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TRADE: Govt’s May Need to Do for Workers What They Did for Banks

Isolda Agazzi

GENEVA, Oct 19 2009 (IPS) - The finding by the World Trade Organisation (WTO) and the International Labour Organisation (ILO) that the dropping of trade tariffs leads to jobs being lost in the formal sector while informal jobs grow is another confirmation of the adverse consequences of forced trade liberalisation.

Mark Halle, executive director of the International Institute for Sustainable Development's Europe office, based in Geneva, in response to IPS’s questions about the joint study said that "it has long been clear that, if trade openness could benefit developing countries, that benefit depended on certain baseline conditions being in place before the economies are forced to open.

"In reality, most developing countries have had no choice in liberalising and have then been forced to scramble to ensure that they could draw some benefit from the new openness. In doing so, they received precious little help," admonished Halle.

In the study, called "Globalisation and Informal Jobs in Developing Countries", launched last week, the ILO and the WTO argue that in the longer run the negative effects can be overcome, provided governments adopted the right adjustment policies and focussed on job creation. They left the question open whether the right conditions should be in place before liberalisation.

But ILO Director General Juan Somavia expressed concern that, "today, because of the (global economic) crisis, we have the highest level of unemployment ever, which creates even more informality.

"The biggest danger today is that people may think that we are getting out of the crisis but employment is going to take a lot of time to recover. One part of the society will open champagne bottles, but another part will not.

"We have to take the decision – and the G20 did move in that direction (at the recent) Pittsburgh (summit) – that growth and job creation have to go together. It has never been like that. Governments have had great creativity in saving the banks. They may have to do the same to save jobs.

He also cautioned that, "we don’t have a strong social reaction yet because governments have been very active and also because people are still afraid."

However, WTO Director General Pascal Lamy insisted that "the empirical evidence of the initial increase in informality as trade openness occurs does not, in my opinion, invalidate the case for trade opening. The reality of adjustment costs does caution against an easy assumption that simply opening trade is sufficient to secure development and greater prosperity."

He believes that, "trade liberalisation has transition costs and not all segments of society reap the benefits of it. Trade liberalisation creates winners and losers. Jobs are created but some are also lost, even if not permanently. Time is needed for adjustment. The extent of benefits from trade depends in part on how this adjustment occurs."

This is why governments should pursue policies that support shorter rather than longer adjustment periods, he said, and ensure that the transition is facilitated by other supportive policies. But this costs money and often cannot be easily developed by poor countries — which may in turn influence the pace with which governments open up to outside trade.

Informal economy employment means jobs without security or social protection that are untaxed but also involve low incomes. In certain sub-Saharan African countries, up to 80 percent of the economy is informal.

"For the moment many developing countries have not benefited from trade liberalisation in terms of formalisation of the labour market," the ILO’s Ernst Ekkehard, an author of the study, pointed out.

"We recommend support for informal workers through social protection and enforcing core labour standards. The crisis should not be used as an excuse to depart from these policies," he added with reference to arguments that the difficulties in creating jobs during the economic crisis justify lowering labour standards.

The authors strongly recommend facilitating the adjustment process and the creation of formal jobs through education and vocational training, even if it may require additional resources and the extension of public jobs.

Recommendations also include promoting employment-friendly trade and carefully designed trade reforms that take into account country-specific situations.

Somavia also criticised the formerly vaunted policy of export processing zones (EPZs). "We are closing the circle of 30 years where the policy drivers were finance and trade, as against other issues in the development agenda. We are moving towards policy coherence, but we still have to understand the interactions between these issues."

He cited the promotion of EPZs as an example of policy incoherence. These zones were supported by the World Bank and the International Monetary Fund in the 1980s and 1990s to attract foreign investment by reducing taxes on companies and closing an eye to how they treated workers.

"You put countries in a tax competition because what one country does not want to give you, the other one next door does. From the viewpoint of policy coherence, you treat export as if it was something separate while the rest of the country continues with its own life.

"There are successful EPZs, but in the long run export and import must be linked to the overall economy of the country," was his admonition.

Social concerns are the forgotten issue of globalisation. Traditionally, the WTO has been dealing with trade and the ILO with labour, but the two organisations are timidly trying to improve their cooperation.

In 1996, the WTO published a compromise declaration on the ILO core labour standards that stressed that these should not become an additional conditionality and therefore a form of "disguised protectionism".

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