Last week I labelled as going after the "big prize" the efforts of small states, led by the Caribbean, to have special and differential treatment (SDT) for themselves incorporated as a fundamental principle of the WTO trade system. I had indicated that progress along this road relies to a large extent on their making a convincing case to the widest international community as to why small countries should be treated differently in the WTO system. Reaching first base in this effort requires the production of an acceptable and workable definition of small states so that recourse is not made, by default, to self-classification, which is the present practice.

Hot and cold: the WTO work programme on small economies
Their first major accomplishment in this regard was at the Doha Ministerial, which launched the present Development Round of Global Trade Negotiations. That ministerial declared that under the auspices of the General Council of the WTO a work programme would commence to examine issues relating to the trade of small economies. The general council passed an instruction to the Committee on Trade and Development (CTD) to this effect in March 2002. As stated by the WTO: "the objective of this work is to frame responses to the trade-related issues identified for the fuller integration of small vulnerable economies into the multilateral system." While this was a positive sign for small states, the statement however went on to note that this should not "create a sub-category of WTO members." Clearly, the Doha ministerial had blown 'hot and cold,' giving encouraging signs but at the same time establishing definitive limits to the scope of the work programme. As it is now generally known, it was intended that recommendations for action arising from the work programme were to have been laid at the collapsed Cancun WTO Ministerial Conference

Since its mandate the CTD has embarked on information-gathering and factual analysis. Two items of its work so far are of particular note to readers. One is the attempt to identify all the provisions in the various agreements leading up to the establishment of the WTO and subsequent ministerial conferences, which may be of particular relevance to small states. The note on this produced by the WTO secretariat revealed that there was nothing of real depth and consequence on these issues in the existing record. The second piece of work is the review of the literature on the economic consequences of small country size that the CTD completed last year. That review, while of general usefulness, has been challenged by several member states for omissions, misunderstandings, and specious analysis.

Small states: problems
In October 2000 the WTO held a Seminar on Small Economies at which members and observers gathered to consider two basic questions: What is the nature of the problem facing small economies? And, what possible solutions exist for these problems? Many problems were identified at the seminar, but in its reporting of the Seminar the WTO highlighted six of these. First, small countries were distinguished by the small size of their domestic market. And, since specialization is limited by the extent of the market, the scope for their exploitation of economies of scale was less than in larger economies. Second, their export structures were highly concentrated, but the reality is the scope for diversification of their product range and widening their market access was severely constrained.

Third, as a general rule the seminar acknowledged that small states were unusually subject to what economists' term as 'shocks,' both external and exogenous. An external shock occurs when for example there is a sudden drop in the demand for an exported product (eg when sugar prices fall as a result of over-production on the world market, or when tourists are scared away from a country). An exogenous shock could be a natural disaster: flood, earthquake or volcano. When such shocks occur, as a rule, governments and other institutions in small states have a limited/restricted capacity to respond effectively.

Fourth, many small countries, particularly in the Pacific and Africa, suffer from being located in remote places at considerable distance from the major markets of the USA and the European Union. Their transportation and other transaction costs are therefore high, making their export sales uncompetitive. Fifth, small country size also constrains the availability of physical (natural) factors of production and human resources. This problem of factor endowments and human-resource capacity is however linked to the sixth problem on which the WTO reported, that is, the significant limitations and constraints that small states face in terms of their institutional and administrative capacity.

From this description it is clear, as the WTO noted, the problem of small economies encompass more than elements of their trade or even trade-related matters broadly defined. They go to the essence of the development potential and limitation of these states and the intrinsic vulnerability that they all share.

Small states: solutions
The seminar also identified solutions in six broad areas. First, given the remit of the WTO it was not surprising that heading the list was "more open markets." Acknowledging that openness to trade runs dangers for small vulnerable economies, it nonetheless recognised that it also offered "the opportunity to develop global industries beyond the limited local market." In this way trade is seen as an engine for growth and development. The second area of solutions focused on "internal reforms and policy measures." These included both sound macroeconomic management and the resolution of "civil conflicts." The latter can of course take a wide variety of forms, ranging from industrial to political and ethnic-based conflicts.

Because technology is a leading factor in global development, the solutions also emphasized the need for small countries to "take advantage of technological developments." To this was added three further solutions: "diversification of production and trade", "improved market access," and "regional agreements." The seminar recognized that diversification was difficult to achieve and that internal reforms and policy measures should be linked to increased efforts at obtaining market access overseas. Participants also found that regional cooperation was useful not only for pooling resources and markets, but for engagement in the global negotiations, which they acknowledged was a costly and skill-intensive endeavour for small states.

Mention was made of SDT at the seminar, but once again the gathering blew 'hot and cold' as their pronouncements were kept within the existing WTO framework. Thus, the seminar report acknowledged the need to take advantage of the present transitional periods for implementation within the WTO framework and made exhortations to the rich countries to provide technical assistance and capacity-building to small economies in the WTO.