RESTRICTED  
  
WT/COMTD/SE/M/29  
 
28 August 2015  
(15-4336)  Page: 1/14  
Committee on Trade and Development 
Twenty-Ninth Dedicated Session    
   
NOTE ON THE MEETING OF 5 JUNE 2015 
Chairperson: H.E. Mr. Juan Este ban Aguirre Martínez (Paraguay) 
A. ADOPTION OF TH E AGENDA .................................................................................... 1  
B. "CHALLENGES AND OPPORTUNITIES EXPERIENCED BY SMALL ECONOMIES 
WHEN LINKING INTO GLOBAL VALUE CHAINS IN TRADE IN GOODS AND 
SERVICES" (WT/COMT D/SE/W/31) ................................................................................ 1  
C. OTHER BUSINESS .................................................................................................. 14  
 
A. ADOPTION OF THE AGENDA 
1. The draft agenda as contained in document WTO/AIR/COMTD/SE/1 of 22 May 2015 was 
adopted. 
B. "CHALLENGES AND OPPORTUNITIES EXPERIENCED BY SMALL ECONOMIES WHEN 
LINKING INTO GLOBAL VALUE CHAINS IN TRADE IN GOODS AND SERVICES" 
(WT/COMTD/SE/W/31) 
2. The Chairman recalled that Members agreed last November to have the Secretariat prepare 
a background note based on an outline of propos ed research on the subject of small economies 
and global value chains in document WT/COMTD/SE/W/30/Rev.1. He hoped that Members had had the opportunity to read the background note which had been circulated recently. He believed that 
the note made a good contribution to the research on small economies in global value chains 
(GVCs), an area of study which had received scarce attention to date. He then invited the 
Secretariat to present the paper and its main findings. 
3. The Secretariat said it had been a challenge to do the research. The study included 
33 countries, 32 of which are active Members of the Group on Small and Vulnerable Economies 
(SVEs). Vanuatu was also included in the study because it would soon be graduating from LDC 
status.  
4. The Secretariat explained that when looking at opportunities to access value chains, the 
research showed that most economies could access a value chain and engage in specific tasks. Economies did not have to manufacture products from A to Z themselves but could import 
products, add value and re-export. There was a market in specialization and in finding niche 
products. The research found that the major hurdle for small economies was in their economies of scale. They have small consumer bases with limited production capabilities. When small economies do produce products, they were usually more expensive than other competing products. It was 
explained that when countries enter value chains, they encouraged diversification of production 
and of the export structure. It was also found that countries could use value chains as a way to create employment, especially in services. The participation in GVCs also usually led to more 
technology and knowledge transfer. This was a result of increased levels of foreign direct 
investment (FDI).  
5. In regard to challenges other than economies of scale, the Secretariat explained that the 
small size of the actual economy and the remoteness of markets were of particular importance in WT/COMTD/SE/M/29 
 
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  the Pacific region and, to a lesser extent, the Ca ribbean. These characteristics of small economies 
have been documented throughout the literature. Because of the great distances to their main markets, transport costs were generally higher. It was noted that such costs were also highlighted 
in the public and private sector surveys conduc ted in 2013 for the Aid for Trade Global Review 
exercise. Other factors include access to trade finance which was said not to be unique to small 
economies but was an across-the-board issue for many developing countries, as were adequate labour skills. Other challenges comprised standards compliance, especially technical barriers to 
trade (TBT) and sanitary and phytosanitary (S PS) standards. The business and regulatory 
environment could also be a source of challenges.  
6. The Secretariat presented some statistics whic h corresponded to the questionnaires from 
small economies for the 2013 Global Aid for Trade Review. Some of this research appeared in the 
context of developing countries in general, but there was also some specific research on small 
economies. It could be seen from the public sector side that access to trade finance was more of a problem for small economies than other developing countries. However, domestic infrastructure 
posed fewer difficulties for SVEs than for other de veloping countries. This was mainly due to good 
port infrastructure in island states and some  good airport infrastructure. However, border 
procedures in export markets tended to be much more of a problem in small economies than other 
developing countries. Other challenges concerned standards compliance and lack of comparative 
advantage.  
7. The private sector responses focused mainly on transportation costs and delays. While small 
economies were thought to be at a disadvantage, this was not always the case. Other developing 
countries, mainly in Africa and principally LDCs, appeared to face more challenges than small 
economies. There were problems related to distance and infrastructure. Customs procedure issues also seemed to be more of a problem in small economies while access to trade finance appeared to 
be a problem of equal importance with other developing countries. 
8. It was explained that small economies were generally more open than other developing 
countries and more engaged in trade. If they wished to better integrate themselves into GVCs, the 
role of FDI was considered as extremely important. It was shown that firms with some foreign 
o w n e r s h i p ,  e v e n  i f  i t  w a s  5 %  o r  1 0 % ,  t e n d e d  t o  b e  m o r e  i n t e g r a t e d  i n t o  G V C s  t h a n  1 0 0 %  domestic firms. There was also more potential fo r growth and technology and know-how transfer. 
It was found that FDI went mainly to the natural resources and processing sectors. This was the 
case for Jamaica for bauxite and Papua New Guinea for gas and oil exploration. The sectors which 
attracted the second and third highest amounts of FDI were tourism and financial services, followed by business processing. It was noted that distance to markets and small size were 
detractions for investors. By increasing the size  and the closeness to markets through regional 
integration, countries could make themselves more interesting or attractive to FDI. This could be 
seen with CARICOM, for example.  
9. The question of market openness and the policy stances of individual countries were also 
examined. The latter included country attitudes towards trade, towards engaging in GVCs and attracting FDI. It was noted that questions related to transport costs and logistical questions concerning just-in-time delivery shipments were secondary when compared to trade in services, 
many of which were carried out over the internet . It was emphasized, however, that retailing, 
tourism, information technology and business processing all required very good internet connections and also highly skilled labour forces. This was something that had to be addressed in 
overall policy formulation. 
10. Challenges and opportunities for small and medium-sized enterprises (SMEs) were also 
addressed by the private sector in the Aid-for- Trade questionnaires circulated in 2013. They 
identified particular problems related to finance and managerial resources and a lack of 
information about foreign markets.  
11. The Secretariat explained that the background paper also showed that SMEs could deploy 
different strategies to counter international competition. For example, a maker of clothes operating 
in a small economy with a small customer base could choose to be a retailer for other 
manufacturers of clothes instead of engaging in first-hand cloth production. WT/COMTD/SE/M/29 
 
