Small states generally have open economies, relatively undiversified production structures and concentrated exports, which are transported to distant markets. These countries are required to implement domestic policies that will facilitate the transition of their economies to accommodate the inexorable move to a regime of global trade rules. Hence, they have a strong interest in activities of the WTO and the EU’s post-Lomé arrangements. Yet their individual size and aggregate contribution to world trade (less than one-quarter of one per cent) make it difficult for small states to participate fully in negotiations or to influence decisions. More on Trade and Transition
(download 42K PDF) Domestic Policies and Transition The changing global trade environment requires small states to institute policies that will facilitate transition, attract private investment and send clear signals on the direction of domestic trade policy and regulation. Domestic factor markets need to be more flexible if the productive structure of small economies is to progress. In order to develop an effective enabling environment for these processes, unfinished structural reforms need to be implemented, infrastructures and public services improved, and effective information flows generated. Issues of falling tax revenues from import tariffs in response to external trade liberalization are also important – some open small states derive as much as 60 percent of their tax revenues from taxes on external trade. The average figure for large developing countries is 21 percent.
WTO Issues Their trade openness means that small states have a larger stake in a stable, rule-based global trade environment than their low share in world trade (less than one-quarter of one percent in aggregate) might suggest. Hence, issues of accession to the World Trade Organization (WTO) and lack of power, capacity and/or representation in international trade negotiations of the WTO loom large. After Lome IV
For the 71 developing countries of Africa, the Caribbean and the Pacific (ACP), the expiry of the Lomé IV Convention in February 2000 signaled the end of a unique relationship between them and the European Union. Trade preferences for ACP countries had already been eroded through progressive trade liberalization. While there has been some rollover for a limited period, the principle of non-reciprocal trade preferences will gradually disappear and non-LDC small states will face increased competition from non-ACP LDCs. The latter countries will enjoy duty free access to the EU market for “essentially all products” as this commitment is implemented over the period 2000-2005. Country beneficiaries from the schemes providing compensation for shortfalls in commodity export earnings (Stabex/Sysmin) may also find themselves ineligible for the instruments intended to replace these mechanisms. |
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