Small economies and special and differential treatment: strengthening the evidence, countering the fallacies

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Introduction Small economies present a particular challenge to the multilateral trade regime: will it adjust to arrest their increasing marginalisation in world trade that is undermining their development prospects significantly? This challenge poses the question of whether emerging international trade rules are damaging the trade and development interests of small economies and, if so, whether derogations from those rules can avert such damage. An answer that more favourable treatment offers small economies the potential for a beneficial means of insertion in world markets is incomplete, however, without considering the negotiating context from which trade rules emerge. Whether favourable treatment is likely to result from the interstate bargaining process determining the rules is the more problematic aspect of the challenge small economies pose for the multilateral trading system. This chapter argues that the peculiar economic characteristics of small economies combine to constrain their potential to benefit from the globalisation of markets under currently agreed trade rules. Though supported by recent empirical evidence, these arguments are contentious and require engaging with contrary views refuting that small size undermines trade competitiveness, that vulnerability to external economic shocks and natural disasters has real economic costs, and that small economies' characteristics are peculiar and worthy of specific responses. The chapter goes on to argue that, as the implications of emerging trade rules are realised, the marginalisation of small economies will be exacerbated. Whilst modifying multilateral trade rules is not the only initiative required to address the specific trade and development needs of small economies, it is argued to be vital.