Overview

The trade negotiations launched at the World Trade Organization (WTO) ministerial meeting in Doha in November 2001, which aim at further liberalization of trade in goods and services, hold out hopes for potentially important gains for developing countries in terms of improved access to overseas markets. Many of these countries are expected to undertake further liberalization commitments and this could bring them even further gains, at least in the longer term.1 However, while there might well be long-term gains from liberalization, liberalizing economies are, nevertheless, likely to face short- to medium-term adjustment costs. This is because, as economies open up, imports use existing channels while new exports often come from different sectors that have to gear up production and find new markets. The structural unemployment that occurs as this transition takes place is, perhaps, the major social cost of adjusting to trade reforms. Unfortunately, most developing countries do not have well-developed social safety nets, such as unemployment benefits, retraining programmes and portable pensions, to address these problems. Other areas of adjustment to be addressed include: the need to replace tariff revenues as a major source of government funding as protection is reduced; tackling the likely loss of preferences in overseas markets as MFN rates are lowered under multilateral liberalization; and intrasectoral and intersectoral reallocation of resources in response to changes in the levels of protection.