The liberalization of trade in industrial products envisaged under the current WTO talks could potentially increase developing-country exports by $175 billion, according to an UNCTAD study on "Coping with Trade Reforms: Implications of the WTO Industrial Tariff Negotiations for Developing Countries", released today. However, these gains will be possible only through a development-centred agreement and strategies to reduce short-term structural adjustment costs, such as loss of tariff revenues, reduced output, employment losses and real wage reductions. Expectations for the WTO negotiations, as well as recent experiences of adjustment in developing countries, will be discussed by government officials, trade negotiators and civil society groups at an UNCTAD meeting in Geneva today and tomorrow.
The UNCTAD study estimates that current WTO proposals on industrial goods liberalization could result in an overall welfare gain of up to $69 billion for developing countries, in terms of GDP, and large aggregate employment gains in key sectors, such as textiles and apparel. But it also warns of a number of downside risks. The average tariff rates that developing countries impose on imports could plunge from the current 12.5% to 3.4%. Although these reforms might help to improve competitiveness in the long run, in the short run such a dramatic change will likely result in losses in employment and production in some sensitive sectors. The sectors at greatest risk of employment losses in developing countries include motor vehicles, electronics and non-ferrous metals. Government revenue from tariffs could also decline by as much as 41% among developing countries, many of which are highly dependent on such revenues for overall government funding.
A development-centred approach to industrial goods liberalization, complemented by policies that will assist developing countries with structural adjustment, is therefore crucial to the success of the current round of WTO negotiations, UNCTAD believes. Such an approach would include:
- Removal of tariff peaks in developed-country markets on key products of interest to developing countries;
- Tariff reduction through a simple formula, together with the capping of peak rates, which could achieve the same reduction in tariff barriers as the more aggressive formulae being proposed by the WTO, but with the added benefit of transparency; and
- Flexibilities for developing countries in binding coverage commitments and sectoral elimination.
Participants in this week´s meeting will also discuss the experience of adjustment to trade reforms, including under World Bank/IMF lending programmes, in eight developing countries,: Bangladesh, Brazil, Bulgaria, Jamaica, India, Malawi, Philippines and Zambia. Case studies on these countries indicate a number of serious adjustment problems, particularly in Africa, but in some countries the approach of investment liberalization ahead of trade reforms seems to have mitigated the more severe negative social consequences. While there is no "one-size-fits-all" approach to structural adjustment, these case studies offer very important lessons about the unintended consequences of trade liberalization.
