In its latest annual report, which was tabled in Parliament today, the Productivity Commission responds to current misconceptions about globalisation and the World Trade Organization (WTO).

'The latest fashion in some circles is to decry globalisation as a malevolent process pitting worker against worker, driving down wages and living standards in a race to the bottom' said Gary Banks, Commission chairman. 'In fact, the increased integration of world trade and investment have been important factors in unprecedented growth in living standards worldwide.'

The Commission notes that, among other trends, there has been a five-fold increase in average per capita income over the 20th Century. And, contrary to a widespread perception about growing inequality, the ratio of the average income of people living in the richest fifth and poorest fifth of the world narrowed over the 1990s.

The Commission acknowledges that the adjustment pressures of globalisation and rapid change are important issues for governments. However, the clear policy lesson of the past century is that those countries that shut themselves off from the rest of the world have done so at the expense of their peoples. The world's poorest nations are not in that state because of globalisation. Rather, the problem lies with factors internal to these countries - such as civil unrest and weak property rights - which are inimical to growth and development.

While the GATT/WTO system of trade rules has played a key role in the post-war expansion, the WTO has recently come under fire for allegedly being undemocratic, imposing its will on governments and being driven by the interests of corporations. ‘Such attacks misunderstand the WTO's role and contribution' said Mr Banks. 'But ,govemments need to do more to shore up domestic support for the international trading system and the rules which underpin it.’

The Commission notes that small to medium-sized nations with limited bargaining power, such as Australia, have the most to gain from a rules-based trading system. Recent criticism of the WTO dispute settlement mechanism - relating to salmon and automotive leather products - has obscured the real benefits that it delivers to Australian exporters.

The Commission argues against proposals to use the WTO to enforce labour and environmental standards. Trade sanctions are likely to be ineffective and there are superior ways of achieving legitimate labour and environmental objectives. Mr Banks said: ‘Sanctions would limit the ability of developing countries to trade their way to higher incomes. And attempting to embed these standards in the WTO would divert it from its core function of reducing trade distortions.’