The Hindu Business Line : The salt and pepper of `Aid for Trade'

AT THE Hong Kong WTO Ministerial, the developed countries agreed to enhance aid to enable developing countries trade in the global market. But expansion of every kind of trade is not necessarily beneficial for us.

Vietnam has emerged the top supplier of pepper in the last few years. Previously, the quality of pepper that it produced was poor. The International Trade Centre initiated a programme of quality improvement with Swiss assistance. Contacts were established with spice importers' associations in the US and Europe. The weight, volatile oil content, moisture and other parameters were adjusted according to accepted global standards. This resulted in a huge growth of exports. The Hong Kong mandate seeks to expand this type of assistance. What needs to be examined is who the beneficiary of this expanded trade was. The farmers of Vietnam are able to supply pepper at low prices in the world market because labour is cheap. In comparison, the wages in Kerala are higher, hence the cost of pepper of the same quality produced in India is higher.

The success of Vietnam has brought trouble for the farmers of Kerala. The latter have had to reduce the wages in order to remain competitive.

The main beneficiary of Vietnam's success has been the consumer in the US and Europe, who now gets good quality pepper at lower prices. The farmers in Vietnam also have made nominal gains — they are earning wages even if they are low. The farmers of Kerala are the losers. The net impact on the two developing countries is a reduction of wages though the availability of work may have expanded somewhat since lower prices lead to higher consumption. A similar model of trade-led development was imposed by British rulers on Colonial India. Our share in the world income in 1700 was about 23 per cent. It had declined to about three per cent by 1950. Those 250 years also witnessed a huge expansion in our trade.

The railways were built and telephone and telegraph lines were laid. Indian farmers produced indigo and sugarcane but continued to starve. The reason: The price of the commodities was set by London-based importers who had a monopoly over the markets. Most of the benefits of this trade went to British consumers.

The Indian farmer only got poorer. In the Mahabharata, a question is posed: To whom does the cow belong: The owner, the herdsman, the milkman, the shop-keeper or the consumer who buys the milk? The cow belongs to he who drinks the milk because the activity of all others is aimed at providing him with the commodity. Likewise, the expansion of trade belongs to he who consumes. It is not correct to assume that expansion of trade will automatically benefit the developing countries. The truth is, the producer does not benefit much in a competitive environment. Those paying the lowest wages emerge the winners.

All this does not, of course, mean that trade must be abandoned. It only means that expansion of trade helps prevent starvation and hunger and facilitates subsistence incomes; it does not provide higher incomes. The export of pepper enables farmers of Vietnam obtain subsistence wages. Expansion of trade is a necessary, but not sufficient, condition for the improvement of the incomes of our people

The American consumers of pepper and the British consumers of indigo and sugar gained from expansion of exports by Vietnam and India because they had a monopoly over the market. The trouble is that our consumers do not benefit from the expansion of imports of software and computer hardware because we do not have a monopoly. Microsoft exports the Windows software to India. The Indian consumer should have benefited from this trade and the American programmer should have got merely subsistence wages. That is not the case because Microsoft has a monopoly on the operating systems software and is able to set the price of its exports. The American spice importer determines the price of Vietnamese pepper and the Microsoft determines the price of Windows software.

No wonder the incomes of the American people are rising while those of the developing countries are declining or, at best, growing horizontally at subsistence levels.

Thus expansion of trade in an environment of competition brings scant benefits to the producers. It is a necessary evil. Thus, we should apply our minds to creating monopolies instead of blindly assuming that expansion of all trade will bring benefit.

The final beneficiary of the enhanced "Aid for Trade" will be the consumers in the developed countries who now have a monopolistic control over the global market. However, the higher paid workers in the developing countries will lose out to lower paid workers as those in Kerala have lost to their Vietnamese counterparts.

So instead of competing with Vietnam in the global market, we should, join hands with that country to increase the price of pepper. The ultimate determinant of the distribution of benefits of trade is the price. Mere expansion of trade will not bring us benefits.

(The author is a New Delhi-based freelance writer. Feedback can be sent to bharatj@nda.vsnl.net.in)