Trade Market and Labour Liberalization

• Liberalization and globalization are the most debated, and hotly discussed phenomenon which
certainly deserve wide attention around the globe.

• In a pragmatic process of development, both have been felt mandatory and hence they have
rapidly expanded and diversified all over the world.

• Both are parts of the economic reform undertaken by numerous countries including Nepal in
the recent past to give a new shape to their economies.

• Internal liberalization confines its attention to the domestic and takes measures to make it more
responsive to market forces.

• External liberalization consists of relaxation of the state control in the spheres of foreign trade,
foreign investment, and capital inflow and outflow in a country.

• Since globalization is one of the most debated topics of the early twenty-first century academic
debates exist whether it is more important now than at some earlier date, whether it is
displacing the nation state, and whether it is more important than regionalism or localism.

• The closing years of the 20th century marked by worldwide market economy

• End of the cold war

• Soviet block countries of eastern Europe adopted market-driven systems.

• Also in Latin America, state-run enterprises dismantled - so is the case in south Asia,
particularly in Hong Kong and even in China, economic policies directed towards liberalization.

There is euphoria (strong feeling) of liberalization all over the world

• Liberalization, particularly, trade liberalization is the best form of help to raise the level of
growth and development and thus reduce poverty in LDCs.

• Engine of growth- a challenge as well

• Wake up call for the developing countries

• Best chance for expanded trade in global regime

• What is good for the goose (a bird like a large duck)is good for the gander (a male goose)

• Trade expansion a key component of globalization

• Export opportunities and import competition

• Opens the door for productive domestic-foreign partnership

• Create positive incentives – incentives to reduce prices – raises producers’ productivity

• Increase the stock of knowledge – helps raise momentum for successful economic expansion
having implications in poverty reduction
 • Openness to trade helps developing countries catch up with the rich ones – the poor generally
benefit from faster growth that trade liberalization brings

• Applies in other sectors of the economy

• Liberalization of finance and capital flows attracts FDI – encourages MNCs activities

• Openness of the economy (free market reforms for globalization) key to making globalization
work for the poor

• Judicious use of market incentives for economic success

• However, protests seen all over

Nature of Impact (how do you view?)

• Definitely, reduction in poverty

• Allows greater mobility of capital and labor across the border- in Francois Quesnay’s
terminology “laissez-passer” ( unrestricted travel & migration)

• No laissez faire attitude towards such cross-border flows of labor – labor market remains
extremely fragmented (unskilled)

• No doubt, intense competition for skilled personnel (global talent) – a situation of “brain drain”
(also brain sharing and gain)

• However, the country of origin stands to gain through:

• Remittance which adds to GNP,

• Diaspora business and trade network, and

• Other externalities of return – migrants

• And thus, helps reduce poverty

• Catalyst in market expansion,

• Technology development to sustain higher and equitable patterns of growth

• Increased integration through trade

• FDI and export platform

• Chance to heighten labor-intensive technology

• Ultimate impact on growth and development

• E.g.., FOXCON – Chinese manufacturer of iPhones, PCs & other electronic equipments (said to be
the industrial power house of the 21st century)
Trade Liberalization

Trade liberalization is the removal or reduction of barriers in the fl ow of goods and services across the
border of economies/countries. This removal is for both tariff and non-tariff barriers. Tariff barriers
includes duties and surcharges; likewise, non-tariff barriers include licencing rules, quotas, and other
requirements. The ultimate goal of trade liberalization is free trade.

Those favoring free trade argue trade as an engine for growth. Moreover, the other benefits of free
trade are considered as improvement in economic efficiency, lower market prices that benefit to
consumers, and explore comparative advantage areas of an economy. Those against free trade blame it
for creating unemployment, flooding of low quality goods and services in markets, and supressing
endogenous technology in domestic production activities.

International trade and the world economy

Since the last couple of decades, trade liberalization has also been considered as one of the important
policy levers to integrate the activities of the poor in the developing world to the global markets and
improve their livelihood.

Consequently, trade liberalization is not only the tool for growth, but also for distribution. Due to the
increasing integration of the developing world to the global economy, world trade has grown
approximately by six per cent annually for the last two decades – the speed is double to that of the
growth of output.

Trade among the developing countries has also increased significantly – by 40 per cent – over the last
two decades. Although trade has been working as an engine of growth since long past, the emphasis on
trade for the growth of global economy was mainly after the establishment of the General Agreement
on Tariff s and Trade (GATT) in 1947.

Following the establishment of this institution, nine rounds of multilateral trade liberalization
negotiations have been completed so far. Indeed, the last two rounds of negotiation (the so-called
‘Uruguay Round’ and ‘Doha Round’ completed in 1994 and 2008, respectively) led to the establishment
of the World Trade Organization in 1995 to enhance multilateral trade agreements.

However, the progress of integration is somewhat uneven around the world – more in Asia and less in
Latin America. Likewise, progress is also sluggish in Africa and the Middle East. In some developing
countries, the progress is impressive with a dramatic rise in the level of income while in some others the
progress is not so encouraging with stagnant growth rate and high inequality in income distribution.

Similar is the progress in world trading systems; some countries have graduated from exporting primary
products to manufacturing products. Thus exports of manufacturing products from the developing
world have increased by 80 per cent while others are continuing exports of primary products.

The situation has become more severe among the latter group of countries if their terms of trade has
declined with likely decline in their share in international trade.

About 75 developing – including all of the least developed economies – and transition economies belong
to this category.
Nepal’s Case

Nepal started to liberalize its trade and investment regime, unilaterally, in 1992 and became the first
least developed country (LDC) to join the WTO through the full accession process in April 2004. Since
then, economic performance has not resulted in the strong development Nepal needs. Key factors
impeding higher rates of GDP growth include political instability (due to the transition process embarked
upon after the internal conflict of 1996-2006) and supply-side constraints, notably energy shortages,
poor infrastructure, and labour strikes. Recognizing the effective role of trade to achieve sustainable and
inclusive economic growth, and to establish the conditions to reduce poverty and improve the living
standard of its people, Nepal is taking further steps to create a more friendly business environment and
help its exporters to become more competitive.

INSTITUTIONAL FRAMEWORK

Formulation and implementation of Nepal's trade policy is the responsibility of the Ministry of
Commerce and Supplies (MoCS), in coordination with other ministries. The private sector provides
inputs to trade policy formulation by communicating its views either directly to the MoCS or through the
Federation of Nepalese Chambers of Commerce and Industry and the Nepal Chamber of Commerce.

Nepal became the 147th Member of the WTO on 23 April 2004. As part of its accession commitments,
Nepal bound 99.4% of its tariff lines and made extensive commitments under the GATS. It has not been
involved in any dispute under the WTO Dispute Settlement Mechanism, either directly or as a third
party. Since acceding to the WTO, Nepal has made very few notifications; the authorities have requested
help from the Secretariat in this regard. Nepal grants at least MFN treatment to all its trading partners.

Nepal participates in two overlapping regional agreements: the SAFTA (Afghanistan, Bangladesh,
Bhutan, India, the Maldives, Pakistan, and Sri Lanka), and the Bay of Bengal Initiative for Multi-Sectoral
Technical and Economic Cooperation (BIMSTEC, with Bangladesh, Bhutan, India, Myanmar, Sri Lanka,
and Thailand).

TRADE POLICY INSTRUMENTS