18 March 2002
How Trade Liberalisation Impacts Employment
Speech to the International Labour Organization (ILO)
Thank you for this opportunity to address the ILO's Working Party on the Social Dimension of Globalization. UN Secretary General Kofi Annan has urged all of the multilateral agencies to work more closely together, and, where we can make an appropriate contribution to each other's work, I strongly endorse that approach. I'm personally very pleased to be able to take part in this important extension of the debate on globalization.
I think the WTO secretariat could be of service to this Working Party and to the UN World Commission on the Social Dimensions of Globalisation. I believe it is a good idea to house the World Commission here at the ILO. It is good to see that the WTO and the ILO secretariats are able in this forum to continue their existing collaboration.
And of course I welcome the fact that later in this session you will be looking at Trade Liberalization and Employment, as well as Investment in the Global Economy and Decent Work. I cannot emphasize too strongly the WTO's belief in the positive impact of trade liberalization on improving living standards worldwide.
I'm sure members would like me to reiterate the WTO's commitment to the observance of internationally recognized labour standards, and of course, our belief that the ILO is the competent body to deal with these standards. As you are all aware, the WTO provides an agreed set of rules for the orderly conduct of trade between its members, allowing them to efficiently enhance and reap the gains from trade. This is, and will remain, our core business.
The cause of trade liberalisation has, I believe, been greatly advanced by the WTO's decisive actions over the past four months. We have not only launched the Doha Development Round, but forged ahead on our program, with strong support from our member governments. We have chosen a venue, Mexico, for our next Ministerial conference, obtained a new and increased budget, determined the Trade Negotiations Committee structure, and selected chairpersons for all the WTO Committees and Working Bodies, several months ahead of the process after the launching of the Uruguay Round.
We are keeping up the momentum. One of the key features of the Doha Agenda, was that for the first time, developing countries put conditionality on the developed, by demanding capacity-building and technical assistance in order to fully take part in the round. Last month saw us concluding an agreement with the Inter-American Development Bank, which we hope will be a model for cooperation with other regional banking organisations. This is all part of our drive for enhanced coherence in international trade-related donor efforts.
And our successful Pledging Conference last week, which saw us double our target for additional funding to finance increased Technical Assistance, has given us a very solid basis for capacity-building. This was a remarkable outcome and will help ensure that the world's most vulnerable countries have a more effective voice in the new Trade Round. I believe this result indicates that donors have recognized the hard work we have done to increase transparency and accountability in our auditing and performance-evaluation mechanisms for its programs. We are on schedule and ahead of target, as promised at Doha.
Which doesn't mean that we don't still have an enormous amount to do, in implementing our expanded technical assistance plan, and in achieving our core mandate of increasing market access across the board.
We are also following up on another important mandate from our members, embodied in Point 10 of the Doha Ministerial Declaration. This states that “…we are committed to making the WTO's operations more transparent, including through more effective and prompt dissemination of information, and to improve dialogue with the public”.
To this end, we are holding an important symposium in late April. Key development issues from the Doha Development Agenda will take center stage. But following through on our commitment on transparency and improving dialogue with wider society, there is also a very important session on the functioning and financing of the WTO.
I hope that the previous three Chairmen of our General Council, as well as such distinguished trade officials as Clayton Yeutter of the US, will be on hand to offer insights and ideas about how we can improve our internal and external relations and coherence.
We plan special workshops where both critics and friends will have time put aside to make their case. This includes the environmentalists, the ICFTU, the Chamber of Commerce, the Third World Network, other development NGOs like Oxfam, Parliamentarians, and hopefully Party Political Internationals. I believe these kinds of exchanges are all very healthy and can be a constructive opportunity to learn and improve upon our performance, the better to serve our Member Governments and the people.
The WTO will always remain an Inter-governmental organization, because ultimately it is always our member Governments and Parliaments that must ratify any agreements we conclude. We need to encourage better-focused and more constructive inputs from civil society. They should be given a voice, but not a vote. But in return, we should seek from civil society and its representatives a formal code of conduct, and much greater transparency and accountability from them to us and to their membership.
With specific reference to how trade liberalisation affects employment, I would refer you to the report prepared by the WTO Secretariat and circulated at the November meeting of the Working Party on the Social Dimension of Globalization, which discusses the different mechanisms through which trade liberalisation affects employment, and more explicitly workers.
This report notes that, in the first place, trade liberalisation has the effect of lowering prices of consumer goods and of increasing consumer choice, while also allowing the reallocation of production factors towards higher productivity activities. I believe all these aspects have a positive effect on the well-being of people in the liberalising economy, including workers. Workers gain because they are consumers themselves and therefore benefit from lower prices and increased consumer choice. Some workers will also benefit because they will see the demand for the services they provide increase, which will in return reflect positively on their job opportunities. For example, a comprehensive World Bank report on trade reform in developing countries found that in eight out of nine countries, manufacturing employment was higher one year after the liberalization period, than before.
Workers as a group will thus be better off from trade liberalisation. Yet, the report also points at two mechanisms through which trade liberalisation may negatively affect certain workers.
One of these mechanisms has been discussed intensively in the economic literature. It refers to the fact that trade liberalisation may result in a permanent reduction in demand for certain types of labour services. Workers supplying those services may be permanently worse off from trade liberalisation. It has been argued that this has been the case for low-skilled workers in industrialised countries. But given that the economy as a whole gains from trade liberalisation, it will be possible to compensate those workers leaving everybody better off. In order for this to happen appropriate redistribution mechanisms need to be in place at a domestic level.
