Trade and Employment From Myths to Facts - International Labour ...

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Chapter 6: Trade adjustment costs and assistance: The labour market dynamics reduction of tariffs leads to a gradual displacement of workers, the latter scenario may be more desirable as it avoids congestion and related costs. Mussa (1986) has analysed this phenomenon in a set-up where trade reform triggers mass lay-offs because of the presence of minimum wages. He confirms that gradual liberalization would lead to gradual adjustment, with lower costs to the economy. Gradual liberalization can also be a useful tool when individuals underestimate adjustment costs, as may be the case if an industry is a major local, regional or national employer. Shrinkage of the industry would then have serious repercussions and negative spillovers on the surrounding economy. Those repercussions represent externalities, which, if not taken into account, may result in excessive lay-offs (Bacchetta and Jansen, 2003). Gradual liberalization may in these cases manage to soften the adjustment process. Given that developing country economies tend to be characterized by more concentrated production structures than industrialized countries (Imbs and Wacziarg, 2003), the arguments in favour of gradual liberalization are arguably stronger in the case of the former. Early and credible announcement of policy changes can give companies and workers time to prepare for the change. This can be particularly useful in environments where credit constraints are prevalent. Early announcement then gives firms and workers the opportunity to make the savings necessary to prepare for the policy change or to bridge the costly adjustment period. Levy and van Wijnbergen (1995) argue in favour of gradual agricultural liberalization in the context of the North American Free Trade Agreement (NAFTA) in Mexico together with well-targeted adjustment programmes of investments in land improvements. Early announcements may also play a particularly important role in environments where companies are not used to working in a competitive environment. Examples are companies representing a public monopoly. If such companies have to go simultaneously through a process of privatization and exposure to foreign competition, they are unlikely to survive. If privatization is first conducted behind closed borders and then followed by international liberalization, the industry may, instead, have time to prepare for the competitive environment. Pastor et al. (2000) and Vives (2000), for example, show that the competitiveness of the Spanish banking sector was increased through domestic deregulation before the sector was opened for foreign competitors as part of the EU’s Single Market programme. Typically, trade agreements determine that new commitments, such as tariff reductions or revising domestic legislation, are implemented over a couple of years. The Uruguay Round agreement, for example, allowed developed countries to phase in new tariff commitments over four years and developing countries over six years. Similar provisions are agreed in most RTAs. The EPAs between the EU and several ACP countries, for example, envisage full implementation in some sectors over 25 years (Meyn and Kennan, 2010). 6.4.5.2 Safeguards Transition periods allow countries to address ex-ante anticipated adjustment costs. Safeguards instead offer countries to react ex-post to problems caused by unforeseen 239
Trade and Employment: From Myths to Facts Table 6.5: Overview of safeguard measures in WTO provisions Measure Agreement Description Measures to limit GATT Article XIX Measures shall be applied to prevent or imports that and Agreement remedy injury and to facilitate adjustment cause or threaten to cause serious injury to domestic industry on Safeguards Renegotiate bound GATT Article Difficult process; requires compensation tariff rates XXVIII Restrictions to GATT Article XII Can be used in reaction to an safeguard the balance and Article XVIII.B unsustainable deterioration in a of payment country’s external financial position, but not in reaction to sector-specific adjustment problems Infant industry GATT Article Barely used protection in developing countries XVIII.C Emergency safeguard in services GATS Article X Mandate to negotiate Special agricultural Agreement on Additional duty possible in case of price safeguard Agriculture decrease or import surge; right to use had Article 5 to be reserved during Uruguay Round Source: WTO agreements, and Bacchetta and Jansen (2003). events, such as import surges (Bacchetta and Jansen, 2003). The safeguard measures include temporary tariff increases and quantitative restrictions. It is often argued that governments may be reluctant to sign trade agreements that lead to substantial liberalization without the insurance that a safeguard provision would provide. The WTO Agreement on Safeguards refers explicitly to structural adjustment in its preamble and creates certain mechanisms to address that objective. Remedies, such as quantitative restrictions, can be used temporarily and evidence of adjustment of the industry is necessary to justify extending the measure. Progressive liberalization is intended to facilitate adjustment in cases of measures originally imposed for longer than one year. 23 Safeguards may be justified from a political economic point of view and helpful in unusual circumstances, but their role as contributing to adjustment has been 23 Safeguard measures may be broader in scope than anti-dumping measures and cover imports from all sources. However, anti-dumping measures have much more often been used than safeguard measures (Bown and McCulloch, 2007). With increasing liberalization and higher exposure to external shocks, safeguards may perhaps be used more frequently in the future. 240
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Trade and Employment From Myths to
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Trade and Employment From Myths to
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PREFACE Trade negotiations -bilater
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Trade and Employment: From Myths to
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EDITORS AND CONTRIBUTORS EDITORS Ma
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ACKNOWLEDGEMENTS The editors wish t
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NEW EVIDENCE ON TRADE AND EMPLOYMEN
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Chapter 2: New evidence on trade an
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Region Annualized percentage change
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Region 1980 1985 1990 1995 2000 200
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Figure 2.4.b: Long-run association
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20 See Harrison and Rodriguez-Clare
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ASSESSING THE IMPACT OF TRADE ON EM
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Chapter 3: Assessing the impact of
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p * Chapter 3: Assessing the impact
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APPPENDIX 3.A: TABLES Chapter 3: As
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TRADE AND THE INFORMAL ECONOMY 4.1
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Chapter 4: Trade and the informal e
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For more than two decades, quantita
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GENDER ASPECTS OF TRADE 5.1 INTRODU
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and income-earning opportunities ge
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Figure 5.1: Description of gender i
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Chapter 5: Gender aspects of trade
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