30th May 1999
The new publication 'Global Trade Reform - Maintaining Momentum' (Australian Department of Foreign Affairs and Trade, May 1999) sweepingly dismisses criticism that market liberalisation can have harmul consequences. (Acrobat Reader needed)
In developed countries, there have been recurring fears that developing countries with low labour costs will compete directly with them in the same products and the same export markets. In its most alarmist form this has been portrayed as a "race to the bottom", where there is pressure for developed countries to bring production costs down to the lowest possible level in order to compete with developing countries.
This proposition has little evidence to support it:
* developed countries with higher wage bills also have much higher labour productivity than developing countries, making unit labour costs much closer between developed and developing countries; and
* the extent of potential competition from developing countries has been overstated. Manufactures trade between developed and developing countries remains broadly in balance, which has been the case since the mid-1960s.
The value of the increase in manufactured imports from developing countries over the last three decades is equivalent to only 1.6 per cent of the total market in developed countries (OECD 1998a).
In developed countries, labour market and social policies that provide adequate
income security, while facilitating the redeployment of displaced workers
into expanding firms and sectors, can produce important equity and efficiency
gains.
* * *
When WTO Trade Ministers meet in Seattle in late 1999 they should take into account the following points in favour of the launch of a new WTO trade negotiating round:
* further trade reform will generate huge welfare gains for the global community;
* it is multilateral trade reform which generates the biggest global welfare gains;
* there are particular reasons for the early launch of a new WTO round:
- the early resumption of negotiations in services and agriculture makes a decision to include the industrial sector on a new round agenda urgent;
- protectionist sentiment in many countries is growing and an effective counter for governments to use in these circumstances is further global trade negotiations.
* developing countries have strong interests in a new round:
- they stand to gain most in proportion to their GDP from a further round of global trade reforms which includes the industrial sector on its agenda
* the bulk of adjustment pressures in most economies arise from factors other than trade reform. In managing these pressures, governments therefore need to avoid resort to protectionist policies.
* a new round should start early and take only three to four years to conclude:
- the most certain way of achieving this is to keep the focus of the agenda as close as possible on the key market access issues.