The second mechanism refers to the potential short-term effects of trade liberalisation on workers. Some workers in import-competing sectors may lose their jobs and temporarily be unemployed before finding a new job. They may thus have to go through a period in which they receive a low income and may have to incur expenses before finding a new job. Even if they may ultimately be better off in the new job, this transition period can be a serious burden for them.
Our report points out that well-functioning domestic labour and credit markets and the existence of social safety nets will do a lot to alleviate the transition process for workers concerned. Indeed, I would observe that a great deal of the responsibility for workers' wellbeing rests at the domestic level. For example, to date only 18 countries have signed the Migrant Worker Convention, Supplementary Provision 143 (of 1975). Only 19 have signed the UN High Commissioner for Human Rights' International Convention on the Protection of the Rights of all Migrant Workers and Members of their Families (of 1990).
It has also been argued that the timing, pace and other aspects of trade liberalisation may affect the smoothness of the before-mentioned transition process. This may in particular be the case in the presence of certain market distortions or the absence of certain domestic institutions.
I would like to emphasize that the WTO negotiation process, and specific provisions in WTO Agreements reflect our keen awareness of this timing dimension of the adjustment process.
To sum up, trade liberalisation may lead to adjustment costs and may affect domestic income distribution. But we do not believe that concerns about adjustment costs and income distribution are meaningful arguments against trade liberalisation. We do believe that with appropriate domestic policies and institutions in place, everyone can gain from trade liberalisation.
Later this week I will take part in the Financing for Development Conference in Monterry, Mexico. I will be using this opportunity to reiterate the WTO's belief that trade liberalisation can make a huge contribution to the generation of resources for the financing of development. Recent studies have estimated that the cost of achieving the core Millennium Development Goal of universal primary education could be in the region of US$10 billion per year. The World Bank estimates that abolishing all trade barriers could boost global income by $2.8 trillion and lift 320 million people out of poverty by 2015. The elimination of all tariff and non-tariff barriers could result in gains for developing countries in the order of $182 billion in the services sector, $162 billion in manufactures and $32 billion in agriculture. Indeed, OECD agricultural subsidies run at six times the level of their total aid to developing countries.
We have learnt that freedom works, and as it grows, so do people’s living standards. This is not text-book theory, it’s fact; Transparency International, UNDP, World Bank facts and figures show that the more open the economy, the freer the people, the higher their living standards, the better their labour and environmental conditions. But this freedom is fragile. And many of these leaders of emerging democracies tell me that, without growth — in which trade and open markets play a key role — they fear for their nations’ future. The more closed the economy, the more corrupt the practices. If these nascent democracies collapse, what would happen then to the rights of business and workers?
The Doha Development Agenda agreed last year will fail without dramatic progress in market access in such key areas as agriculture, textiles and tariffs. It will fail if we do not build capacity so that marginalized and capacity-constrained nations can meaningfully participate in complex new development negotiations. I think it's important to look at developing good governance in such areas as investment, government procurement, trade facilitation, competition policy and the environment. Differing product standards, restrictive and non-transparent administrative regulations and border delays accounting for up to 20% of the overall transport time, hamper the integration of the global economy. Recent studies indicate that the overall dead-weight welfare loss caused by these inefficiencies amounts to $70 billion.
However, from time to time we ought to celebrate the real progress we have made. What are the most important issues for people across the globe? Life expectancy, hunger and poverty reduction. Access to clean drinking water, democracy, a better living environment. And on almost every useful measurement of the human condition, we have seen the greatest advances in the history of our species during the last half century, according to data collected by the UNDP and other agencies.
In 1900, average life expectancy was 30, today it is 67.
On average, developing countries have increased their food intake from 2,463 to 2,663 calories per person over the past decade – an increase of 8%.
In 1970, 35% of all people in developing countries were starving. In 1996, the figure had fallen to 18% and the UN expects the figure will have fallen to 12% by 2010.
Between 1990-1999, adult illiteracy rates in low-income countries for males aged 15 and above decreased from 35%-29%; and for females aged 15 and above, the figure decreased from 56%-48%.
While only 30% of people in the developing world had access to clean drinking water in 1970, today about 80% have.
Wages and conditions have improved as economies grow.
In the US, lead concentration in the air has dropped more than 97% since 1977. The US EPA estimates that about 22,000 deaths are avoided every year because of the dramatic decline in lead levels.
Some of the Great Lakes were considered dead 30 years ago and rivers sometimes caught fire. Today, people can swim and fish in them.
None of this is to suggest that we should be happy with the current state of the world. There is still all too much injustice. But, as a recent IMF paper points out, in trade-opening East Asian countries — the New Globalizers – the number of people in absolute poverty declined by over 120 million between 1993 and 1998. On the evidence to date, Globalisation has been good for an increasing number of people, including, of course, workers.
I strongly believe that concluding a new Round is vitally important for jobs and businesses everywhere. According to the World Bank, complete liberalization of merchandise trade and elimination of subsidies could add US$1.5 trillion to developing country incomes.
We are making solid progress: according to the IMF, over the past two decades, the growth of world trade has averaged 6% annually, twice as fast as world output. My plea to you today is not to allow the negative forces fighting against Globalisation and market liberalisation to triumph.