How might trade liberalization impact a country’s balance of payments?
Multilateral trade liberalization has been a major contributor to the world economy’s unprecedented growth over the past half century. In tackling remaining restrictions on trade, the Doha Development Agenda of the World Trade Organization (WTO) has the potential to benefit all countries. Yet, while overwhelmingly positive in its impact over time, opening the world trading environment further would require countries to adjust. And under certain circumstances, these adjustments could temporarily reduce export revenues, increase import bills, or cause other shortfalls in the external balance of payments. Some of the potential adjustment pressures derive from more competitive conditions in a country’s export markets. For example, the erosion of tariff preferences could lead to a reduction in the demand for a country’s exports because other suppliers can now compete on more equal terms. Similarly, the expiration (in 2005) of quotas under the WTO’s textiles agreement could lead to more inte
