WORLD TRADE
ORGANIZATIONWT/GC/W/361
12 October 1999
(99-4305)
General Council Original:  English
PREPARATIONS FOR THE 1999 MINISTERIAL CONFERENCE
Proposals for Addressing Concerns on Marginalization of
Certain Small Economies1
Communication from Barbados, Dominica, Fi ji, Grenada, Jamaica, Lesotho, Mauritius,
Papua New Guinea, Solomon Islands, Saint Lucia and Trinidad and Tobago
The following communication, dated 4 October 1999, has been received from the Permanent
Mission of Mauritius.
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Introduction
1. In the wake of Geneva Ministerial Declaration, the problems and concerns of the small
economies have, on a number of occasions, been raised in the General Council, Committee on Trade
and Development and other WTO subsidiary bodies.  Written and oral reports have been presented
relating to the vulnerabilities and specificities as we ll as the challenges facing them in the context of
globalization.2  These were followed by discussions, of which the Council and the respective bodies
took note.  Some concrete proposals are being herewi th formulated in view of the preparations for the
Seattle Ministerial Meeting.
2. Their trade and development and socio-political conditions are, to a large extent, influenced
by disadvantages of, inter alia , size, market, location, natural resources, fragile eco-system and
vulnerability to natural disasters.  Damages caused by vagaries of nature are particularly harsh in
small countries, because of the pervasiveness of the natural calamities and the ease with which theycan often devastate them entirely in a matter of hours
3. The problems are even more acute when one considers that, by nature, they have a high ratio
of trade openness and are liable to external economic dislocations, often due, inter alia , to commodity
price fluctuations, unstable market conditions, etc.  It is in this very context also that their trade and
production systems should be viewed.  Production itsel f is generally undertaken in medium and small
units with the result that economies of scale are not possible.  Consequently, their production costs are
comparatively higher and their industries and output s are at a disadvantage when faced with products
marketed by larger units from other countries which benefit from economies of scale and, also, from
state-of-the-art-technology.
                                                     
1 All references to "small economies" in the text are made in relation to paragraph 6 of the Geneva
Ministerial Declaration, May 1998 (Document WT/MIN(98)/DEC/1); and also in relation to the Documents
WT/COMTD/M/14 and WT/COMTD/W/50 and Corr.1.
2 For details please see documents mentioned in footnote 1.WT/GC/W/361
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4. Further, the comparative unit costs of ocean, air freights, inland and transit costs and
insurance in respect of their imports/exports are much higher.  Several reasons are advanced in this
regard, not the least, being the so-called uneconomical volume of traded goods, their “indivisibility”
and their higher transaction costs.  It thus becomes very difficult for small economies to operate in an
increasingly liberalized and fiercely competitive arena.
5.  It needs to be recalled that the products exported by these countries generally enjoy
preferential access in the markets of developed countries under the Generalized System of Preferences
(GSP) and other arrangements such as the Caribbean Basin Initiative (CBI), CARIBCAN, the Lomé
Convention, etc.  These preference-based arrangements  have been of vital importance for their trade,
sustained and sustainable economic growth and stability and for their contribution to building
institutional capacity.
6. The benefits arising from these arrangements are being eroded, exacerbating further
competitive capacity.  In view of the new conditions of international trade one of the important aims
of future work in the WTO should be to consider  how the stability and predictability that these
arrangements have afforded, may be designed to foster the gradual and smooth integration of the
small economies into the world trading system.
7. In respect of the present GSP scheme which provides preferential access, the WTO
Secretariat should be requested to prepare a consolidated list of products of export interest to small
economies.  Furthermore, with a view to making market access more meaningful, all developed
countries should extend duty free access to products of export interest to small economies.
Regional trade agreements8. Regional trade agreements play an important role in addressing marginalization.  They help
small states, in particular, to develop economies of scale and, as such, constitute effective building
blocks for their integration into the multilateral trading system.  The conclusion of such agreements
should therefore be encouraged as part of the process towards successful integration.
Agriculture
9. Agricultural production in certain small economies is characterised by dependence on exports
of a few commodities and limited number of markets for the significant portion of their agricultural
export earnings.  Many of these economies are also heavily dependent on food imports to meet their
basic nutritional requirements and are particularly vulnerable to price and supply fluctuations.  The
higher fixed costs incurred at every stage of the commodity chain (production and marketing), and
their small-scale operations and susceptibility to natu ral disasters substantially increase the risks, and
the incidence of enterprise failures.  Hence the need for these countries to generate stable and
predictable export earnings.
10. Therefore, it is necessary that future rules should provide, inter alia , for:
- measures at international level to assist these economies whenever they are adversely
affected on account of any natural disaster;
- assistance for feasible and sustainable diversification of production in products which
have potential for higher value-added.
11. Because of the heavy dependence of many small economies on imports of food, increases in
their food bill have severe economic and social consequences.  Therefore, the net food-importers
amongst them have vital interests in effective implementation of the 1994 Marrakesh Decision inWT/GC/W/361
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favour of the least developed and net food-importing developing countries.  Appropriate steps must be
taken for the rapid implementation of this Decision.  In addition the following decisions should be
integrated in any future Agreement:
(i) the need to give priority consideration in future agricultural trade liberalization to
market access for their products;
(ii) the provision of technical and financial assistance by major agricultural exporters and
development institutions to improve agricultural productivity;
(iii) the establishment of a mechanism to ensure that, whenever food prices exceed a
particular ceiling or whenever domestic food production drops below a certain
threshold, concessional facilities are made available.
