Intra-Firm Trade and the Developing Countries

The most striking fact about the evolution of post Second World War international trade is its phenomenal real rate of growth in developing as well as industrialised economies. Much of this rapid growth of international trade has been accomplished under the auspices and control of transnational corporations.’ These corporations have often been very large, active in many countries and in many branches of trade, moving their capital, technology and skill efficiently and flexibly about the globe.

Intra-firm international trade is not a new phenomenon in the developing countries. The problems of the export enclave of traditional development literature are, in large part, those associated with intra-firm trade; and many of the ills of import-substituting manufacturing are also associated with it. With the new interest in transnational corporations, intra-firm trade is emerging as an object of concern in its own right.

International commodity markets have occupied the centre of the stage in the North-South dialogue of the past three or four years. Policies for reform in the commodity sector of world trade were the major bone of contention in the UNCTAD IV and a central issue at the Paris Conference on International Economic Cooperation. As negotiations with respect to the ‘integrated programme’, and particularly its Common Fund, continue, more focussed discussions are proceeding on a case by case basis and have already generated new international agreements in coffee, cocoa, rubber, sugar, and tin.

Evidently technology-intensive industries are those in which US related-party imports from developing (and other) countries are particularly important. To the extent that related-party imports behave differently or carry different implications for the importing country from those of ‘arm’s length’ imports, as we argue below, we now have some idea of the sectors in which to expect such differences.

Little of the orthodox literature of the theory of international trade addresses the question of the political sources of trade policies. The various arguments for the use of trade barriers are typically considered from the standpoint of ‘the national interest’ and, on the basis of conventional assumptions, the conclusion is reached that in all instances other than those where the terms of trade can be favourably altered, trade barriers are harmful to ‘the nation’ or are a second-best means of attaining the stipulated ‘national’ objectives. The state is perceived as the representative of the collectivity of individuals and firms within the nation, for whom it (somehow) acts to maximise their collective welfare. There exists some discussion in this theoretical literature of the effects of trade barriers upon the distribution of the national income, but it is typically based upon crude two-factor assumptions which are not too illuminating for the understanding of empirically observable phenomena. (Stolper and Samuelson, 1941).¹

It is increasingly recognised that international exchange of goods and services, like equivalent domestic exchange, takes place both through hierarchies and on markets. (This useful terminology is that of Williamson, 1975). Indeed the growth of management contracts, technical assistance agreements, licensing arrangements and the like, probably implies an expansion of non-market hierarchical influences even upon what remain, on their face, ‘arm’s length’ market transactions; many of the latter now can easily take on some of the characteristics of intra-firm trade. More data on the size and nature of various kinds of intra-firm trade are urgently required, and a few suggestions in this respect were made in Chapter 2.