IGNOU : M.COM : IBO 1 : UNIT 9 : Q - 3. Write short notes on : i) Terms of trade ii) Multinational Corporations influence iii) Protectionism.

 

Ans. i) Terms of trade

The total export realization/import payment of a country is the combined effect of the quantum of export/import and the unit value realization/payment. It now remains to be seen as to how much of the trends in export trade was governed by the volume of trade, and, how much, by the unit value realization and what has been the trend in import trade. Annexure 11 indicates the world trade indices, in terms of both volume and unit value, for exports and imports. It will be noticed from the Annexure that (a) while the volume index of exports of non-oil exporting developing countries increased by 381 points between 1980-96. that of the unit value actually declined by 9 points during the same period indicating that the rise in total export earnings of this group of countries is due more to the growth in the volume of their exports than to the rise in unit value realization, (b) in the use of the petroleum exporting countries volume index has increased and unit value of exports have declined. (c) in the case of developed countries, both have grown but volume growth in exports is more than unit value growth.

It will also be noticed from Annexure 11 that as far as imports are concerned, the rise in volume index is more, as compared to the rise in unit value index, in the case of developed market economies and non-oil exporting developing countries, whereas in the case of the petroleum  exporting countries. both volume index and the unit value index have improved.

The opposite vends exhibited by the unit value index of exports and the unit value index of imports during 1980-96 ,i.e the former declining and the latter increasing, has led to deterioration in the terms of trade of the developing countries, both of the petroleum exporters and the non oil exporting countries, the former suffering the maximum.

 

ii) Multinational Corporations influence

Multinational Corporation's Influence : The overwhelming influence of multinational corporations an global production and marketing of a number of products of export interest to developing countries is also a factor to be reckoned with in the export performance of the developing countries. MNCs succeed not only in fixing prices but also in influencing the policies of developing country governments. According to UNCTAD, the export prices received by the producer countries for their tea, coffee, cocoa, citrus fruit and jute account for only 20 % lo 40% of the final price of the products: for bananas, it is a mere 11%. A very small no. of MNCs control:

a) 85-90% of international trade in tobacco, coffee, cotton, jute, cocoa and forest products (5-6 firms).

b) 70-75% of international trade in bananas and rubber (three firms).

c) 85.90% of international trade in raw cotton (15 firms).

d) 60% of international trade in sugar

 

iii) Protectionism.

While the commodity structure of the export basket of the developing countries has not been of much help to them in raising the level of their export earnings, the commercial policies of the developed countries have also contributed, to some extent at least, to limit the capacity of the developing countries to earn foreign exchange. Many developed countries, for one reason or the other, insulate their domestic sectors from competition from the main exports of developing countries. Protectionism takes two forms: (a) subsidies to domestic production mainly in the agricultural sector and (b) tariff and non tariff barriers to imports.