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  12. The paper also looked at different value chains which are of importance to small economies 
in respect of goods, such as agri-food, seafood an d textiles and apparel. On the services side, it 
examined tourism value chains and information technology and business processing outsourcing. These value chains were of high importance to GVCs because of their potential for further 
integration and upgrading. Agri-food value chains were described as being buyer driven which 
meant that retailers and food manufacturers were the lead firms in the value chain. This meant 
that they organized the value chain and the vari ous suppliers. The paper also looked at cocoa, 
coffee and fruits and nuts where the latter accounted  for 5% of the exports of small economies.  
13. Small economies were mainly positioned at the primary stages of the value chain. It was 
noted that the share of small economies in worl d exports of coffee, for example, accounted for 
12% of primary products whereas they accounted for less than 1% of world exports of processed 
coffee. The case was similar for fruits and nuts where the share of primary exports was more than 
two times the share of processed exports in world trade. The study also looked at a number of case studies from small economics related to taro crop in Fiji, to hot peppers in Jamaica, food in 
Trinidad and Tobago and coffee in Latin America. The case studies illustrated the challenges which 
small economies faced with respect to exogenou s demand or supply shocks and SPS standards 
which represent one of the more important challenges which small economies face in regard to 
their exports. The study found that others included  establishing linkages with buyers and the fact 
that many farmers in small economies operated on a small scale and lacked access to finance and to skilled labour. 
14. It was explained that the seafood value chain was similar to the agri-food value chain in the 
sense that retailers had emerged as new lead firms in the value chain. The seafood value chain 
consisted of capture of fish or aquaculture. Various stages included primary and secondary processing and then distribution and retailing of fish products. Fisheries, especially on a small 
scale, were noted to be of high importance to small economies. Almost 90% of people employed in 
fisheries work in small scale fisheries.  
15. The report highlighted that in order to make small-scale fisheries viable, it was important to 
make linkages to other sectors in small economie s, such as tourism for example. Small economies 
accounted for 6.5% and 5.5% of world crusta ceans, mainly shrimps, and fish exports, 
respectively. Small economies were able to increase their share in world trade for processed fish exports which showed that they were able to move up the value chain in this sector. It was 
explained that a challenge in the seafood sector is that constant upgrading of technology is 
required for harvesting and processing and also for the sustainability of fish stocks. This could be 
seen with tuna fishing in the Maldives, for example.  
16. The textile and apparel value chain was said to very labour-intensive and was described as 
being buyer driven where retailers and manufacturers organized the value chain. It was a key sector for small economies in particular in Central America and Sri Lanka but has been decreasing 
in importance overall mainly because of the phasing out of the Agreement on Textile and Clothing. 
The share of textiles in the exports of sma ll economies was 12% in 2013 which was some 10% 
less than it was in 2003 when textiles accounted for 22% of the exports of small economies. The report noted that today small economies were most  often integrated in the final stages of the 
apparel production process. This was evidenced by the amount of intermediates which accounted 
for 70% of the imports of small economies but only  9% of their exports. In Central America, for 
example, most of the imported inputs come from the United States (US) or from Asia. The exports 
of the final apparel products then go to the US. The heterogeneity of the destination markets 
among small economies ranged from Central America where final apparel products are produced for the US market to those in Asia and Africa wher e they export the majority of their final products 
to the European Union (EU).  
17. Tourism services were also considered to be of particular importance to small island 
economies. On average, tourism accounted for 9% of gross domestic product (GDP) in small economies compared to 3% of world GDP. In the Maldives, tourism accounted for almost half of 
total GDP and more than 90% of services exports. It continued to be an important sector for many 
small island states. The key issue for tourism services was the fact that linkages were established to the domestic sectors such as the agri-food value chain, in which domestic producers supplied 
food to hotels. There were also linkages to the construction sector, to utilities and other services 
operators and also to the producers of goods. It was said that tourism has the potential to create employment and to contribute to economic diversification. Challenges include policy planning, WT/COMTD/SE/M/29 
 
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  attracting FDI to upgrade the hotel infrastructure and establishing linkages to the domestic 
economy. Finally, improvements to informatio n communication technology and travel-related 
infrastructure such as ports and airports were deemed to be vital. It was explained that in regard to travel infrastructure, air transport is closely related to tourism. 
18. Information technology and business processing outsourcing was also examined in the 
report. This sector comprises a variety of services such as programming, computer services, call centres and legal and accounting services which are mainly traded via GATS mode1 or 
cross-border transactions. It was noted that this sector had great potential for small economies 
and those which are remote from key markets mainly because distance and economies of scale were of less relevance compared to manufacturing. But there were other associated challenges such as meeting high skill levels in the labour force and other skills such as legal or language 
skills. It was said that small economies needed high-quality infrastructure and some successful 
examples of small economies integrating into this sector were highlighted. For example, Sri Lanka 
is successful in business process outsourcing. It has engaged in accounting services, resource call 
centres and the delivery of legal services to the United Kingdom. Mauritius and Jamaica served as 
other examples.  
19. It was noted that logistics and trade facilitation was of the utmost importance in GVCs. The 
report looked not only at the monetary costs but also the time-related trade costs which are 
important in GVCs. Time-related trade costs refer to the importance of speed or to punctuality in case of just-in-time delivery, especially in the automotive sector. These are important in the textile value chain where there are sudden demand fluctuations and in the agri-food value chain, where 
products are perishable. In regard to transport infrastructure, it was explained that small 
economies face high maritime transport costs, mainly because they have lower connectivity compared to other countries. The report referred to UNCTAD's liner shipping connectivity index. A 
chart indicated the world average and averages for small economies located in different regions. It 
was noted that small economies on average were less connected to global shipping networks than the average country in the world. The report looked at the openness of air services regimes in 
small economies and found that on average small economies have more liberal air service regimes 
than other countries.  
20. The paper examined trade policy experiences of small economies an d different types of 
value chains. Producer-driven value chains were looked at as well as issues related to value-added 
along value chains in general. Many of these chains have higher value-added in the research and 
development stages rather than manufacturing phases where value-added was low and there was increasing downward pressure on prices. On the other hand, marketing and distribution services 
were said to also be of high value-added. A graph known as the "Smiley Curve" showed that 
globalization had actually deepened the curve, meaning that there was increased competition in the manufacturing phase of the chain. It was expl ained that the curve referred to unit value and 
not volume and that producers could compensate a lack of value-added by increasing the volume 
of production, therefore compensating for the lower margins. The paper also looked at different upgrading trajectories which depended mainly on FDI and trade patterns and the advantages of encouraging industrial and services oriented clustering of various industries, something which has 
proven to be quite successful for encouraging more growth of SMEs.  
21. It was noted that there were development opportunities for small economies, especially in 
the area of agri-food and seafood, textiles and appa rel and in specific services sectors such as 
tourism. The Secretariat's presentation concluded by asking two questions: how can small 
economies best address challenges of small size and remoteness and exploit opportunities offered by GVCs, and how can the WTO and its Aid-for-Trade Initiative and the Trade Facilitation 
Agreement also contribute?  
22. The Chairman then invited the WTO's Director of Economic Research and Statistics Division 
to make some additional comments. The Director said the paper just presented represented some 
excellent work in the area of bringing a GVC perspective to SVEs. He said that he wished to do 
more work in this area and that it was important to recognize that GVCs should be viewed as one 
potential element in a development portfolio. He explained that the excitement that surrounded the work on GVCs sometimes made it appear that  GVCs provided the only development approach 
which economists were recommending. This was not the case mainly because GVCs were not new. 
What was novel was that there was now a better understanding of the issues involved and better ways of measuring them. He said that GVCs were often cited as production fragmentation with the WT/COMTD/SE/M/29 
 
