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

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

14. Exemplar Economies

15. Summary of Cost Disadvantages (% deviation in costs relative to median economy) 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 ) 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