By Girish Mishra

The recently concluded three-day 50th annual meeting of ESCAP (Economic and Social Commission for Asia and the Pacific) in New Delhi has indicated in the coming years a fierce trade war between developed and developing countries, and the danger the Uruguay Round faces of being wrecked by the US Administration. Fears are being expressed that “the final act” may not be ratified by the US Congress.

A number of Western countries are struck by an imaginary fear that the Uruguay Round may lead to dumping of the developing countries’ cheap goods in the former’s markets. This can result in a huge loss of jobs, because of the closure of their manufacturing establishments. Thus they must do something to protect their enterprises from this so-called unfair competition by erecting non-tariff barriers around their markets.

It is argued that the developing countries have cheap labour, laxer nonexistent laws on health, safety and environment. With greater access to foreign investments and modern technology they will be able to compete successfully with Western producers of similar goods. Countries like Mexico, India and China will, in the coming years, deprive Western workers of their jobs. It flows from this that the entry of these countries’ goods to Western markets must be barred.

Consequently, all of a sudden sections of the ruling circles of the West have become concerned with the plight of the Third World labour, human rights and the so- called deterioration of environment. This was evident when the US representative told ESCAP that “we do have concerns about trade competition based on exploitation – whether of workers or the environment.”

Last year The Economist of Lon- don editorially declared: “Such fears are misconceived. But they must be dispelled, not ignored. Policies designed under their influence threaten real, not imaginary, harm to all countries, rich and poor.”

Now let us look briefly at the argument that low-wage countries enjoy an undue advantage in com- petition. It is true that in many Third World countries not only wages are low but also working conditions are bad. Safety rules are ignored and job security, holidays and benefits like paid maternity leave and provident fund are not granted. Yet, this argument is fallacious, because it ignores the vital fact that labour productivity in low-wage countries is much lower than that in high-wage cousins.

According to one study, average wage in Germany is $ 24.90 an hour, in the USA and Japan $ 16- 17 an hour, while in South Korea and Mexico it is S 4.90 and $ 2.40 respectively. In China, India and Thailand it is less than $1 per hour Superficially, it appears that lower the wage costs, greater is the competitive advantage, but this is not true.

To quote the study: “This ignores the fact that the productivity of the average American worker is higher than that of the average Mexican. That means that labour costs per unit of output vary by much less than what the pay differentials alone would suggest. So long as American workers possess better skills and use better technology they can compete despite enjoying higher wages.

As Mexico opens its borders and acquires the latest technology, its labour productivity will, of course, rise. But both theory and experience suggest that this will be broadly matched either by a rise in wages or by a rise in its exchange rate.”

America’s nervousness is due to its slipping command over technology. This has been clearly brought out by Mr Richard R Nelson of Columbia University and Mr Gavin Wright of Stanford University in their 34-page paper, “The Rise and Fall of American Technological Leadership: The Post-War Era in Historical Perspective” (published in the American Economic Association’s “Journal of Economic Literature”, Dec, 1992). During the quarter century after World War-I the USA remained the unchallenged leader in the field of technology. It was the most productive country in the world. Its per worker average out- put was 30 to 50 per cent higher than that in other industrialized countries. This was true not only at the macro but also the micro level.

According to Mr Nelson and Mr Wright: “US firms were significantly ahead in developing and employing the leading edge technologies, their exports accounted for the largest share of world trade in their product fields, and their overseas branches often were dominant firms in their host countries.” But this is no longer true. The US technological lead has been eroded in many industries and in some the USA is now a laggard.”

A similar attempt was made by The Economist issue of January 9, 1993, to look into the causes of the decline of Europe in the field of technology. It blamed the technology policy of European countries for this situation.

Instead of identifying the real causes of their nervousness, both the Americans and the Europeans have been unjustly blaming the Third World countries and trying to push GATT towards a position that might generate tensions in the world.

The Western argument is based on another false prop. It assumes that both the world output and the volume of demand are fixed. Consequently, if India’s output goes up, it is bound to be at the expense of the USA’s output and jobs. In fact, with increasing population and per capita income, both the -volume of demand and that of -output is normally bound to increase. Every undergraduate student knows, and the Western media have propagated for decades, that the world trade should be based on the principle of comparative ad- vantage to make all participants better off.

So far as exploitation and environmental degradation are concerned, there is no dearth of literature studies, government reports and publications of labour movements to show as to what extent workers, both men and women, adults and children of very tender age, are exploited and the working period stretched even to 14-16 hours. Also, sweating the blacks was a major factor in American industrialization. If one compares the initial phases of Indian or Mexican industrialization, the record is much better.

There is another fallacy from which the Western propaganda suffers. Mr Richard Foreman of Harvard University in his study “Is Globalization Impoverishing Low Skilled American Workers?” has argued that US imports- from low-wage countries are too small to pose any serious threat to output and job opportunities in America. The share of imports from the low- wage countries (where the wage rate is, on an average, half of the US wage rate) is only 3 per cent of the USA’s GDP. The real cause of increasing joblessness should be looked for internally.

Prime Minister P.V. Narasimha Rao in his inaugural address to the ESCAP meeting rightly warned that the Western moves to erect non-tariff barriers to prevent “social dumping” were, in fact, aimed at nullifying the comparative ad- vantage the developing countries had, and this would lead to counterproductive results. The need of the hour was cooperation, not confrontation.

One does not know whether this sane advice will be heeded by the Americans. What a reputed Western journal wrote over a year ago still seems to be relevant: Worst of GATT’s problems is the confusion in Washington. Under both the Bush and Clinton Administrations American officials have been silenced by the absence of a clear policy.

“Until the American Administration accepts that trade liberalization is a goal worth fighting for, it will not be able to take a sensible decision on how far to sacrifice that principle to environmentalism.”

 

Article extracted from this publication >> May 27, 1994