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  latter occurring domestically for many years. GVCs were simply an extension of the domestic 
process into the international realm. This had been facilitated by falling transportation and communication costs, as well as increased flows of FDI and improved legal environments. He said that the importance of domestic policy could not be overstated and that governments should not 
just think of GVCs from a trade perspective. Governments need a good set of domestic policies 
which encouraged production fragmentation domest ically as well as coherence between domestic 
and trade policies.  
23. He explained that domestic fragmentation has gone mainly from a domestic activity to an 
increasingly cross-border activity which required more coordination not only between domestic and international policies but also more coordination at the multilateral institutional level. This was in order to prevent fragmented global trade policies, which increased costs for firms and costs for 
countries which sought to participate in GVCs. He referred to the Secretariat paper and said it 
addressed in a good way the issue of logistics cost s and ports. It also mentioned ICT costs. In the 
future, he said governments and policy decisions wo uld have to think more about ports and pipes. 
Increasingly, the digital pipeline was going to be substituting and complementing traditional ports 
whether they be sea or air ports. This was because of the increasing technological evolution such as three-dimensional printing devices. All you needed was a recipe and the materials and one 
could start producing components on site. He said that while economies of scale issues were still 
being worked out in regard to digital printing, the new technology was likely to result in a 
substantial shift of a fair amount of production activity. This would become ever more important for manufacturing and also for services trade. Ports and pipes helped to reduce the size constraint 
factor for SVEs. On the demand side, they could provide access to global demand. On the supply 
side, they provide access to global production capacity. As had been mentioned, countries did not have to know how to produce something from "A to Z"; they could focus on one particular element 
and rely on other countries' expertise for the rest of the components. This was a promising aspect 
t h a t  G V C s  c o u l d  b r i n g  t o  S V E s .  H e  s a i d  w h a t  w a s  i m p o r t a n t  t o  r e m e m b e r  w a s  t h a t  c o u n t r i e s  understand what they are competitive at producing now and what they might be potentially good 
at making in the future. With changing technologies and ICT, it was important to also think about 
future production opportunities. The next 10 to 15 years would see the intersection of the digital 
economy, GVCs and knowledge-based capital. These three forces were likely to have a significant transformative effect on the global economy. It was important for SVEs to think about their 
economic development in the context of these thr ee forces, and in particular their intersection. 
24. He wished to make two final points: the fi rst concerned measurement where one looks at 
gross trade statistics versus trade in value-added. He referred to the OECD/WTO data base on 
trade and value-added. The WTO had an interest in expanding that data base to be able to include 
more developing and small and vulnerable economies in order to establish a good base line and measure these economies' contributions to global trade flows. He emphasized the importance of 
gross trade statistics and that they increasingly did not actually measure the contribution of trade 
to economic growth. He explained that the latter was typically measured in value-added. The second was that there were challenges too when it came to measuring trade in services and their actual contribution to the economy as well as the productivity growth in services. Then, there was 
the challenge of measuring digital flows and the corresponding data which was increasingly 
encrypted. Another element of measurement was unit value versus volume, as was mentioned earlier. While producers may realize a small per unit volume, suppliers can access global demand 
allowing them to access a bigger market which, in turn, could make a substantial contribution to 
the domestic economy. He said another angle on the unit volume and value issue is how to use resources to their highest alternative use or opportunity costs. He added that many governments 
complained about their small share of GVCs and th at their objective was to get a high or higher 
share of that value chain. He said that it may not always be necessary or even a reasonable way to think about allocations of resources. Governments should make sure that whatever resources were being allocated to a GVC, that these reso urces were earning their highest alternative use 
given the other potential uses in the domestic economy. Even if one has a low share of the total 
GVC, if using these resources to participate in that segment of the GVC gave a higher rate of return, such as payments to wages into capital, than other alternative domestic uses, resources 
were being used well and were contributing  successfully to economic development.  
25. He then outlined some future trends. He explained that the expectation was that with rising 
wages in China and other emerging markets, FD I would increasingly flow outward from such 
economies and to other developing countries. He said that it was not so much that wage costs 
were the driving factors behind such changes. They were one factor and that increasingly what WT/COMTD/SE/M/29 
 