Agreement on Textiles and Clothing (ATC)
12. Given their level of development, several small economies have, at the cost of heavy
investments, been able to develop significant textile and clothing industries.  Indeed, textile andclothing industries play an important role in terms of employment and incomes and contribute to
economic growth and socio-political stability.  A clearly visible comparative and competitive
advantage has developed thanks to existing institutional arrangements and policy measures both in the
producer and importer countries.  The efforts undertaken in this direction should not be frustrated and
measures must be adopted to consolidate and enhance the competitiveness acquired.  In this context,the following measures should be taken:
(i) provision of concessional loans by the World Bank and other financial institutions for
upgrading/rationalising/rehabilitation of their production units with the adoption of
most up-to-date and appropriate technology;
(ii) provision of technical assistance for the adaptation of production to the changing
trends in designs and fashions and for the marketing of such products.
13. All these measures have to be viewed in the context of an innovative approach to technical,
financial and other assistance within an integrated framework of cooperation, coordination, coherence
in the activities of the international community and its institutions and in the overall context of inter-
dependence in the multilateral trading system.  In th is context the specific Declaration incorporated in
the Marrakesh Agreement “on the Contribution of the World Trade Organization to Achieving
Greater Coherence in Global Economic Policymaking” should be fully adhered to.
14. These economies cannot achieve diversification of their economic activities in the absence of
the aforesaid measures and arrangements.
Special and differential treatment in the WTO system: level of tariff protection
15. For nearly over two decades or so, most small economies have been pursuing open and liberal
trade policies.  In many cases there has been autonomous liberalization which has not yet been taken
into recognition in assessing these countries balance of commitments.  Measures taken in this
direction include tariff reductions.
16. In most of these countries custom revenues still constitute a high proportion of total
government revenue.  Any decline in the level of such revenues arising from further tariff reductions
may cause a large number of governments to curtail their budget expenditure.  Reductions may take
place - and indeed have already occurred - even on services that are essential for economicWT/GC/W/361
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development - education, health  and infrastructure - with all the attendant risks and consequences.
Empirical evidence has established, inter alia , that buoyancy of government revenues are severely
constrained by:  (a) population size;  (b) the relatively narrow base of income generating economic
activities and income policy;  and (c) the inelasticity of the taxation system itself.
17. It is, therefore, imperative that small economies be granted the necessary flexibility to reduce
tariff levels, in keeping with what they consider necessary for: (i) their balanced development and
sustained growth; (ii) sustaining the competitiven ess of their products; and (iii) sustaining their
developmental momentum.  This flexibility should include freedom to determine the time-frame for
reduction.
18. It would also be necessary to embody in the rule s the following principles in respect of small
economies:
- that there be no requirement for them to make further commitments to reduce tariffs
and to bind the reduced rates beyond what they consider realistic and consistent with
their trade, development and financial needs and for such period as is necessary;
- that the level of tariff reductions should, inter alia , be based on individual assessment
of their effective capacity to apply trade remedies such as anti-dumping and safeguard
measures.
Subsidies
19. The rules governing use of subsidies in the industrial sector, as contained in the Agreement on
Subsidies and Countervailing Measures (SCM), generally prohibit the use of export subsidies onindustrial products.  Developing countries are provided with a transitional period of eight years
(i.e. up to January 2003) to implement these rules.  Further, some flexibility is provided in the
agreement as per Annex VII.
20. Given the inherent difficulties for small economies to develop a viable industrial base and the
small share of their exports in world trade, this same flexibility should be afforded to them.
21. On products receiving actionable subsidies, importing countries can levy countervailing
duties, if it is established after investigation, that their imports are causing injury to the domestic
industry.  No such duties can be levied if the subsidy granted is de minimis.  In the case of developing
countries, a subsidy is considered as de minimis if the level of subsidy does not exceed 2 per cent in
the value calculated on a per unit basis.  Given the special constraints of small economies, which face
consequent difficulties in penetrating markets, the de minimis level should be raised.  Small
economies also consider that this should equally apply to de minimis levels in the SafeguardAgreement.
Services
22. The small economies, because of limited natural resources and domestic markets, look
towards the services sector as a principal avenue for future export and economic growth.  In thiscontext it needs to be highlighted that Article IV of GATS is of particular importance to them and that
developed countries undertook to make market access commitments in sectors of significance to
developing countries as per the same Article.
23. The new negotiations must give practical orientation to Article IV of the GATS and as such
set a priority on the removal of barriers in sectors of export interest to developing countries.Furthermore, developed countries should make commitments, including the following:WT/GC/W/361
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(i) to provide incentives to improve the access of  these small economies to technology,
distribution channels and information networks, particularly via electronic commerce;
(ii) to ensure concrete capacity measures are adopted to assist their services sectors.
24. The development of disciplines developed under GATS architecture must address the
particular needs of these economies, who reiterate the need for flexibility in formulating and
implementing policies, in line with national objectives, for developing supply and export capacities.
25. We conclude by reiterating that special consideration must be given to the market access
needs of small developing economies which, because of scale constraints on developing an industrial
base, are highly reliant on services for their future economic development.
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