151II  F POLICY IMPLICATIONS OF GLOBAL INTEGRATION AND THE WTOTo move implementation of the Aid for Trade initiative to the next level, a series of national and sub-regional Aid for Trade reviews in Africa, Latin America and the Caribbean, and Asia and the Pacific would be held in 2008. These reviews are intended to advance the implementation of national and sub-regional plans. As noted earlier, there is already an existing mechanism – the Integrated Framework (IF) – through which LDCs benefit from Aid for Trade. Finally, everything is being done to encourage developing countries to take a more active and direct role in the initiative. There is a growing list of countries that are in the process of holding Aid for Trade events as a way to mobilize both domestic and international support. 3. DEALING WITH THE SOCIAL CONSEQUENCES OF LIBERALIZATIONSome of the gains from trade liberalization come about from the reallocation of resources to those sectors of the economy where a country has comparative advantage. While such reallocations are necessary to reap the benefits of trade reform, they also often imply losses for some individual workers. They may, for instance, result in some workers losing their jobs. The consequences of temporary job losses can be harsh and in many countries policies are in place to assist those temporarily out of work. Those policies are often general in nature, in the sense that they target any individual affected by job loss independent of its cause. But examples also exist of policies that target explicitly those who have lost their jobs for trade-related reasons or specific regions or sectors affected by trade. The discussion in previous sections has shown that for some the negative effects of trade reform may be permanent as they may face lower revenues in absolute or relative terms after trade liberalization. Given that the overall gains from trade are positive, it is in principle possible to redistribute those gains to make everybody better off. Whether such redistribution policies are introduced or not are decisions that have to be taken at the domestic level. Again the question arises as to whether equity concerns related to trade liberalization should be addressed by specific trade-related policies or whether they can be addressed by more general economy-wide redistribution policies. (a) General policies to assist those negatively affected by tradei) Facilitating transitionTwo types of labour market policies regarding job loss can be distinguished: (passive) income support during periods of unemployment and so-called active labour market policies that attempt to facilitate re-employment. Social protection systemsModern economies need to constantly reallocate resources, including labour, from old to new products, from bad to good firms (Blanchard, 2005). At the same time, workers value security and insurance against job loss. In response to this, economies have used different tools to provide a buffer against the most negative consequences of job loss. These tools include job-security regulation that makes it harder for employers to lay off workers and unemployment benefits that provide workers with a certain level of income during periods of unemployment. However, both types of policies may negatively affect the reallocation process, i.e. the process of job loss inherent in the growth process and also the adjustment process following trade liberalization. The question therefore arises whether a trade-off between efficiency and insurance exists and how far this should go. In this context, Blanchard (2005) argues that it is important to provide generous unemployment insurance, but that it ought to be conditional on the willingness of the unemployed to train for and accept jobs if available.9 He argues in favour of protecting workers, rather than jobs, thus indicating a preference for unemployment insurance (potentially co-financed by companies) rather than job-security regulation. Sapir (2006) illustrates that Nordic European countries (Denmark, Finland, the Netherlands plus Sweden) combine generous and comprehensive unemployment benefits with relatively “loose” job-security regulation. He argues that such a system provides insurance to workers and is at the same time “efficient” as these countries are characterized by high employment rates when compared to the OECD average. Blanchard (2005) also suggests that the cost of low-skilled labour could be reduced through lower social contributions paid by firms at the low wage152WORLD TR ADE REPORT 2008end and that work could be made more attractive to low-skill workers through a negative income tax rather than a minimum wage. Numerous industrialized countries, in particular in the European Union, are characterized by generous social protection systems that differ significantly when it comes to the detail (Sapir, 2006). Animportant challenge for these countries is to design systems whereby the unemployed continue to have incentives to look for jobs, ensuring that generous social protection systems do not introduce significant inefficiencies. Social protection in low-income countries is typically confined to the minority of workers who are part of the formal economy. This is because it is difficult to introduce systems of social insurance for workers in the informal economy and agricultural sector who are outside the fiscal system; levels of poverty are also high in these sectors. A major challenge faced by low-income countries is therefore to devise and extend alternative means of providing social protection to workers in the informal economy (Jansen and Lee, 2007). In middle-income countries, where formal employment is more significant, there is often more scope for providing social protection to workers who are adversely affected by trade and related economic reforms. However, very few of these countries have systems of unemployment insurance even though such schemes are financially and organizationally feasible. Active labour market policiesActive labour market policies are intended to facilitate the re-integration of the unemployed into the labour m a r ke t a s we l l a s t he r e a l l oc a t i on of l ab ou r n ec e s s it a t ed by structural change or geographical, occupational and skill mismatches. They include measures such as retraining schemes for the unemployed, job-search assistance, direct employment-creation programmes such as public works schemes, credit and