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  would count was the excellence of the companies participating in GVC. He said that rather than 
focus on wage cost differentials, governments co uld think about how developed, from a global 
standard, their firms capabilities were. That required investment in people, in digital infrastructure as well as management excellence and an understanding of how best to mix labour and capital 
together. Increasingly, services would take up a greater share of GVCs, even in goods which were 
heavily manufactured such as automobiles. This was because of technological change which included automatic production processes and firms getting better and better at manufacturing 
goods. He noted that some economists argued that manufacturing was going the way of 
agriculture and that it would take very few people in the future to produce a lot of output. He added that increasingly, the value of things prod uced stemmed from services. This could actually 
provide more opportunities for small economies and other developing countries.  
26. The Chairman said that the Secretariat's pres entation helped answer one of the questions 
which the presenters of the paper had asked, mainly  the importance of national or domestic policy 
in laying the ground for participating in GVCs. He said it was clear that one needed more and 
better and more sophisticated information.  
27. He then opened the floor. 
28. The representative of the Dominican Republic thanked the speakers for their interesting 
comments and for the results they found in the study. He wished to raise a few points. He asked 
about the differences between UNCTAD's list of Small Island Developing States (SIDS) and FDI and the WTO's list of 32 countries which qualify as small economies. He also addressed challenges facing small economies and agreed with the Secretariat findings that GVCs were not the only 
element to be taken into consideration in the process. In the Caribbean for example, in the nine 
selected economies, the public sector debt was much higher than 60%. Some countries had debt levels as high as 100% or even 150%. It was an important element insofar as the challenges 
these states had in overcoming the debt question so that they could actually attract more 
infrastructure investment, which was identified in the study as one of the key obstacles. He described the Dominican Republic's development of its tourism sector. There were now more than 
30 planes arriving each day. More than five million tourists visited the island, equal to about 
US$5 billion. There were also 12 ports, eight of which were international shipping ports. He 
explained that the infrastructure required a great deal of investment in water sanitation and drinking water, road infrastructure and electricity. This was only achieved with public resources. Of 
course, there was private participation in hotel ownership but the connected services and much of 
the agro-industry, had been mainly the result of government planning. He also mentioned the protectionist tendencies being applied by some large economies against the interests of small 
economies, especially in terms of rules and regulations. The problem was not so much one of 
tariffs but one of non-tariff measures which restricted market access for products from developing countries. It seemed that everyday a new measure was invented. He explained that his country 
had sophisticated laboratories which met international standards, but said that entire crops were 
being signalled out by importers as not qualifying specific food safety requirements because of a 
fly which was present in a very specific region. The market loss amounted to some US$90 million and that it was the small farmers who were hit worst. So there were many challenges facing 
developing countries in order to comply with standards or to integrate into GVCs. In this regard it 
was important to continue to diversify the economy and the range of exports. He said that countries had the capacity to diversify and could do this by creating other products or adding 
value.  
29. The representative of Guatemala, speaking on behalf of the Group of Small, Vulnerable 
Economies, wished to thank the Secretariat for the background note on the Challenges and 
Opportunities Experienced by Small Economies in linking into Global Value Chains in Trade in 
Goods and Services. The SVEs believed that the document fully respected the outline approved by this Committee and that it provided important facts, data and information that would allow SVEs to deepen their discussion and comprehension of this topic. She noted that it was not her intention to 
refer to the content of the document at this point since several SVEs would intervene in the course 
of the meeting on different issues. She said that today's discussion was a start and that it was the intention of the SVE group to use the factual back ground prepared by the Secretariat to address 
specific challenges in more detail at future meet ings, in line with the mandate of the Committee. 
30. The representative of Dominica said that he was speaking on behalf of the OECS countries 
and that he wished to associate his delegation with the statement made by Guatemala on behalf of WT/COMTD/SE/M/29 
 
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  the SVEs. He thanked the Secretariat for the work that went into carrying out the study and for 
preparing the background note. He also thanked the three speakers from the Secretariat for their presentations. He recalled that the study and report was undertaken to fulfil the objectives of the Work Programme on Small Economies, which was to frame responses to the trade-related issues 
identified for the further integration of SVEs into the multilateral trading system. Specifically, he 
said the report sought to fulfil the instruction to provide relevant information and factual analysis for discussion on the challenges and opportunities experienced by small economies when linking 
into GVCs. 
31. He agreed with the SVE Coordinator that the report provided important facts, relevant data 
and useful information that would allow the Committee to deepen its discussions and comprehension of the topic. He viewed the presen t meeting as the start of the discussion of this 
topic and as a way to continue engagement on fulfilling the mandate of the work programme. He 
explained that there was now an increasing body of work, study and analysis of GVCs and of developing countries' involvement in GVCs. While the findings and conclusions regarding the 
participation of developing countries in GVCs were certainly relevant, the unique structural 
characteristics of SVEs accentuated and added to the challenges of linking into GVCs. He said that he recognized the challenges with obtaining specific information and data related to SVEs and that 
there had been limited information to date. He said  there was, therefore, a need for further work 
and analysis specific to SVEs. Nevertheless, the Secretariat’s paper shed a spotlight on some of 
the key challenges and opportunities that SVEs faced when seeking to participate in GVCs. He said that in regard to the opportunities which GVCs could offer SVEs, the report mentioned employment 
creation and diversification and the more dynamic gains such as FDI and technology transfers. On 
the challenges side, there were issues such as transport costs and related infrastructure, access to trade finance, inadequate infrastructure in areas such as standards and intellectual property rights. 
These were all areas where small economies faced difficulties. Given their small size, the lack of 
economies of scale was an issue as was the remoteness to markets for many SVEs. He said that logistics and trade facilitation were critical factors that affected participation of any country in 
GVCs. The paper had also highlighted the issue of time-related trade costs, fast and on-time 
deliveries and customs and trade-related procedures. He said that for SVEs these factors and issues are accentuated by their size and remote ness. In regard to maritime transport, for 
economies located in the Pacific or in the Caribbean, maritime transport was a particular issue.  
There were formal and informal sectors to take into account. There were also issues with 
uncompetitive, highly fragmented inter-island marine transport systems. There was also limited connectivity to international maritime corridors which caused shipping imbalances. Also, he 
explained that cargo space was usually utilized to the full in regard to imports but was used only 
partially when ships returned to sea with limited export cargos. This raised costs. 
32. He said that in regard to air transport services, the paper reported that tourism provides the 
main economic context for air transportation in SVEs. However, he explained that many small 
states were caught between maintaining large and unsustainable subsidies, and jeopardizing their attractiveness for international air routes. Many co untries, therefore, had to subsidize segments of 
the industry to maintain access. There were many challenges in regard to regional and inter-island 
air transport networks. One was the patchwork of  small load factors, thin markets, and low 
economies of scale, unprofitable and thus under-served routes, limited connectivity and inefficient hubs. All these factors raised the unit costs of transportation. SVEs also incurred very high per 
capita costs for infrastructure such as air and sea ports. Governments had to be creative to raise 
the necessary revenues for such transportation infrastructure, especially in regard to the limited investments made by the public and private sectors. 
33. When looking at the overall picture, he said that  there was a critical role for investment both 
from the public and the private sector. Aid for Trade was also vitally important as was encouraging more regional integration of small economies, especially in regions such as the Caribbean. 
34. In regard to the way forward, he said that Members should look to the next Ministerial 
Conference and think about the elements of the Work Programme for Small Economies which could 
form the basis for a political declaration and or decision. From the WTO side, there was the role of Aid for Trade, Trade Facilitation and the Doha Development Agenda (DDA) negotiations, especially 
in terms of their market access issues and non-tariff barriers. 
35. The representative of Chinese Taipei said the paper was interesting and comprehensive. It 
focused on different approaches, including the challenges and opportunities SMEs faced in regard WT/COMTD/SE/M/29 
 
