Faster growth, slower returns, says Unctad report
Developing countries, including Malaysia, are producing more but earning less from trade due to an over-dependence on commodity exports and reliance on unskilled labour, a new UN report concludes.
This years Trade and Development Report (TDR) released today by the United Nations Conference on Trade and Development (Unctad) exposes the reality behind the glowing growth statistics commonly used to shore up support for the current world trading system premised on increasing trade liberalisation and private investment flows.
Statistics showing a considerable expansion of technology-intensive, supply-dynamic, high-value-added exports from developing countries are misleading, the TDR states. Such products appear to be exported by developing countries, but in reality those countries are often involved in the low-skill assembly stages of international production chains organised by transnational corporations (TNCs).
Most of the technology and skills are embodied in imported parts and components, and much of the value accrues to producers in more advanced countries where these parts and components are produced, and to the TNCs which organise such production networks, the report adds.
A check on 225 products examined in the TDR shows that while some exports, such as electronic components and semiconductors, have grown at rates three times faster than the growth in global income, other exports, including primary commodities and some manufactured goods, have registered sluggish or negative growth.
Uneven spread
There is also an uneven spread in the benefits from the global trading system with most of Africa being excluded from the benefits of international trade, remaining essentially as producers of raw materials, and most profits from the trade in manufactured products repatriated to developed countries.
According to Kamran Kousari, Unctad special co-ordinator for Africa, who presented the TDR at the United Nations Development Programme (UNDP) in Kuala Lumpur, the value added from exports in the manufacturing sector for developing countries have declined while that of developed countries have remained constant. This has largely to do with the fact that developing countries have little input into the value chain of this new pattern of trade where goods transit in many locales before reaching its final destination.
Their only share in value is determined by their least scarce resource which is unskilled labour and with productive assets and technological innovation being controlled by foreign TNCs, developing countries are vulnerable to loss when the markets are crowded out with more players.
Middle-income countries, such as Malaysia, stand to lose out when faced with intense competition from less developed countries with lower wages and a larger pool of unskilled labour, coupled with high industrial tariffs in the north. This fallacy of composition means developing countries compete increasingly amongst themselves in the development of goods in the production of unskilled labour, leading to depressed wages and prices and resulting in more poverty.
The only way forward for these countries, says the TDR, is to lessen dependence on unskilled labour and intensify technological innovation to increase competitiveness in the global market.
However, the TDR stops short of addressing the problems of access to technology by developing countries, such as Malaysia, and fails to discuss the limited space for trade policy formulation in this respect with regard to developing countries membership of the World Trade Organisation (WTO).
The Trade-Related Intellectual Property Rights (Trips) Agreement, for example, hinders the capacity of developing countries to access technological innovations used by industrialised countries in their development process due to stringent patent protection.
It also prevents transfer of technology from industrialised nations to developing countries and concentrates ownership of technological knowledge, processes and resources in the hands of rich corporations in developed countries.
In favour of developed countries
Kousari acknowledges that WTO agreements do place obstacles in the way of technological development in developing countries and that the benefits of the WTO accrue more substantially in favour of developed countries rather than vice-versa.
A 2001 UNDP report on the multilateral trading system did state that patents from developing countries accounted for less than two percent of all US applicants between 1977 and 1996.
As such, Kousari observes that the whole issue of trade must be located within a more comprehensive perspective, incorporating the relationship between trade, finance and technology.
If developing countries have no sufficient access to technology, this has to be discussed in the WTO context, he adds.
Malaysia is party to the Trips Agreement by virtue of its accession to the WTO in 1995. Membership of the WTO requires all countries to sign on to all the WTO agreements in a single undertaking.
Kousari further notes that Malaysias unconventional reaction to the Asian Financial Crisis in 1997-98 indicated that it was not constrained by international pressures in terms of its domestic policy prescriptions. This demonstrated that Malaysia has the capacity to diversify national production and develop technological space to compensate for the shift in global trade patterns.
The crucial thing now is to sustain such policies. What has been developed out of necessity must now be developed out of design, he added.
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