Trade preferences and developing countries:
Dealing with inequities
Small developing
economies and
the multilateral Dr.Richard L.Bernal,
Small developing economies are often constrained in participating in the negotiation and
regulation of multilateral trading rules due to severe cost and resource limitations. This article
argues that, despite the costs and difficulties, small states must remain engaged in the multilateral
trading system in order to ensure that their specialised commercial interests are recognised and to
protect their rights. Umbrella entities like the Caribbean Regional Negotiating Machinery
(CRNM) provide a means of maximising the influence of small states in an international forum
such as the World Trade Organization.

Small developing countries often find the costs of consequence of a wider adjustment process.
participating in the negotiation and adjudication of rules Despite the costs and difficulties involved in in the multilateral trading system very onerous. Indeed, participating in multilateral trade negotiations, there are many governments in small or developing countries five compelling reasons why small states must remain regard the cost as prohibitive. This has elicited three engaged in the multilateral trading system and responses. First, and regrettably, countries drop out of participate as fully as possible in the current and future the process, except for a few high-level meetings.
negotiations in the World Trade Organization (WTO): Second, their participation may become heavily • The importance of international trade to small dependent on funding from multilateral financial institutions and bilateral donor agencies in developedcountries, whose interests, ironically, are often • Their vulnerability to external developments; diametrically opposed to those of the beneficiary • The distinct and sometimes unique nature of their countries. Third, and all too infrequently, they combine their resources and form common entities, for example • The enhancement of negotiating leverage; and the Caribbean Regional Negotiating Machinery(CRNM), which serves 15 Caribbean countries. The CRNM fulfils the functions of technical advice,monitoring, analysing, reporting, co-ordinating common Importance of international trade
positions and negotiating (where appropriate) on behalf The highly open structure of small developing economies means that international trade is large in Often, trade ministries are limited in participating relation to domestic production, reflected in a high in trade negotiations less by constraints on fiscal trade/GDP ratio. Small developing economies exhibit expenditure than by the failure of cabinet colleagues, more reliance on international trade than large and in particular finance ministers, to fully appreciate the developed economies. Imports are of critical importance repercussions that can result from changes in the rules in production and consumption, both quantitatively and and provisions of the multilateral trade system. The qualitatively. Growth is therefore extremely dependent overarching rationale for trade negotiations is on imports and consequently on import capacity, which liberalisation, which obviously has implications for fiscal is in turn a function of the quantum of foreign exchange revenue, both directly through tariff reductions, and as a inflows. These inflows are determined by export Trade preferences and developing countries:
Dealing with inequities

earnings and net capital inflows, i.e. foreign investment, economies, beyond that allowed to developing and least developed countries, has come from other developing Small developing economies have greater need for access to external markets than large economies because Special and differential treatment
the small size of their domestic markets and limited Currently small developing economies are struggling to resource base cannot sustain economic growth.
retain existing preferences in key markets and to Unfavourable external developments in either imports establish the principle that small size is an additional or exports, including changes in trade arrangements, can constraint on development and should be accorded S&D lead to a collapse in export earnings or a surge in Given the importance of trade, their vulnerability and the ever-expanding coverage of trade agreements, small developing economies cannot afford to ignore the various trade negotiations. economy-wide prices, precipitating prolonged periods treatment. This challenge is illustrated by the situation of severe contraction in the wider economy.
confronting CARICOM countries. These states enjoypreferential market access for trade in goods with Vulnerability to external developments
Canada through Caribcan, with the European Unionunder the Cotonou Agreement and with the US by the Small developing countries are especially vulnerable Caribbean Basin Economic Recovery Act (CBERA) to external developments because they are characterised and associated legislation. But all three trading partners by a high degree of openness, compounded by a have signalled their intention to dismantle these concentration of exports on a very small number of preferential arrangements in favour of reciprocity. At the products which in many instances are primary products same time, the CARICOM countries, along with other and/or agricultural commodities that are exported with small countries in the Pacific, Indian Ocean and Africa, minimal processing. This vulnerability becomes acute have led the advocacy for S&D for small developing when product concentration is compounded by economies in the Free Trade Area of the Americas exporting to a single or a limited number of overseas (FTAA) and in the World Trade Organization. The markets. A dramatic example is the implosion of the Declaration of the WTO Ministerial meeting in Doha economy of Dominica, which depended solely on established a work programme on small economies.