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  to GVCs. He said that Members are aware of Chinese Taipei's development history. For the past 
half a century, the island's economy was based on SMEs. He said that there were currently 1.3 million SMEs in business which accounted for more than 97% of all enterprises. These sales made up around 30% of all sales in Chinese Taipei. He said that SMEs were more flexible and could 
easily respond to global competition. Real time delivery and products with high value-added and 
services could adapt to changing markets and cu stomer demands. This could also work to the 
advantage of SMEs. About 80% of the SMEs in Chinese Taipei were concentrated in the services 
sectors. He said that his government had long been implementing a series of policy measures in 
the short, medium and long term to promote regional economic integration. As was mentioned in the paper, regional integration is an important way to facilitate SME upgrading and transformation. He said that SMEs have helped Chinese Taipei to be a middle-class majority society with a stable 
and healthy economic growth rate of about 3 to 4% per year. Finally, he said that Chinese Taipei 
would be more than pleased to share its successful SME experiences with other WTO Members.  
36. The representative of Ecuador said that he endorsed the statement made by Guatemala on 
behalf of small, vulnerable economies and other statements made by Members so far on the 
specific aspects of the Secretariat's report.  
37. He said that Members were seeing a lag in terms of the fulfilment of commitments, 
especially in regard to the Bali Decisions from 2013. But, he said, the CTD Dedicated Session on 
Small Economies was setting an example with the study which had been mandated in Bali. He wished to focus on two issues which his delegation felt were important: first, the Ministerial decision on the Work on SVEs recommends that the General Council or its subsidiary bodies form a 
response to the issues identified by the CTD Dedicated Session with a view to issue 
recommendations to try to take action. In this regard, the study being discussed cannot be the only work of this Committee. Rather, it should be one of the points of departure to help identify 
other trade-related issues for SVEs which could be  addressed in other subsidiary bodies of the 
WTO; the second aspect was connected to the importance of addressing the special characteristics of SVEs in the current negotiations. He said that the Secretariat study clearly showed the 
limitations and challenges facing SVEs in terms of integrating into international trade. It was 
essential that the current negotiations generated the appropriate conditions so that SVEs could overcome the challenges and limitations. 
38. The representative of Panama said that she endorsed the statement made by Guatemala on 
behalf of SVEs. She thanked the Secretariat for the study. In regard to the content of the study 
and its discussion of SMEs, she said the paper had not addressed issues related to intellectual property rights. She wished to point out that SMEs could generate products like services and 
innovative processes which could generate assets or rights to intellectual property. If these were 
protected, it would allow such companies to use such assets as a way of funding themselves. It would also help create greater marketing and commercialization of goods and services. As far as 
the challenges experienced by SMEs were concer ned, she said that the paper did not touch on 
issues relating to the need for such SMEs to fulfil international standards and certifications. 
39. The representative of El Salvador said that the report prepared by the Secretariat was a 
good starting point for discussion and further study on the challenges and opportunities 
experienced by SVEs. The paper would be useful in preparing responses to trade issues in order to 
help SVEs further integrate into the multilateral trading system in compliance with the Ministerial mandate. In regard to El Salvador, he said integration into GVCs in his country took place mainly 
at a regional level, principally with other Central American countries such as the Dominican 
Republic, the US and Mexico, especially in the area of textiles and apparel. The productive potential of this sector relates to textiles and fibres and represents about 45% of the total exports 
of El Salvador. This economic activity was due to the national investment promotion policy that 
had been promoted in the country in the 1990s. Th e role of the various regional trade agreements 
that El Salvador was part of, such as Central America Free Trade Agreement (CAFTA), had also been crucial in helping to promote FDI and the prof ile of the country's market to the outside world. 
This has been confirmed by the study. But she ex plained that the industry was facing numerous 
challenges when it came to the proliferation of trade agreements and preferences particularly in 
regard to Regional Trade Agreements (RTAs) which had flexible rules of origin which were different 
from the ones which El Salvador currently participated in in its bilateral agreements. Challenges 
facing El Salvador with entering into these value chains, most of which had been identified in the study, were the low capacity for advancing and diversifying production into other sectors of 
products which would help El Salvador integrate further into other regional or GVCs. This WT/COMTD/SE/M/29 
 
