Inadequate trade-related structural adjustments

Industrial structural adjustments form part of the process of economic growth and development. Changes in demand and in relative prices, technological developments and increased competition between domestic and foreign enterprises, are some of the determinants that call for a process of structural shifts in industry, involving a reallocation of productive factors aimed at reaching a more efficient pattern of industrial production.

There is a need for intensified restructuring of industrial production in developed countries in response to the industrialization process in developing countries. Developed countries should encourage domestic factors of production to move progressively from the lines of production which are less competitive internationally, especially where the long-term comparative advantage lies in favour of developing countries, thus providing, inter alia, larger export possibilities for the developing countries and contributing to the attainment of their development objectives. Such adjustment would include the redeployment of those industries of the developed countries which are less competitive internationally to developing countries, thus leading to structural adjustments in the industrialized countries and a higher degree of utilization of natural and human resources in the developing world. Such adjustments would also be governed by the need for less competitive industries to move into more viable lines of production or into other sectors of the economy.

As long as adequate adjustment assistance measures are not available in developed countries, the inequities in the costs and benefits of industrial restructuring will promote resistance to adjustment and produce pressures for protection in these countries. These pressures, because of the immediacy of the damage to the import-competing interest groups, can be exceedingly strong, in particular in times of economic recession. Asymmetries inherent in protective and adjustment assistance devices in developed market-economy countries provide a further bias in these countries toward non-adjustment to competing imports. For example, adjustment assistance measures require fiscal disbursements, and hence are systematically more difficult to realize than are protectionist measures, which often serve to raise fiscal revenues.