from 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 seldom followed in the developed world itself. The developing countries thus have a permanent trade deficit.

Yet, it is obvious that the increased income from their own exports is an important source from which developing countries could pay for the imports of machinery and equipment and for required technical services. Moreover, the world market prices for the traditional export commodities of the developing countries show a permanent downward trend while the prices of manufactured goods – especially those of machinery and equipment – remain stable or move upward. These price scissors operate in the interests of cartels and monopolies in developed countries. The losses of developing countries and the corresponding gains of developed countries due to price changes are enormous. The worsening of the general terms of trade is primarily caused by the policies of foreign economic expansion that are adopted by developed countries. The seizure of the developing world’s foreign trade enables them to fix export and import prices to ensure maximum profit for themselves.

An unequal exchange plays an important role in the expansion of trade in developed countries as compared with developing countries. This theoretically boils down to equal quantities of produce exchange on the world market that do not represent equal values. An unequal exchange occurs due to the unequal productivity of labour in different countries. The causes of an unequal exchange thus lie not in the sphere of circulation but in the sphere of production. Owing to an unequal exchange, foreign trade is an important means of enrichment for developed countries. An unequal exchange is further emphasised by the emergence of monopolies and cartels in the developed countries, which exert a decisive influence on the trend and the current level of prices.

The annual losses incurred by developing countries through unequal exchange with the imperialist states accounts for 55 percent of their exports or 25 percent of their total foreign trade. This sum is twice as large as the net aid rendered by developed countries.

An unequal exchange deprives developing countries of a sum that exceeds their annual capital investments. This injustice can only be eliminated if the developing countries increase their national economies and productive forces. Moreover, this can also result in equitable employment, consumption and the acceleration of the GDP growth. The fruit of the endeavour will lie in the shape of poverty alleviation and self-reliance.

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


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