Small states: Surviving ‘special’ treatment

It is not enough to give small states preferential trade treatment unless it promotes growth and development, according to Deryck Brown, Director of Technical Cooperation, Caribbean Negotia-ting Machinery (CSM). He knows what he’s talking about. In a World Trade Organisation (WTO) text there are 155 references to special and preferential treatment. There are, too, 147 provisions which address the concerns of small states.

Small states, he said, hold special characteristics in common: a high degree of openness, imperfect markets, and dependence on trade taxes and import duties.  At a seminar-workshop organised by the Association of Caribbean States (ACS) and held at the ACS headquarters in Port-of-Spain, several speakers, including Brown explored issues under the title, “The Greater Caribbean In International Trade Negotiations.” Brown noted that for small states, there may also be a concentration on two primary commodities for export and dependence on few markets. Additionally, firms in these countries are of such a small size that they can neither attract investors nor allocate substantial amounts of expenditure to marketing, he said. Indeed, small states possess limited institutional capacity and limited human resource, he noted, adding that their share of GDP is often exceeded by the sales of multinational corporations. Further, small states are very vulnerable to the impact of natural disaster: the damage wrought by Hurricane Hugo on Montserrat amounted to 500% of the island’s GDP. In Nevis one hotel accounts for 75% of total employment. Lack of market-driven competition in small states leads to high cost and failure to innovate, he said, adding that sectors are undiversified with a lack of international competitiveness because of failure to achieve economies of scale. Special and differential treatment should take the particulars of small states into account, suggested Brown, and should not be confined to measures that merely prevent developing countries from being put at a disadvantage.

Differential treatment should also include proactive, meaningful and enforceable measures to promote growth and development, he said. There should be flexibility, access to mediation, technical assistance, and training of technicians. There is a need, too, for development financing and incentives, which create a commitment to follow through on resolutions. Policies, which promote development, should be included since baseline agreements like the forgoing of obligations does not necessarily promote growth. In fact, he argued that an adjustment period which is too long can be just as detrimental as one which is too short. Fay Housty, Director of Foreign Policy and External Economic Relations of the Caribbean Community (Caricom) said it is paramount that the countries of this region commit to forging alliances against the backdrop of an uncertain economic climate. Housty emphasised that our industries must be competitive in the international market. This is an international market in which global trade has grown considerably in the last four decades, according to Carlos Isidro Echeverria, Ambassador of the Republic of Costa Rica in TT. Growth in international trade was at a rate of 6.7% in the 1970s, 4.1% in the 1980s and 7.3% in the 1990s, he said. This expansion, according to Daniel Blanchard, Director of ECLAC Subregional Headquarters for the Caribbean. was due to bilateral agreements, income growth, technological change and cheaper transport costs. Still, many factors hinder the success of developing states, said Kenneth Valley, TT’s Trade Minister. These include lack of adequate financial resources, proliferation of non-tariff barriers, erosion of preferential market access and reduction of foreign aid. What is required, he proposed, are longer time frames, technical assistance, and an adjustment fund. “We need for our firms in TT to manage the paradigm shift from preferential treatment to trade reciprocity,” he stressed.

On the Growth Competitiveness Index, TT is the fourth in the Western Hemisphere behind USA, Canada, and Chile and was overall ranked 37th out of 80 countries globally. Antonio Romero, Coordinator of International Trade Negotiations, Permanent Secretariat of the Latin American Economic System (SELA), pointed out that within trade negotiations, differences in economic development, economic structures as well as economic dimensions were pertinent factors. Global indicators of economic dimensions, for example, take into consideration characteristics such as size, populaton, workforce, area and GNP. Regarding this region, “the differences in size or economic dimensions are scandalous.” he said. Countries range from massive Brazil, Mexico and Argentina, to medium-sized economies like Columbia, Peru, Venezuela and Chile, to all the other Latin American countries which comprise the relatively small economies. Small economies, Romeros said, are more vulnerable to issues that are not immediately trade issues, like health and ecucation. There are also challenges in attempting to gain special and differential treatment in trade negotiations, he said, noting that this included lack of consensus regarding the definition of a small economy, dealing witn non-trade issues, and the idea that free trade is not sufficient to guarantee levels of development.