Small Island States and the WTO

1
Small Island States and the WTO

• 10 Years of Experience

2
Endowments

• Do small islands states, given their natural
  endowments, have a special economic and trade
  problem?
• Common argument Given relatively high
  GDP/capita, small states do not have a problem.
• Prosperity of many has been directly as a result
  of smallness combined with other characteristics.
  
• Trade preferences which suited production
  capacity of small states is being eroded.
• The problem is not the past but the future

3
What are the problems

• Smallness is a problem but by no means
  overarching
• Isolation and geographic dispersion combined
  compound problem.
• Recent development results, while better that the
  LDCs, indicate a deteriorating situation

4
Marginalisation

• Why marginalisation?
• Declining share of world trade ? Declining
  welfare
• It is possible to have a declining share and have
  incomes rising.
• Marginalisation measures
• Productive and adaptive efficiency of the economy
  
• Distributive equity of the system of
  globalisation
• Political significance.

5
Trends in Marginalisation and Growth of Real GDP
in Small States
Source Razzaque and Grynberg (2004)
6
Share of LDCs and Small States in Global Inflow
of FDI
Source Authors estimates from UNCTAD (2002)
7
Small States trade

• Cost disadvantages resulting from being small
  island states have meant that economic activity
  has often been based upon quasi-rents -
  transitory returns above opportunity costs.
• These rents are either
• market based eg niche markets or booming sectors
  or
• de jure rents stemming from legal arrangements eg
  trade preferences, sovereignty (finance centres)
  or tax concessions

8
Globalisation Small States

• If small states survive on quasi rents, what is
  the problem?
• De jure rents , especially trade preferences, are
  eroding. The value of sovereignty is being
  decreased
• The international community sees no reason to
  intervene.

9

Isolation and Distance
GDP per capita and Foreign Market Access (FMA)
Source Redding and Venables (2001)
10

ODA
ODA Levels LDCs and Small States
Year Total flows (US millions) Total flows (US millions) Total flows (US millions) Total ODA (US millions) Total ODA (US millions) Total ODA (US millions)
Developing Countries LDCs Small States Developing Countries LDCs Small States
1980 42591 9872 1693 32460 8724 1505
1985 41019 10257 1730 30180 9483 1353
1990 74122 17470 2872 56036 16747 2427
1995 70725 17064 1792 58706 17198 1811
1999 79165 11797 950 50543 11591 1076
11
Composite Relative Commodity Prices and Aid Flows
in Small States, 1980-2000
12
Costs of Doing Business
The Genesis of the Cost Study

• The hypothesis that all countries need to be
  treated the same is an empirical one what if
  some countries cannot adjust?
• Adjustment not possible where the cost of
  inherited disadvantages are so large that there
  is no above zero factor price that will induce
  investment
• Will the investors come?

13
The Sample
Size Group Size Group Size Group Size Group Size Group
Region Micro Very Small Small Median Large
Pacific 11 2 1 - -
Caribbean 8 3 1 - -
Sub-Saharan Africa 1 5 2 10 1
Latin America - - 1 6 1
South Asia - - - 1 3
Rest Asia - - 2 2 5
OECD - - 7 11 8
14
Exemplar Economies
Classification Country Population
Micro Anguilla 12,100
Very Small Vanuatu 197,000
Small Singapore 4,020,000
Median Hungary 10,020,000
15
Summary of Cost Disadvantages ( deviation in
costs relative to median economy)
Area of Cost Micro Very Small Small
Airfreight Average 31.8 4.1 -1.7
Seafreight Average 219.6 70.5 9.1
Unskilled Wages Average 60.1 31.6 6.6
Semi-Skilled Wages Average 22.4 12.1 2.6
Skilled Wages Average 38.0 20.3 4.3
Telephone Average (marginal costs) 98.5 47.2 9.0
Electricity (marginal costs) 93.1 47.0 9.4
Water (marginal Costs) 0 0 0
Fuel Average 53.8 28.3 5.9
Personal Air Travel Average 115.7 56.8 11.0
Land Rent Average -3.5 -17.2 -8.9
Source Winters and Martins (2004)
16
Cost Disadvantage for Exemplar Economies by
Industry ( by which target country costs of
supplying exports exceed median country costs )
Industry Micro Very Small Small
Electronic Assembly 36.4 14.3 2.7
Clothing 36.3 14.3 2.7
Hotels and Tourism 57.5 28.5 6.2
Source Winters and Martins (2004)
17
Recognition in the WTO

• Paragraph 35, Doha Ministerial Declaration agrees
  a work programme to examine issues of the trade
  of small economies, the objective being
• to frame responses to the trade-related issues
  identified for the fuller integration of small,
  vulnerable economies into the multilateral
  trading system, and not to create a sub-category
  of WTO Members

18

• Contradiction framing responses to the trade
  concerns of SVEs without identifying who the SVEs
  are
• No universally accepted definition of SVEs
• However defined, Small Island States share of
  world trade is miniscule

19
Small Island States share of World Trade
20
Dispute Settlement

• Bananas
• Sugar
• Tuna
• Gambling

21
Emerging Issues

• Fisheries Subsidies
• Financial Services
• Subsidies and Countervailing Measures

22
The Future

• Precondition is that the international community
  recognise the inherent disadvantages of small
  island states