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  generated economic dependence on a few prod uctive sectors and a few export markets. 
Furthermore, because of El Salvador's small si ze, efforts were under way to diversify into 
agricultural products. This needed to be done on an appropriate scale in order to be able to produce quality products. There were also some leading companies in this area which already had 
their providers as has been indicated in the study. She explained that another challenge 
mentioned and which is particularly relevant for SVEs was the compliance with international standards and private compliance standards. For these reasons, it was hoped that the Dedicated 
Session would continue to discuss the aspects raised in this study in future sessions. She hoped 
the conclusions of the analysis would continue to be discussed in the Committee and that Ministers can take note of these discussions at the next Ministerial Conference and take relevant action. 
40. The representative of India thanked the Secretar iat for the note and for the presentation. He 
also wished to express his agreement with the st atement made during the presentation that GVCs 
were only one element in the development portfolio of SVEs. He said that the note underscored the fact that due to their small size and remoteness, small economies found it particularly difficult 
to integrate into GVCs. He added that while th e study suggested that integration into GVCs, 
especially apparel and clothing, manufacturing and tourism, call centres and business processing and outsourcing, could help small economies divers ify their production and export structure away 
from natural resources and primary agricultural commodities to manufacturing and services. He 
said that the report highlighted some of the chal lenges which prevented the participation of small 
economies in participating in GVCs. These were due to high transportation costs, access to finance, customs procedures and inadequate standards and infrastructure. He pointed to the report's 
findings concerning how the successful integration into GVCs could make small economies 
vulnerable to the negative effects of potential GVC disintegration, due to the decreasing competitiveness of domestic firms or due to the re-l ocation of production by foreign investors. This 
was mainly due to increased competition for markets amongst countries. 
41. He said that many studies had highlighted the fact that developing countries, including 
SVEs, integrated at the lower end of value chains and that economic gains from their GVC 
integration were very limited. He said that the Secretariat paper quoted the WTO's World Trade 
Report from 2014 which underscored that "often lead firms possess rare capabilities while suppliers further down the chain stand in increasingly fierce competition with each other to supply these firms. This leads to a large gain capture for the lead firms". He said that according to 
UNCTAD’s recent paper on "Measuring Value in Global Value Chains", the share of OECD countries 
in total value-added created by GVCs is found to be 67%. The share of newly industrialised countries (like Singapore, Chinese Taipei, etc.) is  around 11% with China at 9% and other BRICS 
countries comprising 5%. The share of the rest of the world, which includes all least developed 
countries (LDCs) and other developing countries (excluding NICs and BRICS), was reported to be only 8%. 
42. He referred to the well-known iPad case-study (by Kraemer et al., in 2011) which found that 
less than 5% of the sale value of the iPad re mained in China, the place where the IPad is 
assembled. 
43. He added that the Secretariat note also highli ghted the distribution of value addition among 
different countries by mentioning the "smiling curve". The latter showed that upstream activities, 
such as research and development, and downstream  ones such as marketing and distribution, are 
characterized by higher value-added creation than manufacturing or assembly activities. The 
Secretariat note also underscored the fact that the "smiling curve" had deepened and that there 
were now lower-levels of value-addition in the middle stages of the value chain and that much of that was due to offshoring to less expensive production sites, increased competition and 
competitiveness gains amongst countries offering similar production capabilities. He explained that 
in the presentations by the Secretariat, it was mentioned that some of the assembly plants in China could also be offshored eventually, mainly because of the rise of wages in China. 
44. He added that given the conclusions of the study, it was clear that the integration of small 
economies into GVCs was not unequivocally beneficial or advantageous. The flow of economic 
benefits was found to be substantially unequal and almost tended to resemble the historical trading which formed the bedrock of development of advanced economies. He explained that the 
existing disparities in capacity and levels of development appeared to get stabilised if not 
enhanced in so called value chains. Till such time that the smiling curve does not become flatter, WT/COMTD/SE/M/29 
 
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  indicating better benefits and value distribution across the chain end to end, it cannot be said that 
GVC integration is necessarily positive for small economies. 
45. The representative of Sri Lanka said that his delegation supported the statements made by 
Guatemala made on behalf of the SVE Group. He thanked the Secretariat for the comprehensive 
background note. He said that as recognized in the note, Sri Lanka had shown remarkable 
progress in its information technology and bu siness processing and outsourcing sectors. The 
apparel and clothing sector, which is Sri Lanka's main industrial export earning sector, had 
performed well and was like the information technology (IT) and business process outsourcing in 
that all three had focused on the higher value- added in the global market. The garment policy 
supported by skilled labour and the development of  IT infrastructure had been the success factors 
for the development of the sector. He highlighted some of the challenges at domestic and global 
level that Sri Lankan SMEs encountered when link ing its industries into GVCs. There was the need 
to improve infrastructure, market access opportunit ies, transportation and related infrastructure, 
access to trade finance, application of modern technology, trade facilitation and the regulatory and 
business environment. These were all common challenges experienced by Sri Lanka.  
46. He explained that SMEs in Sri Lanka, which account for 80% of all businesses which 
generate more than 70% of the country's GDP, make  up of a large part of the country's economy. 
SMEs had faced capacity constraints and this had been a challenge, especially when complying 
with SPS, TBT, standards and certificates of requir ement to integrate into GVCs. It had also been a 
challenge for Sri Lanka to use value chains to establish backward linkages, which would then filter the benefits to the entire economy. He hoped that the specific challenges faced by SVEs in linking 
into GVCs could be further discussed in detail in future meetings. 
47. The representative of the European Union than ked the Secretariat for the background note 
and also for having incorporated comments which the EU had provided on the feedback on an 
earlier outline. The note provided a good focus on small economies and described in detail some of 
the barriers SVEs faced when integrating into GVCs, as well as a number of conclusions which the EU both recognized and supported. In the spirit of  ensuring that the paper was as operational and 
constructive and would reach as wide a readership as possible, there were certain things which he 
said could be further improved in a possible future version of the study. First and foremost, he said 
that his delegation believed that the note did not sufficiently focus on the fragmentation of the production process as seen today from a global perspective. This issue was also raised by the 
Secretariat during its initial comments. As a result of the lack of a sufficient focus on the 
fragmentation of the production process, he said  that the examples chosen and set out in the 
study did not fully illustrate the specific challenges and the specific opportunities presented by 
GVCs. The note was more a broad exploration of the challenges and opportunities for small 
economies to participate in international trade rather than GVCs. In terms of how to address that shortcoming, he proposed considering a revised note, which would be a shorter note which focused 
on a smaller number of sectors. He said that there were two sectors in particular which the EU 
suggested: textiles and business process outsourcing. With a focus on these two sectors in a shorter note, there would be a greater chance of the paper providing even more insights and even 
reach a wider audience which might otherwise be discouraged by a lengthy and very detailed 
document.  
48. In terms of the conclusions reached in the document, he said the EU supported the 
identification of the Trade Facilitation Agreement as a key determinant for participation in GVCs. In 
this regard, he hoped the note would provide further momentum for a rapid ratification and 
ultimate implementation of the Trade Facilitation Agreement, a goal he believed was shared by the Membership. In regard to other barriers to GVCs, he wished to recall that the EU and its 
28 members provided some €11.7 billion worth of Aid-for-Trade assistance in 2013. He therefore 
recommended and encouraged small economies to better articulate their trade-related needs in the context of their national development plans and to also seek to have those reflected in the priorities of any programming of EU bilateral and or regional aid. Finally, he asked whether the 
Secretariat viewed the note as the end of the road or  work in progress. If it was the latter, he said 
his colleagues in Brussels would be ready to assist.  
49. The representative of Barbados said her country, like other SVEs, was challenged by the 
inherent characteristics associated with smallne ss, including small productive capacity, remoteness 
from main markets, lack of competitiveness, economies of scale and vulnerability to exogenous shocks. She said that there was a growing body of  work being done on GVCs and its potential as WT/COMTD/SE/M/29 
 
