SUNS  4316 Wednesday 4 November 1998


SMALL ECONOMIES PLEAD FOR SPECIAL TREATMENT

Geneva, 2 Nov (Chakravarthi Raghavan) -- The need for the WTO trading system to look at the special vulnerability of the "small economies" and their marginalisation and take measures to address these problems was raised Monday at the WTO Committee on Trade and Development (CTD).

Beyond raising some general issues like need for continued trade preferences, and the costs of the WTO dispute settlement system, the small economies did not put forward specific demands or measures.

One of these countries said they would explore and put forward specific proposals in this regard.

The CTD discussions showed there was a general level of understanding that small economies faced problems, and the idea of a "small economies group" within the CTD, like the group on Least Developed countries was suggested. However Bangladesh, the leader of the LDC group, was
concerned that setting up a small economies group could detract from the focus in the CTD on problems of LDCs. There was no agreement either on establishing a special group on small economies or how to define them. Further consultations are to be held by the CTD chair, which is
Amb. Iftekhar Ahmed Chowduhury.

In other matters before the CTD, the committee agreed to circulate a letter to WTO members asking them about measures they have taken to implement the Special and Differential Treatment provisions in various WTO agreements and the problems they have encountered in this regard.

At the 2nd Ministerial meeting of the WTO at Geneva in May, Ministers expressed themselves as deeply concerned over the marginalisation of the least developed countries and certain small economies, and the urgent need to address is issue which has been compounded by the chronic foreign debt problem faced by many of them.

But while the Ministers went on to talk about the initiatives for LDCs, the Ministers were not specific on what is to be done about the small economies and their vulnerability.

A joint paper by Barbados, Jamaica, Lesotho, Mauritius, Sri Lanka and Trinidad and Tobago, presented at the CTD Monday by the Ambassador of Mauritius, Dhurmahdass Baichoo, cited several studies to argue that per capita income is not an adequate measure of the level of  development in the case of small economies and can be even misleading in overstating the structural dynamism of such economies, but not the handicaps facing these small economies and that a "vulnerability index" is needed to assess the developmental levels and needs of these small economies including island developing countries.

The paper set out several parameters, one or many of which, characterise these economies and make them vulnerable. These included those relating to their physical features, the size of their internal markets and reliance on a few commodities and a few traditional overseas markets for exports, instability of export earnings, small size of their firms, dependence on trade taxes, dependence on foreign direct investment and limited capacity to attract such FDI, high reliance on foreign exchange earnings to pay for imports, high public sector expenditures as a percentage of GDP, higher per capita costs in establishing basic infrastructure.

The paper that just as the Marrakesh Agreement and decisions there have made a number of provisions to deal with the special situations of developing countries -- such as for LDCs, Net Food Importing countries, those with per capita incomes below $1000, cotton/wool producing/exporting countries, those affected by growth of illicit narcotics, special provisions were needed to deal with the problems of small economies which under the WTO regime have been further "fragilised" rather being integrated.

Such small economies tend to be more adversely affected by environmental factors like climatic hazards and natural disasters, and the costs involved in preserving and rehabilitating their eco-systems and infrastructure after natural disasters hit them.

These economies grow only a small number of products, and often largely monocultural, are heavily dependent on imports of food stuffs and other basic necessities. They also suffer a priori from the smallness of their domestic markets, and normal market mechanisms are not sufficient to induce operations as normally practised in a liberalised and globalized system.

The distance of these economies from the main market centres, and the high foreign costs, act as major constraints on the development of their trade. Often they pay as much as 10% of the value of their merchandise exports as freight - compared to a world average of 4.5% for developed economies and about 8.3% for developing.

The trade patterns of these economies have been largely influenced by their historical and political links before independence, and trade preferences became a sine qua non in the trade mechanisms of all their trading partners. These preferential arrangements have partially compensated for lack of comparative advantage, and been instrumental in attracting FDI.

"In view of the experience of small economies in the post-GATT era to-date, and the recognition of worsening disparities, it will be difficult to contemplate for many years to come that these economies
could successfully integrate into the Multilateral Trading System if these preferences are abruptly removed," the joint paper said.

Private capital markets do not tend to favour such small economies, and they are less attractive for FDI from TNCs. They also have limited access to capital from multilateral financial institutions, and the stringent conditions, market-related commercial rates, make it prohibitive for these economies to get foreign investments. And yet only increasing levels of FDI on a sustained basis could prop up these economies to higher stages of development.

"Given the linkage between trade, finance and development, the implications for trade should become a high and urgent priority."

Since the small economies have difficulties in integrating into the multilateral trading system due to their inherent vulnerability, and given the rapid trend of liberalization and globalization, their concerns should be addressed in the context of the implementation of the Geneva WTO Ministerial declaration, the joint paper said.

Focusing on WTO dispute settlement mechanisms, the paper said that due to the high costs involved, lack of administrative structures and relative inability to implement panel decisions or enforce sanctions, these small economies found it difficult to make use of the DSU. Even more, the DSU has brought into the WTO an "over-legalistic" approach to situations that may often warrant considerations that go beyond pure trade.

In initial comments, according to participants, a number of countries spoke expressing support and sympathy. These included the US, EC, New Zealand, Australian Switzerland, some central American countries (El Salvador, Guatemala) Cuba, Tanzania, Egypt and India.