This chapter sets the scene for the present study, identifying sectors, in both developed and developing countries, which are expected to face adjustment challenges in the future and examining for each of these sectors the underlying forces at work and the nature of the adjustment challenges. The eight sectors chosen for particular attention are agriculture, fisheries, textiles and clothing, steel, shipbuilding, motor vehicles, health services and international sourcing of information technology and business process services. The impact of underlying forces can vary significantly from one sector to another. Pervasive economic forces at work include new sources of competition, technological change, shifting consumer preferences and societal concerns, including those related to the environment. The adjustment process to which these forces give rise can differ significantly depending on countries’ level of development. A distinguishing characteristic of the adjustment process in low-income developing countries is the need for better institutional capacities and infrastructure. The nature and impact of adjustment will vary among different groups in society as well as between individuals and the economy as a whole (e.g. for IT offshoring this is quite modest). The relationship between trade and the adjustment process has many dimensions. While trade policy or trade liberalisation help create conditions favourable to structural adjustment, they can also give rise to adjustment challenges of their own, including those related to preference erosion and revenue loss in developing countries.

This chapter examines cases of trade and structural adjustment in agriculture. Starting with a cross-country case study analysing potential changes in relative prices and factor returns that might accompany widespread reductions in agriculture and non-agriculture trade protection, it surveys examples of agricultural products in specific countries: trade in avocados in Mexico and the United States, the dairy industry in Australia, the agrofood sector in Chile, the cut flower industry in Kenya, and agricultural reform in New Zealand. Some general conclusions emerge although it is essential to differentiate countries according to their level of development. In several of the case studies, the policy reform package reduced the direct role of government in the production, acquisition, marketing and pricing of farm commodities. However, all the studies show that governments made important contributions by providing an enabling environment for successful adjustment. That environment included both economy-wide policies and some sector-specific nurturing. Stable macroeconomic policy, especially exchange rate policy, was seen as essential to successful adjustment in the agricultural economies of New Zealand and Chile. In contrast, in the cases of avocados in Mexico and cut flowers in Kenya, the government played a key role by fostering the development of a private and sector-specific marketing infrastructure. Agricultural trade policy rarely exists in isolation. Implementing reforms to trade-distorting policies typically requires much more than simply adjusting trade and domestic support policy instruments. In some cases, structural adjustment can be facilitated by using instruments of general social policy: unemployment insurance, education and training for displaced workers and relocation assistance.