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  one of the elements which can be linked to advancement in socio-economic development. 
However, the topic of GVCs and the subject of small economies was one that had not been sufficiently explored in the literature. Discussions on the experiences by small economies with linking into value chains was therefore of intere st. She thanked the Secretariat for the paper which 
she said was a good basis for the start of a co nversation on GVCs and the opportunities and 
challenges for SVEs. The document provided a solid basis for future discussion both in Geneva and in capitals. She requested that the document rema in on the agenda for the next meeting so that 
additional comments and experiences could be shared . As indicated by Guatemala on behalf of the 
SVEs, she said her delegation saw the meeting as being a first discussion. She looked forward to future discussions on specific elements outlined in the paper.  
50. The representative of the United States welc omed the report and the continued work on 
small economies as set out in the decision at the Ninth Ministerial Conference. He appreciated the 
work of the Secretariat and in particular the work of the two authors. He said that he agreed with 
the reference in section 2 and paragraph 2.2 of the report that a "main benefit from integration 
into GVCs is employment creation". He added that he was not sure, however, how the creation of 
new jobs led to "better governance due to a reduction of people employed by the informal sector". He asked whether it had been shown if an increase in the participation in GVCs led to a 
corresponding decrease in employment in the informal sector. He inquired how this led to good 
governance. 
51. His delegation questioned whether some of the data that generated the conclusions could be 
skewed by the size of the sample. For example, paragraph 2.23 summarized the data in Figure 3. 
It noted that "the lack of labour skills, access to finance, and the business environment are the 
three main national supply-side constraints facing firms from small economies. In contrast, hard infrastructure such as ICT networks and power supp ly appeared to be minor issues". Also, the note 
to Figure 3 indicated that the results were based on a survey of 95 suppliers from small economies 
and 357 suppliers of other developing economies. He said that of the 95 companies, only five were 
in the IT sector and asked whether the relatively  small sample affected the survey results.   
52. He appreciated the analysis on the primary and processed products of cocoa, coffee, and 
fruits and nuts. He had two comments in regard to the exports of these products from SVEs. First, he said to what extent was the an alysis affected by the geographic and climatic conditions required 
to grow these specific crops? In other words, no t every country would be able to produce each of 
these crops. This would affect the overall share of small economies in world trade. Second, he 
asked if the characteristics of trade in a particular product affected a country’s share of processed products. For example, the paper noted that small economies accounted for 12.6% of world 
exports of primary coffee but only 0.4% of proces sed coffee. He said that in many cases, coffee 
was often not processed until close to the point when it is consumed. He asked to what extent the peculiarities of these products affected the share of processed exports. 
 
53. In regard to section 3.2 dealing with services value chains, he said that a significant portion 
of the section on tourism examined the "operational difficulties for developing country suppliers". His delegation would be interested in the relationship between these operational difficulties and 
the "demand side", which was addressed in paragrap h 3.48. In other words, if a particular country 
were to address its "operational difficulties" by improving labour skills, access to finance and other areas, would that necessarily result in greater tourist flows? To what extent do demand-side 
factors such as the perceptions by and interests of tourists affect the local tourism industry?  
 54. With respect to the conclusions, he noted that  one key theme that emerged from the report 
was that small economies were quite diverse in sectors, economic make-up and geographic 
endowments. He said that it would be difficult to come up with policy solutions for one country that 
would apply readily to another. He welcomed the re port's focus on trade facilitation aspects such 
as transportation costs and border procedures. He said this clearly shows that this is an area which 
impacts small economies in many ways to a greater extent than other developing countries. In this 
regard, his delegation wished to reiterate its full  support for the WTO Trade Facilitation Agreement 
and urged renewed momentum on implementing the Agreement as rapidly as possible. 
 
55. The representative of China also wished to thank the Secretariat for the report. He said his 
delegation supported efforts by SVEs to integrate into GVCs and encouraged the CTD Dedicated 
Session to continue this discussion in the future. In regard to a comment made by the 
representative of Chinese Taipei concerning the successful case stories of SMEs integrating into WT/COMTD/SE/M/29 
 
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  GVCs, he encouraged Chinese Taipei to provide more information in regard to this topic at a later 
stage of discussion.   56. The representative of Uganda said that some  of the challenges which are crucial for SVEs 
and which have to be addressed concern capacity  building to acquire the necessary skills for 
effective participation so that they can obtain higher shares of value-added in their production processes. He explained that there was also a need for technical and financial assistance to enable 
investment in SVEs. Initiatives such as Aid for Trade and the Trade Facilitation Agreement and the 
Enhanced Integrated Framework could all be beneficial.   57. The Chairman gave the floor back to the au thors of the report to provide additional 
comments and explanations. The Secretariat said that in regard to comments made by the US 
about GVC participation and a link to higher employment and better governance, the idea behind the statement was that governance could be improved because of export diversification or moving 
to sectors where the informal sector was smaller. The second assumption was that there is more 
formal employment in sectors engaged in GVCs and that leads to improved governance, mainly 
because of FDI and issues related to corporate social responsibility. He agreed that the survey 
results were based on a relatively small sample and with the fact that one has to be cautious 
interpreting the facts and conclusions of the survey. That is why the study also looked at country-wide indicators from various agencies to pr ovide a comparison to this type of perception 
based surveys. He also agreed that geography and various different products shape GVC patterns 
and limit to what extent companies are engaged in  primary or processed activities. However, one 
could still make a general point that SVEs tend to be engaged more in primary activities. To what extent this was due to geography and peculiarities  or other issues would need further assessment. 
He thanked the delegate from India for his remark s concerning the "Smiley curve" and wished to 
explain that the study showed that globalization has probably led to a depending of the curve where there is intense competition in manufacturing. It was also highlighted, however, that even 
with lower margins, companies can compensate with higher volumes. Also, it was relatively 
difficult to shift to different functions in th e curve, for example to focus on research and 
development or marketing and distribution. In re gard to the EU's comments about how the study 
could have focused more on the fragmentation of production, he said that there was already an 
analysis of primary versus processed products and it really was for Members to decide how much 
further they wished to go in future work.  
58. The Chairman said the comments made were valuable and that Members had had a full 
discussion of the paper. It is obvious that the discussions have just touched the surface of the 
many elements raised in the paper. The Committee could delve further into this topic as 
Guatemala and the other SVEs and Members supported.  
 59. The representative of Guatemala said that she too believed Members had had a fruitful 
discussion and that a clearer view was gained about the specific challenges and opportunities 
which SVEs face when it linking into value chains. She said that based on the discussion and as 
mentioned in her opening statement, SVEs requested that the Committee further discuss the following challenges addressed in the Secretariat background paper: transportation, logistics, 
infrastructure and the relation to the Trade Facilitation Agreement; SPS measures and TBT; 
standards and certification; market access in favour of SVEs; vulnerability costs of SVEs because of GVCs due to the potential disintegration of value chains; decreasing competitiveness of 
domestic firms due to the re-location of production by foreign investors, and access to trade 
finance. She said that SVEs also requested that for these future discussions, UNCTAD and the International Trade Centre (ITC) be invited to en rich the discussion exchange and to share in the 
data and results of the research.  
 
