Small States and the Politics of Multilateral Trade Liberalization by Tony Heron

Examines position of small states in the global politics of trade and development
- issue of multilateral trade liberalization and distributional consequences of it for small states
- focus on the role of policy regimes in shaping the timing, form and the economic consequences of trade reform
Two different debates
- Consensus that Laissez-Faire is the only way out of poverty
- The developing world is split in two
  - The relatively competitive developing countries are more likely to prosper under freer trade
  - Those small states who still rely on preferential markets will suffer under freer markets
- Problem: size isn’t the only determinant here, which isn’t discussed in both debates.
The prosperity distribution of small states in freer trade politics depends not on size or resource endowment
- How much natural resources it have
Trade policy is more important: liberal, protectionist, preferential…
- Which becomes embedded in regimes
- actual dependence on preferential trade and
  - the level of export diversification
    - Both can be influenced by political and institutional influences

Definition of political economy of small states

Small states rely disproportionately on non-reciprocal, preferential trade agreements.
- Preferential Trade Agreements: low or no export tarriffs
For example, the ACP accounts only for 2% of the EU’s imports
- But for most of the African, Carribean, and Pacific (ACP) members, its trade with the EU takes up significant fractions of its GDP
- 22% of GDP Fiji
There are new challenges to abolish preferential trade comes from the WTO multilateral trade system who is trying to further liberalize the world’s economy
- Reforms for other reasons
  - EU’s banana regime
  - Collapse of communism in Europe
Larger developing countries have incentive to stop preferential trade regimes because it denies them access to major markets of the US and EU
- Larger developing states

How recent liberalization of T&C sector led to problems for developing countries to adjust to freer trade. The problem doesn’t only rely on size, sectoral trade regime and modes of liberalization are also important.
Key Words
- Preferential Market Access: Refers to the fact that certain exporters pay lower or no tariffs on their exports to a given market, either because their country of origin has an FTA with the importing country, or because the latter has accorded them special access by virtue of their country’s low level of development and/or their adoption of certain policies to support more sustainable development. ¹