Report

Trade Adjustment in the WTO System: Are More Safeguards the Answer?

Chad P. Bown and Rachel McCulloch

ABSTRACT

For countries to engage successfully in the international trading system, their industries, firms, and workers must respond continually to new conditions of competition. The continuing need to adjust arises both from policy changes approved in multilateral negotiations – e.g., implementation of trade liberalization commitments, preference erosion, or adverse terms-of-trade consequences of export subsidy elimination – and from ongoing changes in competitive pressures inherent in a liberal trading system – e.g., effects on comparative advantage of changes in technology or factor supplies. But the political response to a situation calling for adjustment is often a call for “safeguards” – whether as an ex ante provision in negotiated agreements or as an ex post measure once the agreement has been signed and the reality of new conditions takes shape. This paper examines the range of adjustment problems confronting the current and future international trading system, the economic arguments for intervention to deal with these problems, the adjustment environment as set out in the current WTO Agreements, and proposals for reform. While the adjustment problems we discuss apply to both rich and poor WTO member countries, we highlight the issues of adjustment especially relevant for developing countries.

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