60. The Chairman said that he agreed with Guatemala that outside experts would help 
discussions of this subject. He also suggested seek ing the assistance of other WTO bodies in this 
regard, if possible. He suggested organizing a meeting for the fall, perhaps in September, that 
would go into further depth of the more specific topics which had been discussed in the course of 
the meeting.  
 
61. The representative of the European Union said his delegation would certainly be in favour of 
anything that could help advance the discussions on the note and the relevant issues it had raised. 
In regard to the question of the involvement of other organizations in future meetings, no one 
would object to suggestions as to which experts might be included. Rather, his delegation would WT/COMTD/SE/M/29 
 
- 13 - 
 
  want to see included those who had something to contribute, which in his view would also include 
the OECD, which recently produced a paper funded by the EU and which focused on greater participation of developing countries in GVCs. He said that there could be some important synergies and that perhaps, rather than listing which organizations might be included in the 
discussion, the Committee could start by focusing on what it believes it needs and which experts 
or organizations could best assist.   
62. The representative of the United States said that he wished to clarify what the Chairman 
was planning for the fall and in the next few months. He understood that there would be a 
continuation of the discussion and that delegations would then be able to comment further on the suggestions made by the delegation of Guatemala.  However, if it was to be understood that the 
Committee agree to Guatemala's suggestion, then he would need more clarification. He asked the 
Chairman to elaborate further on his proposal as to what discussion would be resumed in the fall.   
63. In response to the EU's comments, the representative of Guatemala said that she mentioned 
UNCTAD and the ITC because they were organization s which worked on these issues raised in the 
study. She would not be against other organizations participating in these discussions as long as 
the discussion focused on small economies. In re gard to the OECD paper mentioned earlier, she 
said that the paper was broader in scope than small economies and discussed developing country issues. She would appreciate the participation of  the OECD but would also welcome a focus on 
small economies.  
 
64. The Chairman asked the Members if they wished  to keep a broad focus on the subject at 
hand or engage in a narrower discussion to then identify areas where they would like to go into 
more depth. He said that the note in front of the Committee offered a broad horizon already. What 
scope would Members wish to pursue in their future discussions?   
65. The representative of Guatemala said the study highlighted some specific challenges which 
the SVEs feel should be addressed in more depth.  This is why the SVEs had made a list of the 
issues which they would like to discuss at the next meeting. It would be a more specific and less broad discussion so that Members could go more into the details.  
 
66. The Chairman asked Guatemala to repeat the list of issues proposed for future discussion. 
They included transportation, logistics, infrastructure and the relation to the Trade Facilitation 
Agreement; SPS and TBT measures, standards and certification; market access in favour of SVEs; 
vulnerability costs on SVEs because of GVCs due to the potential disintegration of value chains, decreasing competitiveness of domestic firms or due to the re-location of production by foreign 
investors; and access to trade finance. 
 67. He said that this appeared to be a good starting point for the fall. He said that the 
Secretariat should be asked to circulate the proposal.  
 
68. The representative of the United States said that he wished to see the list of issues 
circulated to Members. He said it sounded interesting. A general discussion on whether or not 
those issues are appropriate points of departure appeared to him like a good basis for the meeting 
in the fall. He said that he would be happy to  reflect on Guatemala's suggestion until then.  
 
69. The Chairman added that it would be a good idea  to bring outside experts to that meeting.  
 
70. The representative of the United States said that it may be premature to bring in experts 
when the Members had not yet decided what it was they were going to discuss. There were 
interesting suggestions made by Guatemala and it would be helpful if the Committee could reach 
agreement on how and on which issues it would discuss before inviting anyone to speak on them. He said that he was reluctant to endorse the list and then to have speakers come in from other 
agencies without any Committee discussion at all of what parameters or aspects of these items the 
Committee wished to examine as a group.   
71. The Chairman said that the paper of topics fo r future discussion as suggested by Guatemala 
would be circulated and the Chairman would consult with Members.  
 72. The representative of the European Union said that he too wondered where and how the 
Committee was to move forward. In response to Guatemala, he was not proposing to exclude or WT/COMTD/SE/M/29 
 
- 14 - 
 
  include anyone. Rather he said that the Committee should decide what it was it wished to discuss. 
Then as a next step, the Committee could look at what has been done in house, for example on trade finance, to determine if there were any gaps and, if yes, outside participants could be invited.  
 
73. The representative of Guatemala said that she was concerned about the slow progress in 
general in the Committee. She said that the discussion showed that there was an interest in this 
topic and that if Members waited until September to have a more detailed discussion about which 
topics to start discussing, then she thought that there would not be enough time. The SVEs wished to discuss these issues because they would feed into  the larger negotiations taking place ahead of 
the upcoming Nairobi Ministerial. She said that these topics were important and should be 
discussed before December. She wished to prop ose the topics because they constituted the 
challenges which were already identified in th e document. The SVEs were not putting forward any 
lists of new topics. If Members still felt that it was necessary to discuss them, then she suggested 
having an informal meeting to discuss the agenda  for the following Committee meeting. That way, 
Members could have a substantive meeting in September. She asked the Chairman if this was possible. 
 
74. The Chairman said that it was possible. He su ggested circulating a proposal by the SVEs and 
then organizing another informal meeting to continue the discussion. The Dedicated Session took 
note.  
C. OTHER BUSINESS 
75. No matter was raised under "Other Business". 
76. The meeting was adjourned. 
__________