Introduction

ACP countries have preferential terms of access for their sugar exports to the EU. The Sugar Protocol of the Lomé Agreement gives (indefinite) dutyfree access for agreed quantities of sugar at guaranteed (protected domestic EU) prices to specific ACP Protocol countries. This results in these ACP countries receiving prices for their sugar exports to the EU that are in excess of those on the world market, and a corresponding transfer of income that embodies a significant element of rent or ‘aid’.

In September 2002, Australia and Brazil filed complaints and requests for consultations with the EU at the WTO, concerning the nature of the EU's sugar market. The complaint is that the volume of EU subsidised exports of sugar exceeds the levels the EU had committed itself to under the Uruguay Round Agreements. If this challenge at the WTO leads to reforms of the EU sugar policies, then this may lead to reductions in protected EU import prices and therefore in turn to reductions in the level of income transfer to the ACP Protocol exporters. Reduced rents or ‘aid’ to these relatively sugar-dependent ACP exporters may have serious macroeconomic implications, in terms of incomes, employment, the balance of payments and tax revenue.

The EU sugar regime

The production of beet sugar in the EU is limited under the Common Agricultural Policy (CAP) by the imposition of country-specific quotas that form part of an overall EU quota limit. Quotas apply to the finished refined product (white sugar) but implicitly constrain production of the raw beet.

Introduction

A recent WTO proposal presented by the small Caribbean island of Antigua and Barbuda on behalf of some small states, aimed at ensuring greater fairness and participation by all in the process of setting genuinely international standards for the regulation of financial services, has brought to the fore an issue that has been silently brewing in the midst of services negotiations at the WTO. The question of how to ensure that the international regulation of financial services becomes an inclusive process for small developing states has in recent years assumed paramount importance in securing their economic growth and viability within the multilateral trading system.

One of the great ironies of the post-Cold War period of globalisation has been that while it has been associated with trade and economic liberalisation, it has also been coupled with the creation of a number of standardsetting bodies which have in turn spawned a multiplication of what are essentially plurilateral standards and regulations. These international standards, to the extent they existed in the past, did not involve small developing states which were outside the global process of integration.

However, many of these small developing states which have now developed not inconsiderable export-oriented offshore financial services sectors are faced with implementing increasingly complex external regulations as part of their integration into the multilateral system and the WTO. While small developing states have almost invariably been excluded from the process of formulation of international financial standards and regulations, they have, by and large, been unwilling objects of international regulatory authorities.

Introduction

Recent years have seen intensifying global integration measured by an unprecedented rise in volume of trade and capital flows and a reduction in barriers to worldwide trade and investment activities. This drive to globalisation received substantial impetus from the successful conclusion of the Uruguay Round of Multilateral Trade Negotiations (MTNs) establishing the WTO, providing specific trade rules and procedures, and promising further liberalisation in the world trade regime. Despite these developments there remain serious concerns that some countries have failed to derive significant benefits from the ongoing process of trade liberalisation and globalisation. This is particularly true for small vulnerable states, which are confronted with a number of overriding problems constraining their economic development and have to depend greatly on international trade to overcome these obstacles. It is now becoming increasingly evident that even in this era of globalisation these countries have not been able to prevent their declining relative importance, or marginalisation, in world trade.

Although small states have attracted a large amount of research and many of them are concerned about the problem of marginalisation, there has been little or no attempt to provide firm evidence of it nor explanation of its causes. In fact, the notion of marginalisation in this literature remains unclear and is usually associated with the apprehension of losing out from the multilateral trade liberalisation in the global economy. It is against this backdrop that the present chapter defines marginalisation as the declining relative importance in world trade and uses data and statistical tools to investigate the long-term trends in marginalisation of small states.

Introduction

Since the second Ministerial Conference of the WTO held in Geneva in 1998 there has been an attempt by small, vulnerable economies (SVEs) to achieve some measure of recognition of the particular problems that confront them in the process of globalisation. At the failed Seattle Ministerial Conference the establishment of a work programme for small economies was agreed to by Members but as the draft text was not accepted it was left until the fourth session in Doha before a small economies work programme was agreed.

This chapter addresses several issues pertaining to the apparent contradiction in the wording of the work programme agreed to at Doha, which on the one hand mandates Members to frame responses to trade concerns of small, vulnerable economies, but on the other prohibits the creation of a sub-category of states. The relevant paragraph of the Ministerial Declaration was a political compromise between the small economy proponents of the WTO work programme, and developed countries which insisted on the definitional caveat. It has created a conundrum of sorts for negotiators, as it seems impossible to target responses to the concerns of a group that is yet to be defined or recognised because WTO Members have consistently refused to recognise SVEs as a distinct category. While the creation of a WTO sub-category of Members is explicitly prohibited in the work programme, this does not nullify the right of any WTO Member or group of Members to make a proposal during negotiations that includes such a group of countries.

