Lessons Learned? The Impact of Trade Liberalisation Policies on Countries and Regions in the South

Trade liberalization policies are an integral part of the structural adjustment programs (SAPs) planned and implemented by the International Monetary Fund and the World Bank as well as a central component of regional and bilateral trade agreements between North and South. In the past, trade policy reforms in developing countries were primarily aimed at expanding industrial capacities by stimulating export growth and promoting diversification strategies, thus integrating the countries more strongly into the global economy. Through their trade policy components, SAPs promoted a primarily export-oriented growth policy. In addition to measures to develop the export sector, the reform packages mostly included the abolition of support and other protective measures for companies producing for the domestic market, with the intention of driving inefficient and non-economic companies out of the market. To boost exports, quantitative restrictions were lifted in many cases, import tariffs were reduced and flexible exchange rate regimes were introduced.

Similarly, industrialized countries, including the EU, have been pushing ahead with negotiations on regional and bilateral free trade agreements in recent years. Regional free trade agreements generally include a commitment to reciprocal liberalization of all sectors with the intention of opening up market access to a wide range of countries.

Some of the agreements also contain provisions on so-called “trade-related” areas, including trade in services, investment, competition, government procurement and trade facilitation measures. The most recent example of such a comprehensive trade agenda is the ongoing negotiations between the EU and the 77 African, Caribbean and Pacific states (the so-called ACP group) on the conclusion of new WTO-compatible trade agreements. Although the negotiations are taking place within the framework of the objectives defined in the Cotonou Agreement to reduce poverty and promote sustainable development in the ACP countries, they are focusing on the creation of new, reciprocal free trade agreements between the two parties.

This analysis summarizes the results of existing case studies that examine the impact of trade liberalization policies in different sectors, particularly on the poorer and disadvantaged sections of the population. The results support the widespread experience that theoretically expected welfare effects are often exaggerated and cannot be fully realized. In fact, the implementation of trade liberalization measures and free trade agreements often entail considerable costs for developing countries: For example, liberalization policies have caused and exacerbated both socio-economic and environmental problems in many countries in the South.

Similarly, industrialized countries, including the EU, have been pushing ahead with negotiations on regional and bilateral free trade agreements in recent years. Regional free trade agreements generally include a commitment to reciprocal liberalization of all sectors with the intention of improving market access for a wide range of goods.

The working paper provides an analysis of recent sectoral and country studies, both from ACP countries and other developing countries, that examine the social and environmental impacts of liberalization policies. The majority of the ACP country studies concern African countries, as only a few studies are available from the Caribbean and Pacific region, in addition to further analyses from other developing countries. The individual studies come from a variety of sources, including the FAO, UNEP, national research institutes, environmental and development organizations and the final report of the Structural Adjustment Participatory Review International Network.