Paris, Monday, January 31, 2000 By Martin Khor International Herald Tribune
DAVOS, Switzerland -- It is often asserted that trade liberalization has raised incomes everywhere. Such generalizations are wrong. It is not true that we are all gainers and there are no losers. Some countries have gained more than others. Many, especially the poorest, have not gained at all and may have suffered severe economic loss.
The UN Development Program's report on human development for 1999 states: "Only 33 countries managed to sustain 3 percent annual growth during 1980-96. For 59 countries GNP per capita declined. Economic integration is thus dividing developing and transition economies into those that are benefiting from global opportunities and those that are not."
A clear explanation of why trade liberalization often leads to negative results is found in the report for 1999 of the UN Conference on Trade and Development. It shows that rapid liberalization of trade has contributed to a widening of the trade deficit in developing countries in general.
Liberalization led to a sharp increase in imports, but exports failed to keep pace. For developing countries, excluding China, the average trade deficit in the 1990s was higher than in the 1970s by 3 percentage points of GDP, while the average growth rate was lower by 2 points.
Other recent studies show that countries which rapidly liberalized their imports did not necessarily grow faster than those that did so more gradually. One major problem is that a country can control how fast to liberalize its imports but cannot determine by itself how fast its exports grow. Such growth partly depends on the prices of the existing exported products. Developing countries have suffered from serious declines in the value of their export commodities.
Export growth also depends on having or developing the infrastructure, human and enterprise capacity for new exports. This takes time and is not easily achieved.
There are many tariff and nontariff barriers in the North to the developing countries' potential exports. Unless these barriers are removed, the potential will not be realized. Trade liberalization can cause, indeed often does cause, imports to surge without a corresponding rise in exports.
This results in a widening trade deficit, a deteriorating balance of payments and increasing external debt, all of which constrain growth prospects and often result in persistent stagnation. Moreover, in many poor countries the flood of cheaper imports has displaced local goods.
Thus, liberalization should not be pursued automatically or rapidly in all countries. What matter are the quality, timing and scope of liberalization, and how the processis accompanied by, or preceded by, such other factors as strengthening local enterprises and farms and development of human and technological resources.
A conclusion must be that if conditions for success are not present in a country, to proceed with liberalization can lead to specific negative results or even a general situation of persistent recession. There should be a freeze on further steps to impose more liberalization on developing countries through conditions attached to loans from the IMF or by injecting new issues such as labor rights and the environment into the World Trade Organization.
The rich countries need to correct the imbalances and inequities in the world trading system. They should buy more products from developing countries, but not press those countries to further open up.
Developing countries must have the ability, freedom and flexibility to make strategic choices in finance, trade and investment policies, deciding for themselves on the rate and scope of liberalization and on the appropriateness of defending local firms and farms.
The writer is director of the Third World Network, a nongovernmental organization based in Malaysia. He contributed this comment to the International Herald Tribune.:
