Inadequate adjustment assistance to industries and labour affected by export competition

Nature

In the developed countries, adjustment assistance leading to trade liberalization would involve the re-allocation of production factors from less efficient into more efficient domestic industries. Temporary deterioration in the developed country's balance of payments following trade liberalization might be expected, since, even with very efficient adjustment assistance programmes, the immediate increase in imports following trade liberalization would normally occur before personnel had been fully retrained and re-allocated into more efficient export-oriented industries. Re-allocation might be expected to cause psychological and social hardships for the affected workers, as well as possible loss of income and other employment rights. The scrapping of not fully depreciated capital equipment would involve costs for the affected firms.

Claim

Adjustment assistance programmes for the adaptation of domestic industries could eliminate inefficiency and competition of the industrial sector and would facilitate trade liberalization, particularly with respect to relaxation and eventual elimination of tariff and non-tariff barriers applied to imports from the developing countries. Protection of existing production and structure of employment is applied in developed market economy countries without paying due consideration to its burden on the domestic economy. If more effective adjustment assistance programmes are not soon introduced, the outlook for significantly reducing nontariff distortions of trade as well as for making further major tariff cuts is not favourable. Not only are the major remaining high-duty product lines in industries that would feel strong repercussions from tariff cuts, but many important nontariff trade-distorting measures now protect these industries.

Counter-claim

The adjustment problems that result from increased imports of manufactures from developing countries vary considerably from industry to industry. However, the overall magnitudes, measured in terms of labour displacement, are not very large. Even in the case of the very large increases in imports of manufactures from developing countries assumed by this study, total labour displacement is no more than 0.7% of total employment in manufacturing industry. Bearing in mind that industries have in the past adapted without too much difficulty, partly through their own effort and partly through government measures, to the much larger labour displacement created by rising labour productivity and increased imports from other developed countries, and taking into account the fact that some increases in domestic demand are likely to take place in the future, the overall impact of the increased imports is not likely to present a serious problem. Certain industries appear to be more sensitive to imports from the developing countries. The sensitive industries seem to differ slightly from country to country, but will usually include the footwear and clothing industry, the leather goods industry and, to a lesser extent, the basic metal manufacturing and electrical machinery industries.