. /.RESTRICTEDWORLD TRADE
ORGANIZATIONWT/COMTD/SE/W/2
27 June 2002
(02-3606)
Committee on Trade and Development
Dedicated SessionOriginal:  English
WORK PROGRAMME ON SMALL ECONOMIES
Communication from Macao, China
Structural Impediments of the Small Economies
The following communication, dated 26 June 2002, has been received from the delegation of
Macao, China with the request that it be circulated.
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I. OBJECTIVES
1. This paper is a member's preliminary attempt1 in identifying possible parameters of structural
impediments generally affecting Small Economies in the context of trade globalisation.  The paper
also explores a way to examine the nature of vulnerability faced by small economies.
II. STRUCTURAL IMPEDIMENTS AFFECTING SMALL ECONOMIES
2. It should be noted that the economic structure and levels of development greatly vary from
one Small Economy to another.  In view of such economic disparities, the establishment of a common
set of impediments faced by Small Economies over the past decades has been a difficult exercise.
However, a commonality does exist.  The essential parameter – smallness – has played a significantrole in this exercise as it seriously affects and limits the prospects for economic growth and
development of small economies.  This core impediment – smallness – is in particular one of the
commonalities shared by these vulnerable economies .  At the same time, smallness in its turn is
reflected in many aspects:  it can be deemed as conducive to other structural impediments affecting
small economies both internally and externally.
3. On the internal front, smallness, which is reflec ted in the very limited size of internal market
(and small population size as well as geographical size), leads to the inefficient allocation and
attraction of resources and small economies of scale in all production and services sectors.  Moreover,
smallness renders production more costly and less competitive owing to sma ll markets' inability to
bear reasonably competitive production costs at global scale.  In particular, the rareness or even
absence of natural resources leads to the costly imports of raw materials, undermining even further
small economies' competitiveness in the international market.
                                                     
1 It is submitted solely for the purpose of exchange of views and does not prejudge the position of
Macao, China with respect to the issues  raised in it.  Macao, China reserves its right to modify or complement
the contents of the paper at a later stage.WT/COMTD/SE/W/2
Page 2
4. Externally, smallness can be reflected in the share of world trade.  The insignificance of small
economies' world exports and imports, to some extent, leads to an obvious degree of vulnerability
reflected in marginalisation and trade dominance in the context of globalisation.  In addition, the
nature of small economies' economic structure somewhat sets the course for heavy reliance on their
major trading partners through the export of a very narrow range of products and services.
III. EXAMINING THE NATURE OF VULNERABILITY OF SMALL ECONOMIES
5. Of particular importance for this examination, and bearing in mind all the aforesaid structural
impediments, the term smallness could be a valuable departure for determining the degree of
vulnerability experienced by small economies.  Due to the supply-side constraints, the developmental
prospect of a small economy would be to certain  extent undermined by its in-born weakness -
smallness and relevant structural impediments in the sense of managing the scalable economy in anun-expandable manner.  Hence, vulnerability, which limits small economies’ development, takes
place.
6. In the context of international trade, the insignificance of global share of small economies
posts a generality that these vulnerable economies can be sensitively affected by external trade
dominance in several dimensions, such as change of trade rules and regulations, new market accessconditions, compliance with enormous technical standards, rapid technological innovation and
advancement, substitutability by like goods and services, the elasticity of demand and supply of major
imported materials etc.  Taking into consideration the aforesaid dimensional vulnerabilities, the small
economies would therefore bear the risk of marginalization affecting by trade dominance in the global
market.
IV. THE REMEDIAL RESPONSE
7. The paragraph 35 of the Doha Ministerial Declaration explicitly reaffirms the objective of
fuller integration of small, vulnerable economies in to the multilateral trading system.  Such objective
would never be achieved if the risk of margin alization of these small economies from trade
dominance and structural smallness could not be specifically tackled at multilateral level.  Further,
meaningful and positive integration of the small economies would only take place if the risk of
marginalization could be minimized by way of providing justifiable remedial measures to
complement the structural smallness and to counteract the detrimental effects affecting small
economies by trade dominance.
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