16 July 2008

WTO Report Reaffirms Benefits of Trade but Notes Usefulness of Adjustment Programs

This article is excerpted from the 16 July 2008 edition of “World\Trade Interactive”.

The World Trade Organization released July 15 its World Trade Report 2008, which examines the gains from international trade and the challenges arising from higher levels of global economic integration. A WTO press release states that the report explores a range of interlinking issues, including (a) the role trade plays in a world of ever-growing interdependency, (b) why some countries have managed to take advantage of falling trade costs and greater policy-driven trading opportunities while others have remained largely outside international commercial relations, and (c) who the winners and losers from trade are in society and what complementary actions policymakers need to take to secure the benefits of trade for society at large.

“Globalization will not come to a halt,” said WTO Secretary General Pascal Lamy in a speech introducing the report. “It is driven by technological advance as much as by broader political changes, economic policies and evolving business practices. But it can certainly be helped or hindered in many ways.” While the report “reminds us that the gains from global integration outweigh their costs,” Lamy said, it also “underlines that increased international competition creates winners and losers, even if nations as a whole gain, and that policy-makers would be well advised not to leave these concerns unattended.”

Lamy highlighted the following as “key messages” in the report…

• The promised gains from trade have panned out in practice. Solid empirical support shows that countries have specialized in activities they are comparatively good at and that this has raised incomes. Both consumers and producers have benefited from a wider choice of products and inputs at lower prices. Firms are operating at a more efficient scale and industries have become more productive.

• Some countries do not share in trade-related gains as much as they could and should. Low-income countries typically have an advantage in terms of labor, and trade costs such as tariffs and non-tariff barriers have generally declined globally in the last 50 years. But new sources of comparative advantage, such as institutional frameworks and quality of infrastructure, play a role in sourcing decisions as well, and these have limited the involvement of developing countries in international supply chains.

• It has become more difficult to identify those who become worse off due to trade or how the benefits of trade are distributed….

• National policies to help displaced workers should be in place….