exports of bananas to the UK until the banana regime of In the Doha Development Agenda and in other ongoing trade negotiations such as the FTAA, and to Small developing economies must therefore be a part some extent the ACP-EU context, there is an increasing of trade negotiations in order to protect current trade recognition that small states or ‘smaller economies’ have privileges and ensure that new rules adequately take unique problems due to structural and permanent account of their particular circumstances. Exposure to characteristics, which require a special dispensation in the external events will increase as trade liberalisation international trade regime. Research on the concept of proceeds and globalisation intensifies the inter- small, vulnerable economies has significantly advanced over the past decade and there is increasing scope for Given the importance of trade, their vulnerability and making a special case for them in global and regional the ever-expanding coverage of trade agreements, small trade rules. The FTAA process has acknowledged the developing economies cannot afford to ignore the need to reflect ‘differences in size of economies and levels various trade negotiations. The challenge is to mobilise of development’ as a basic principle in the negotiations.
sufficient human and financial resources to adequately The negotiations between the EU and ACP countries, cover the plethora of trade negotiations being conducted although not as overt regarding the special importance bilaterally, regionally and multilaterally.The alternative of attached to small economies, have nonetheless signalled inadequate or no participation would cause serious an intention to make the Economic Partnership Agreements (EPAs) development-focused and to includea fundamental principle ensuring that the vulnerability of Distinctness of interests
land-locked and island states shall be taken into account.
Small developing economies are a subset of the But in order to ensure that these considerations are developing countries economic category.Their concerns firmly embedded in rules, which are legally binding and objectives are distinct, and in some cases unique, commitments, it is essential for small states to remain differing from other developing economies. They must engaged in the process and maintain a consistent participate in trade negotiations in order to ensure that approach across all negotiating forums.
their particular specialised interests are recognised andaccorded appropriate treatment. The uniqueness of the Enhancement of negotiating leverage
agenda of small developing economies is highlighted by A rules-based regime for the conduct of international the fact that much of the resistance to special and trade and the resolution of disputes is of more differential (S&D) treatment for small developing importance to small countries than to large ones because Trade preferences and developing countries:
Dealing with inequities
it is through this type of arrangement that small states have the enforcement of their rights and privileges by can increase their limited leverage through consensus compelling other countries to adhere to multilateral decision-making and by the use of strategic alliances.
rules. This result could not have been achieved in a Multilateral negotiations allow small countries to exercise countervailing power against the predominating Fairness and participation
power of large countries such as the US, the European Despite Antigua and Barbuda’s success, small economies Union, Brazil and India. Large countries, particularly the have limited administrative capacity and human highly developed ones, wield near-dominant influence resources, which make it difficult for them to use the due to their market size, share of world trade and provisions of the Understanding on Rules and political power. The mere threat of trade action by a Procedures Governing the Settlement of Disputes large country can disrupt global markets, impede market (DSU) in the WTO. The cost of participating in WTO access and unsettle production and investment. Small dispute settlement proceedings is very high. Small countries exercise limited influence in trade negotiations economies have very limited capacity to either initiate because their small national markets and insignificant or defend cases. Current negotiations in the WTO on share of world trade provide little or no leverage in improvement of the DSM are seeking to address these bargaining. Their best prospect for influencing trade institutional issues. It is therefore important for By establishing clear disciplines applicable to all WTO member states, multilateral trade rules prevent arbitrary behaviour by governments and ensure predictability in trade relations. It also curtails the potential abuse that can occur between countries vastly different in size, level of development and power. CARICOM states to participate actively in these policy is a rules-based multilateral trading system. In this discussions to ensure that their interests are reflected in context, raw power and economic size are subsumed in any changes to the current dispute resolution regime.
a transparent, democratic decision-making process based Similarly, Costa Rica successfully brought a claim against the US regarding the latter’s commitment under the By establishing clear disciplines applicable to all WTO Agreement on Textiles and Clothing (ATC). The WTO member states, multilateral trade rules prevent arbitrary Panel ruled that the US had violated its obligations by behaviour by governments and ensure predictability in imposing a restriction on Costa Rican exports of trade relations. It also curtails the potential abuse that can underwear without demonstrating that this was the occur between countries vastly different in size, level of cause of serious damage or threat thereof to the US development and power.The rights of small states are most likely to be protected from the hegemony and pressure The decision-making processes in the WTO, while that larger and/or more powerful countries can exert by far from perfect, are in stark contrast to other less participating in multilateral institutions such as the WTO.
