The FTAA: does size matter? The Greater Caribbean This Week
By Norman Girvan
Guyana Chronicle
October 21, 2001

AT THE Quebec Summit of the Americas held in Quebec last April, the leaders of the hemisphere pledged to take account of differences in size and levels of development in the design of the Free Trade Area of the Americas (FTAA), particularly as regards smaller economies.

Giving concrete effect to this commitment is a challenge, not least because of some doubt in the claims of the smaller economies for special treatment.

However, recent evidence of the differences in size and resource endowment among countries in the hemisphere has added weight to their case.

The evidence comes in the form of the PSPH Index, so called after the Spanish initials for its four components: population, land area, income per person, and level of human development.

The results of computing the Index for all 34 participating FTAA countries at the end of the 1990s tell an interesting story.

The United States scores 97.0 in the PSPH: of course, it has by far the largest population and Gross National Product. Next in line come Brazil and Canada with scores of 48.4 and 39.8 respectively.

Following these are Mexico with 18.9 and Argentina with 14.8. The five countries of the Andean Community (Bolivia, Colombia, Ecuador, Peru and Venezuela) score between 9 and 2.

The remaining 23 countries all have scores of less than 2.

They include most of the smaller and/or less developed countries of the hemisphere: the 14 CARICOM and five Central American countries, plus the Dominican Republic, Panama, Paraguay and Uruguay.

To put it another way, these 23 countries have less than 2 per cent of the size and resource endowment of the U.S. and 5 percent or less than that of Brazil.

It would be surprising if this huge difference did not affect the ability of these countries to compete on equal terms and to share equitably in the benefits of the proposed hemispheric free trade area.

Another report prepared by a staff member of the United Nation's Economic Commission for Latin America and the Caribbean compared the growth performance of the smaller economies of the region with that of the larger economies over the past 20 years.

For 1981-1990, the decade of the debt and adjustment crises, countries with populations of less than 10 million experienced economic decline at more than twice the rate of larger countries. And although there was some recovery in the 1990s, the smaller economies grew at a significantly lower rate: 1.1 per cent per annum on average in per capita terms, compared to 1.5 per cent in the larger countries.

Interestingly the mini-states--those with populations of below 1 million -- had a better growth performance than the larger countries in the 1980s and 1990s.

But the problem for these economies is vulnerability.

A Commonwealth Secretariat study showed that the growth performance of countries with populations of under 1.5 million is noticeably more volatile than that of larger countries.

Tourism, offshore financial services and bananas have been the main staples of the mini-states in the Caribbean. All three are vulnerable, as shown by recent developments.

The Association of Caribbean States Trade Committee has already made proposals for Special and Differential Treatment of Smaller Economies in the FTAA.

Work is continuing on a review of the draft FTAA agreement to identify where specific provisions may be developed.

(Prof. Norman Girvan is Secretary General of the Association of Caribbean States. The views expressed are not necessarily the official views of the ACS.)