THE TRADE POLICIES OF PARTNER COUNTRIES

THE TRADE POLICIES OF PARTNER COUNTRIES

The most potent of the impulses emanating from abroad have been the side effects of events and policies in the more advanced countries rather than the result of deliberate actions and measures designed to influence the course of development in the developing countries. This is not to underrate the significance of the evolution of the concept and practice of what has come to be known as "foreign aid". It is merely to recognize the paramountcy of trade in its various aspects among the external forces shaping the course of economic events in the developing countries. 

The key aspect of trade in this context has been the response of imports to the rise in incomes and production in the more advanced countries.  By historical standards, import demand in the advanced countries has provided a more or less continuous and vigorous stimulus to the developing countries in the post-war period. It was at its weakest in the second half of the 1950s when the North American economy was lagging and developing country export earnings grew by only 2 percent a year. It recovered notably in the quantum beginning in 1961, and the growth of developing country export earnings jumped to over 6 percent a year. 

With the widespread slackening in demand in Europe and North America in 1967, developing country export growth has again flagged. When viewed not in the aggregate but in terms of its components, the growth in the demand for imports from the developing countries has been far from uniformly dynamic, however, and for individual developing countries it is these differences that are significant not only in explaining past performance but also in pointing to future problems. Four main factors lie behind the differences in the rates of expansion in the various trade flows. The first of these names, production lags in the developing countries themselves belongs to the category of development problems discussed earlier in this study. 

The others have their origin in the partner countries and hence lie largely if not entirely outside the sphere of influence of the developing countries. Two of these indeed-namely, the preference patterns of consumers and the technological innovations adopted by producers are subject only to indirect government influence in the developed market economies in which they operate. It is only the fourth of these major determinants of developing country exports  namely, official production and trade policies-that is amenable to deliberate action and change.

This means that the demand for many of the traditional exports of the developing countries is slow-growing and relatively unresponsive to increases in income in the more affluent partner countries.

The slow growth of demand for some products has also created problems for producers in the more advanced countries themselves. The result has often been government intervention in the market and the support of the depressed industry by means of subventions or protective tariffs or quotas. Thus in a number of cases most notably in the agricultural and textile sectors the problem facing exporter’s in the developing countries has been aggravated by the defensive policy measures adopted in their customary markets. In some cases, such measures have not only cut off access to the domestic market but also provided subsidized competition in third markets.

The opportunities for earning foreign exchange from traditional exports have also been constricted by various technological developments economizing in the use of raw materials for specific purposes, substituting new materials sometimes synthesized for the purpose or even eliminating the use of older materials, as in the case of bulk-handling techniques which dispense with customary packaging. 

These innovations have posed serious problems of adaptation for the developing countries: as not only are they economically rational (in a way that protection and other defiance measures often are not) but they also tend to be irreversible: capital facilities are established and need to be fully utilized, and consumer industries adapt themselves to the new material or the new process. Nor is the change limited to the more advanced countries. 

The output of the new facilities may be exported to third markets and plants may be established in developing countries. Thus, Brazil, home of the hevea brasiliensis, now produces more synthetic rubber than natural rubber. In India, the world's third-largest producer and consumer of cotton goods, the output of man-made fibers increased fivefold between mid-1950 and mid1960 and now amounts to over an eighth of the output of raw cotton. Changes of this nature, which represent progress in some developing countries, accentuate the difficulties of other developing countries trying to enlarge their earnings from traditional exports.

The most predictable and hence the factor is most readily taken into account in the economic planning of the developing countries is the pattern of income growth in the more advanced countries with which they trade. At the relatively high level of personal income common in these countries, the proportion of any increment spent on conventional food-stuffs. 

Not all the technological developments of recent years have been inimical to the rapid growth of developing country exports, however. The demand for some commodities particularly minerals such as iron, uranium and lithium ores, bauxite and, most spectacular in terms of the values involved, petroleum-has been greatly enhanced by the innovations of the post-war period, to the benefit of the developing countries possessing exploitable deposits. In the case of the majority of developing countries, however, and in virtually all of those in which traditional exports have been agricultural in origin, the technical innovations have tended to reduce demand. 

Where a developing country has managed to achieve a high rate of growth in its exports of such products, it has generally been by dint of capturing a larger share of the market through the default of other exporters or through a deliberate effort to lower costs and raise productivity by genetic improvement or the adoption of better methods of cultivation. Post-war experience indicates that the expansion of primary production of this nature perhaps even its survival depends on its capacity to respond to scientific methods for improving and standardizing the product and the way in which it is produced. 

Technological advance has not only altered the composition of imports into the higher-income countries, it has also affected their exports to developing countries and in a manner that has greatly complicated the latter's attempt to make optimal use of foreign exchange resources. Even with a relatively static technology, the task of speeding up the process of economic development would have imposed severe strains on the administrative machinery particularly in the public sector in most developing countries.

In the event, the accelerating pace of technological change has made investment choices that much more difficult and, given the scarcity of capital relative to the supply of labor in the developing countries, it is far from certain that the wisest decisions have always been taken.

Nor have the export-selling practices of the more advanced countries always helped in the rational choice of techniques and equipment by developing countries. Once the post-war recovery stage was completed, competition intensified in export markets, including the developing countries, many of which were vulnerable not only because of their inexperience in evaluating new and often more sophisticated products and production methods but also because of their dependence on credit to finance their imports. 

The evidence suggests that where selling pressures were strong, there was some impairment of the ability of buyers especially in the newly independent countries-to appraise the combined price, quality and financing terms in a critical manner so essential if foreign exchange budgeting is to serve development planning purposes. Instances of faulty investment decisions and the questionable use of short-term and medium-term credits are best known in the case of countries in which subsequent balance of payments crises and debt rescheduling have dramatized the situation, but there is no reason to suppose that the problem has not been a general one. 

Thus, while it is true that the developing countries may expect to be spared many of the horrors and wastes that characterized the industrial revolution in some of the developed market economies, more recent history suggests that the external economic environment in which industrialization is now being essayed has its own hazards. There can be little doubt that neither the production techniques nor the consumption patterns of the more advanced countries are well suited to the factor endowment and income levels of most developing countries. Maximization of the benefits to be derived from trade and other forms of exchange with the more advanced countries entails purposeful selection and adaptation in the light of domestic resources and needs.