Besides the link between trade liberalization and poverty, another related issue is the effect of trade liberalization on equity. The question of whether trade liberalization is a factor aggravating economic inequalities is drawing more and more scientists' attention. The ambiguous role of trade liberalization on poverty is, for example, stated in Kaleidoscope (2005). The results of most long-term series analyses show that the evolution of inequality - after decreasing or stabilizing for several decades - was back on the rise during the eighties and nineties.

However, most studies found that trade liberalization has a negative impact on equity, across and within countries. In other words, trade liberalization has aggravated inequity, especially between developed (DCs) and developing/less developed countries (LDCs), for, at least, two main reasons. First, the different stages of economic development between DCs and LDCs have lead to varying levels of capacity to capture the global benefits of trade liberalization. Dcs have advantages in terms of infrastructure, information systems, technology, and market networking, leading to a greater capacity to reap the benefits of trade liberalization (Abbot, 2003). Secondly, high subsidies in developed countries, amounting to US$ 318 billion per year (World Bank, 2003), have caused an unfair distribution of the benefits of trade liberalization (Abbot, 2003; Madeley, 2004; Twyford, 2003).

In 2002, for example, direct support to farmers by countries belonging to the Organization for Economic Cooperation and Development (OECD) totalled around US$ 235 billion. Subsidies by this group of countries account for over 90 per cent of the trade-distorting domestic support and export subsidies reported to the WTO. The figure is particularly strikingif one considers that in high-income countries such as those belonging to the OECD, agriculture only employs around 5 per cent of the labour force and contributes only 2 per cent to gross domestic product (GDP). In low-income countries, however, this sector provides around 70 per cent of the labour force with work and contributes 36 per cent to GDP (FAO, 2003).

In addition, producers of soybean, corn and sorghum in developing countries continuously face tough competition from producers in the USA since the 2002 Farm Bill of the USA established national loan rates for each commodity. These loan rates basically constitute a domestic support policy for the agricultural sector in the USA. In 2004 regarding corn and grain sorghum, these rates were to be $ 1.95 per bushel and will remain at this level through 2007. The national soybean rate remains unchanged at $ 5.00 per bushel. Developing countries cannot provide this kind of support; their producers have to face an un-level playing field (USDA, 2003).

Negative impacts of trade liberalization on equity are found in the Philippines case (Cororaton and Cockburn, 2005). Trade liberalization implemented between 1994 and 2000 generally reduced poverty, primarily through the substantial reduction in consumer prices they engendered. However, tariff cuts lowered the cost of local production and brought about real exchange rate depreciation. Since the non-food manufacturing sector dominates exports in terms of export share and export intensity, the general equilibrium effect of tariff reduction results in the expansion of this sector but a contraction of the agricultural sector. This, in turn, leads to an increase in the relative returns to factors, such as capital, used intensively in the non-food manufacturing sector and a fall in returns to unskilled labour. As a result, inequality worsens as rural households depend more on unskilled labour income. Similar results are also found in trade liberalization when looking at China. Trade liberalization boosted China's economy; however China has to make policy adjustments to balance the uneven distribution of benefits between the country's rural and urban regions (World Bank, 2005).

Written by Wayan R. Susila, UNESCAP-CAPSA, Bogor, Indonesia.
(References available upon request)