Introduction: the theory of comparative advantage ad extremum

The purpose of this chapter is to attempt to draw together the common thread of the historical experience of trade and development of the small island states of the central and western Pacific within the context of economic theory. The theory of comparative advantage has, since Ricardo, been enunciated as a positive statement that nations will trade in those areas where they have a comparative advantage even if they have an absolute disadvantage in all areas. If a theory is to be general in nature, it must apply to all cases. There is perhaps nowhere better to challenge any theory than considering its applicability ad extremum. Indeed the smallest, most disadvantaged and remote of the micro-states of the central and western Pacific, e.g. Tuvalu, Kiribati and Niue, constitute a fascinating test of Ricardian trade theory for they provide examples of states which do not consistently trade in either goods or services, and maintain existing consumption levels from migration, remittances and aid. In such extreme cases, it is difficult to see how Ricardian theory of comparative advantage applies as an explanation of observed behaviour. Those who are wedded to Ricardian theory of trade as a ‘tautology of impregnable circularity’ would explain the observations from the remote islands of the South Pacific as merely a case of high transaction cost stemming from transport and the absence of economies of scale.

Introduction

At present six least developed countries have formally sought accession to the World Trade Organisation (WTO). This chapter examines the accession process of Vanuatu, a small least developed country (LDC) in the Western Pacific, an experience that brings to the fore two fundamental – or perhaps over-arching – weaknesses of WTO Accession under the terms of Article XII of the Marrakesh Agreement. The process normally proceeds through two logical stages. In the first, referred to as the ‘protocol or multilateral stage’, members examine the trade regime of individual applicants, seeking clarification of, and often reforms to, the conduct of trade where they deem aspects to be in violation of existing WTO rules. Clearly, this stage of the accession process – wherein self-interested WTO members examine the WTO conformity of an applicant's trade regime, with neither the operation of any rules for the process of examination nor the applicant's having right of recourse to any review – is akin to having a complainant at a panel act as the sole panelist. It is this first and most significant of the inherent flaws in the accession process, and the ensuing abuse of power, that has resulted in the proliferation of ‘WTO-plus’ demands on new WTO applicants.

In the second stage, commonly referred to as the ‘bilateral stage’, applicants negotiate with individual WTO members on the terms of their goods offer, agricultural schedules and service sector commitments.

Introduction

After almost five years of discussion at the Committee on Trade and Environment, WTO members embarked upon negotiations on fisheries subsidies as a result of the decision reached by ministers at the 4th Ministerial Conference of the WTO at Doha. The ministerial decision was couched in language that explicitly recognised the importance of the sector to developing countries and clearly implied the development of appropriate special and differential treatment rules. Yet despite the language, the principal submission by the ‘Friends of Fish’, the majority of which are developing countries, there has been no substantive call for special and differential treatment from developing countries.

This chapter begins by briefly considering both the economic case for fisheries subsidies disciplines and the evidence of the magnitude of those subsidies. The analysis proceeds to consider the existing subsidies rules in the WTO and perceived weaknesses that may exist in those rules, and then reviews the negotiating positions of various WTO members in the Negotiating Group on Rules which is considering the fisheries subsidies issue. The chapter attempts to explain the need for special and differential treatment of developing coastal states in the current round of WTO negotiations in terms of the particular development needs of coastal states.

Particular reference is made to the situation in the Pacific island states, which are the source of 45 per cent of the world's tuna landings and for which, as some of the world's smallest and most vulnerable island states, the fisheries subsidies issue is of vital economic importance.

This book aims not only to document almost ten years' experience of small vulnerable states with the WTO but also to explain why the experiences have occurred. Since the formation of the WTO in 1995, small states have become increasingly vocal in their criticism of what they see as onerous rules from which they feel that they have not benefited. Now at this pivotal point in the history of the WTO when development issues are at the heart of negotiations, how the larger and more powerful WTO members address the legitimate trade concerns of its poorest and most vulnerable members will shape the perception of the institution throughout much of the century. If the Doha Development Agenda fails to address these concerns in a constructive manner that recognises the particular vulnerabilities of various groups, it will leave the WTO further weakened and undermined from the perspective of a group of countries that are emerging as the majority of its members.

Small vulnerable states and, in particular, small island states have endowed or inherent handicaps that have shaped their trade and economic development as well as the policy of the international community since the colonial era. The combination of smallness, isolation and dispersion of small pockets of population has shaped the range and type of products and services that these countries have been able to export. What the export activities of small vulnerable states have in common is that a surplus or quasi-rent has been needed to cover the inherent cost disadvantage faced by the private investor who has chosen to locate in small vulnerable states.