Continuing the saga of small states in the global trade negotiations

Continuing the saga of small states in the global trade negotiations Guyana and the wider world
Dr. Clive Thomas
Stabroek News
January 11, 2004

*Related Links:*	Articles on Guyana and the wider world
Letters Menu	Archival Menu

Over the past week I have received a surprising number of requests urging me to take this series in what are in fact two very divergent directions. Some readers have encouraged me to pursue further the present discussion of small states in the global trade negotiations, focusing on some of their present difficulties in two particular areas of their global trade namely, commodities (agriculture and minerals), and services (particularly offshore finance). Others, in light of recent allegations and disclosures concerning government-connected murder squads, want me to resume the earlier analysis of globalisation and the state as a criminal enterprise, which I conducted during the period of March-September last year. In urging me one reader has even volunteered a point of departure, which he believes links my current discussion of small states and global negotiations to the earlier discussion of the degeneration of the state into a criminal enterprise. That is, he argues, small states are intrinsically more susceptible to this degeneration than large ones! I do not agree with this point of view, but it is not for this reason that I am resisting resuming that discussion at this stage. My objection is basically that more time (and therefore more events and disclosures) should follow before the sort of interpretive analysis I had been pursuing earlier can be fruitful. I will, however, follow the first suggestion over the next few weeks.

Small states: trade in agriculture and commercial services

The two leading trade sectors of small states are agriculture (including fishing) and commercial services. A majority of small states have significant agriculture export sectors and/or depend on agricultural imports to supply their food and raw material requirements. Among the remainder most have a significant services sector, while several have both agricultural and services sectors. In small states these two sectors are usually so large that if they are not growing rapidly, it is difficult for the domestic sector on its own to become an engine of dynamic growth and development.

Indeed some economists have measured the statistical relationship between export growth and GDP growth in small states and have found that on average, a one per cent increase in the rate of their export growth leads to a 0.4 per cent growth in GDP. Moreover, those small countries whose relative shares of world trade are rising, generally have a better GDP growth rate than those that are not showing increasing shares.

In view of these findings, the results of a recent survey by Razzaque published in the Commonwealth Secretariat's Economic Review and Basic Statistics (2002), are cause for considerable concern among small states. That survey shows that between 1950 and 2000, the total value of their merchandise exports rose from just US$0.6 billion to over US$28 billion - an increase of 47-fold. However, for the world as a whole it increased by more than 100 times over the same period, from US$62 billion to US$6,327 billion. For the developed countries as a separate group it grew by a factor of 112. Indeed it was only the increase by the group of least developed countries (LDCs) that grew slower than the small states. Their increase was only 19 times, which perhaps helps to explain why they are LDCs.

Sectoral performance

The question readers may now be asking is: how was the performance in the different sectors? As readers are aware most of the small states only began to develop their commercial services sector in the 1980s. In 1980 their total exports of commercial services (US$4.3 billion) represented just over one-quarter of the total value of all their exports of merchandise. By 2000 the total (US$16.3 billion) had represented just below 60 per cent of the total value of their exports of merchandise. The small states had therefore quadrupled the value of their exports of commercial services in this period of two decades. This increase meant that the share of commercial services exports in their total exports had risen from just over one-fifth in 1980 to about 37 per cent in 2000.

When these data are put under the microscope, however, two significant points become evident. One is that strong as the growth in commercial services exports was relative to merchandise exports, this performance was still slightly below the performances of the world as a whole, the developed, the developing countries as separate groupings. As a result the small states' share of world exports of commercial services fell from 1.18 per cent in 1980 to 1.12 per cent in 2000. Most of the decline occurred in 1990s, as in the 1980s small states constituted the fastest-growing category for the export of commercial services. The other significant point is that the rising share of commercial services' exports in the total exports of small states, reflected in considerable measure the weak performance of their primary commodities sector, and in particular agriculture. The vibrant services industries were tourism and travel, shipping, and financial services (especially offshore finance).

Looking at services

While we have focused on the trade in commercial services, it should be observed that all small states, whether they export services or not, are critically dependent on their services sector for economic growth and development. All also rely extensively on the importation of a wide range of services. All have a significant non-traded services sector. Indeed the supply of basic services and utilities is vital for their well-being. In recent times the World Bank and IMF have identified the "backbone" services of transport, telecommunications and domestic financial services as vital to the performance of an efficient economy. In this regard great emphasis is now laid on an effective regulatory framework and adequate infrastructure for the effective delivery of these services in small states. The area of services development, however, which has been most fascinating, is the spectacular boom in offshore finance that has occurred in several small states. Next week I shall explore this matter.