13 May 2003

WTO Secretariat issues study on adjusting to trade liberalization

While economists emphasize the long-run gains from trade liberalization, policy makers are worried about the short-run costs. The WTO Secretariat, on 23 May 2003, issued Special Study No. 7 “Adjusting to Trade Liberalization — The Role of Policy, Institutions and WTO Disciplines”, which seeks to identify tools at the disposal of governments to smooth adjustment, to minimize an economy's adjustment costs and to alleviate the burden of those who suffer most.

Some of the salient conclusions from the study are:
  • Trade liberalization is an agent of economic change, but evidence shows that it does not lead to drastic changes in a country's overall production structure.
  • Adjustment costs are typically smaller, sometimes much smaller, than the gains from trade.
  • Governments can identify individuals and groups that may suffer from the adjustment process and they can also develop policies to alleviate the burden falling on those adversely affected.
  • Governments can adopt policies that influence the size of adjustment costs faced by the economy.
  • Adjustment costs can be reduced if trade policy reforms are underpinned by international commitments.
  • The pace of trade reforms can have a beneficial impact on adjustment costs.
  • The implementation of trade reforms can have a beneficial impact on adjustment costs.
  • The implementation of trade reforms at a gradual pace may lessen political opposition to change, but the risk of undermining reforms by adopting them too slowly must also be borne in mind.
  • In many cases effective adjustment to trade liberalization will require the expansion of a country's export sector and this may be an argument for pro-export policies.
  • WTO agreements seek to provide space for governments to tackle adjustment problems.

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