RESTRICTEDWORLD TRADE
ORGANIZATIONWT/COMTD/W/56
10 February 1999
(99-0517)
Committee on Trade and Development Original:  Spanish
SMALL DEVELOPING ECONOMIES
Communication from Guatemala
The following communication has been received from the Permanent Mission of Guatemala
with the request that it be circulated to Members  of the Committee on Trade and Development
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INTRODUCTION
Many of the disparities among Members of the World Trade Organization (WTO) dealt with
in this document lead to the conclusion that the be nefits of participating in the multilateral trading
system are not very substantial for small developing economies.  In order to obtain and realize thesebenefits, some domestic policies in our small developing economies need to be adapted and
reinforced, while at the same time cooperative action at the international level has to be promoted so
that small developing economies will be much better prepared to play a role in the ambitious process
of opening up, negotiating and implementing the commitments under the WTO.
Small developing economies have certain features that highlight their relatively lower level of
development, and this can be seen in the limited capacity of their production sectors to meet thechallenges raised by the WTO.  A large agricultural sector that employs a substantial part of the
labour force and lesser urbanization find their counterpart in a lower level of development of industry
and services.  An outdated educational system and infrastructure in the majority of small developing
economies exacerbate their situation and mean that the structure is not so well prepared and that there
is less understanding at the national level (both in the public and private sectors) of the multilateraltrading system in a world that is increasingly globalized.
The foregoing is accentuated by the greater dang ers that threaten the sustainability of their
policies.  International trade is progressing rapidly and our countries find it difficult to implement and
observe the commitments undertaken, which in turn means that it is increasingly difficult to makeprogress in negotiations that imply further commitments.  The origin of some of these threats can be
found in domestic policies, which are not so well-adapted to confront the wide-ranging and ambitious
liberalization processes.
Fiscal revenue in small countries is more depe ndent on foreign trade than is the case in larger
countries and accounts for a lower share of international reserves.  Some of the factors that cause the
weaknesses that are more apparent in small deve loping economies than in other economies are the
considerable dependence on external financing, a higher degree of openness to trade, the
concentration and vulnerability of exports, few opportunities for economies of scale, a low level of
domestic consumption, smaller markets with few products on sale, together with the minor role
played by these economies in the fixing of international prices.WT/COMTD/W/56
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In order to be better prepared to obtain and take full advantage of the benefits offered by the
multilateral trading system, small developing economies must continue to implement macroeconomic
policies and make institutional changes (adjustment policies that are being applied with great
difficulty).
They must also encourage the gradual opening up of trade, particularly in the agricultural
sector;  they must implement policies and allocate resources that will improve the coverage and
quality of education and expand the absorption of technology and, in general, they must make greater
efforts to improve public administration.
Domestic policies alone will not, however, enhance the preparedness of our small developing
economies.  It is also essential to reinforce international cooperation that will support institutionalstrengthening and public administration;  this should compensate for the lack of attraction of
investment in small developing economies because of their geographical (size), social and economic
limitations and offset the consequences of any imbalances in the context of greater liberalization;
intraregional investment in small developing economies should be encouraged in order to promote the
conversion of the production sector;  they should be helped to participate in multinational projects onthe transfer and dissemination of technology;  their main export commodities should be given
effective access on an ongoing basis;  and it should be recognized that the existing rules of origin
discriminate against exports from small developing economies because they have less intersectoral
integration, as can be seen in the paucity of linkages at the domestic level.
All the elements described lead us to ask ourselves what globalization mechanisms need to be
put in place to facilitate the transition of small developing economies within the multilateral trading
system, helping to raise their level of development, and striking a balance between full participation in
the benefits and the commitments under the WTO.
GENERAL ASPECTS:  SMALL DEVELOPING ECONOMIES WITHIN THE
MULTILATERAL TRADING SYSTEM
Small developing economies display certain economic and structural features that make them
more vulnerable to external fluctuations in production and demand, for example, the restricted size of
their domestic markets, marked dependence on foreign trade, relatively little diversification ineconomic structures, a low tax base and higher infrastructure and public administration costs.
Integration within the multilateral trading system has an impact on the macroeconomic
performance of the small developing countries involved.  Changes in economic policy are needed to
allow smaller and relatively less developed economies to take full advantage of the benefits of themultilateral trading system and ensure that they are not at a disadvantage in comparison with other
economies.  This will require greater deregulation and a more externally-oriented approach in trade
relations.
One important question is how to develop transitional measures that will facilitate the
integration of small developing economies within the multilateral trading system and so decrease the
cost of adjustment for such economies.
We are aware that governments are facing the challenge of defining more sophisticated and
sustainable economic policies that will lead to a real improvement in living standards.
How can sustainable growth be promoted?  What are the most suitable policies and the key
structural components that will allow a country or region to participate with success in the global
economy and attract international investment?   The replies to these and other questions are essentialWT/COMTD/W/56
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for the definition of policy priorities by countries seeking to become better prepared to benefit from
the opening up of trade and the trend towards globalization.
Small developing economies face problems because their growth does not depend essentially
on exports and they do not have diversified baskets of goods for export, nor are they in a position toexport innovative products in international trade.  These are all factors that make economies better
prepared to face the challenge of multilateral trade liberalization.
Small developing economies are also at a disadvantage as regards human resources.  The
gauge of increasing competitiveness and productivity in the process of integration into the
international economy calls for skilled human resources able to absorb and adapt new technologies on
an ongoing basis.  The existence of highly educated and trained human resources is one of the majorstructural factors that allows an economy to take advantage of the possibilities afforded by free trade.
Small developing economies face two main disadvantages in particular:  the proportion of the labour
force employed in modern (non-agricultural) sectors is decidedly lower than in other countries and
their educational achievement index, which combines the adult literacy rate and the average number
of years of school attendance, is also lower.
The availability and the quality of infrastructure (transport, energy, telecommunications) in a
country is one of the critical decisive factors in th eir structural competitiveness and in their ability to
attract flows of productive investment.  Small developing economies face serious problems in this
area, which is fundamental if they are to benefit from the multilateral trading system.
Small developing countries have to confront a larger number of external risks than other
economies due to a number of factors:  they depend to a greater extent on external transfers and
financing, including a high percentage of revenue in the form of official aid, and are more open, with
a concentration of exports and trade vulnerability due to the important role played by exports from theassembly industry.  This contrasts with other economies which have a low level of trade vulnerability
and low or regular macroeconomic vulnerability.  It  must be stressed that limiting the risks in the
trade sphere also calls for joint efforts among large, medium and small economies.  This implies
supporting and expanding the export diversification efforts made by small economies and recognizing
the vital importance of secure access to foreign markets for the goods that constitute a high proportion
of the total exports of small countries.
We shall conclude by saying that our continued economic progress depends on solid
economic policies, sustainable development and a dynamic private sector.  The key to prosperity is
trade without barriers, without subsidies or unfair practices and with an increasing flow of productive
investment.  The elimination of obstacles to market access for goods and services, and a high level of
competitiveness and commercial productivity, will fo ster our economic growth.  Growth in the global
economy will also enhance national prosperity.  The opening up of trade, an increasing influence or
presence in multilateral trade and better economic integration are key factors in raising living
standards and improving working conditions in small developing economies.
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