representative and transparent bodies. This is graphicallyillustrated by the Organisation for Economic Co- Protection of rights
operation and Development (OECD), whose Financial Attaining rights in a multilateral trade system is only one Action Task Force (FATF) created plurilateral standards aspect and has to be complemented by ensuring that and regulations that are being applied internationally.
these rights are respected, or at least not disregarded. A These plurilateral standards were formulated without rules-based multilateral trade system provides the best input from all the countries affected by the applications rights protection for small states. Small states can have of these standards. Several of these small developing recourse to the WTO dispute settlement mechanism economies, with significant export-oriented offshore (DSM) to vindicate their rights, free of the power financial services sectors, were never consulted. They disparity that would operate in a bilateral situation.
were faced with implementing arbitrarily promulgated Antigua and Barbuda provides an example. With a complex external regulations in order to continue population of only 90,000, tourism and financial services operating and to avoid the imposition of punitive account for approximately 92% of GDP and more than sanctions by large developed countries. Antigua and 90% of exports.Tiny Antigua took the mighty US to theWTO’s DSM in a dispute over Internet gaming and won. A WTO Panel ruled in March 2004 that Antigua and Barbuda’s right to conduct cross-border gambling stark contrast to other less representative and betting services trade over the Internet was being violated by US measures to restrict such activities. Thisruling, when officially released, will demonstrate theimportance of multilateral trade rules to small countries.
Barbuda witnessed the closing of 35 licensed banks from Not only can the smallest of trading partners have their 1999 to the present as a result of actions taken to enforce grievances adjudicated in the WTO, but they can also regulatory and legal standards devised by the OECD.
Trade preferences and developing countries:
Dealing with inequities

Small states in the WTO, including some from Dr. Richard L. Bernal was educated at the University of the
CARICOM, tabled a proposal to the WTO’s West Indies (UWI), University of Pennsylvania, and Johns Committee on Financial Services that aimed at ensuring Hopkins University. He holds the degrees of BSc, MA, PhD. greater fairness and participation by all in the process of (Economics), and MIPP (International Public Policy). He is setting international standards for the regulation of currently Director-General of the Caribbean Regional Negotiating financial services. The proposal attempted to minimise Machinery and previously served as Jamaica’s Ambassador to the the implications of financial standards that are not US and OAS. He has been CEO of a commercial bank, served formulated by all countries. The reaction to the in the Central Bank of Jamaica and taught Economics at the proposal in the WTO was mixed, with many small UWI. He is also Honorary Professor, Sir Arthur Lewis Institute developing countries voicing support for it, and of Social and Economic Studies, University of the West Indies, developed countries arguing for further discussion Mona, Jamaica. Dr. Bernal has published over 100 articles in on certain issues. The proposal focused attention on the scholarly journals, books, and monographs and opinion pieces in fact that small states would incur disproportionate the Wall Street Journal and the Washington Post. administrative costs in implementing and complyingwith new financial and banking standards, that they had Formally established on April 1, 1997, the CRNM received its
no part in formulating. However, since its initial mandate from the Conference of Heads of Government of introduction in the GATS negotiations, the proposal has CARICOM. The CRNM works to develop a cohesive and fallen by the wayside due to non-representation by effective framework for the coordination and management of the Antigua and Barbuda at the subsequent meetings of the Caribbean Region’s negotiating resources and expertise. Its mission is to assist member states in maximising the benefits ofparticipation in global trade negotiations by providing sound, high Conclusion
quality advice, facilitating the generation of national positions, co-ordinating the formulation of a unified strategy for the region and It is a grave error to believe that small developing undertaking/leading negotiations where appropriate. economies gain little benefit from a multilateral tradingsystem and that their participation in negotiations willnot significantly influence the outcome. These countries have no alternative but to be involved, given the paramount importance of international trade to their Hastings Main Road, Hastings, Christ Church economies. The instances of the vindication of their rights demonstrate that their interests can be protected under the aegis of the multilateral trade system.
Therefore, small developing economies, despite the costs and difficulties involved, must participate in internationaltrade negotiations to pursue their commercial interests and protect their existing rights. Furthermore the prospects of securing the protection of their rights in the WTO are better than the potential to do so in regional and bilateral arrangements. Absence from the negotiations would mean that small developing economies could not influence the content of the rules that impact on their vital trade relations, nor ensure that



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