RESTRICTED 
WT/COMTD/SE/W/31
1 May 2015
(15-2376)  Page: 1/72
Committee on Trade and Development  
Dedicated Session   
 
CHALLENGES AND OPPORTUNITIES EXPERIENCED BY SMALL ECONOMIES WHEN 
LINKING INTO GLOBAL VALUE CHAINS IN TRADE IN GOODS AND SERVICES  
BACKGROUND NOTE BY THE SECRETARIAT1 
1   INTROD UCTION  .......................................................................................................... 2  
1.1   Structure of the paper ................................................................................................ 3  
1.2   The inter-connectedness of regional  and global produc tion processes ................................ 3  
2   OPPORTUNITIES AND CHALLENGES FO R JOINING GLOBAL VALUE CHAINS ................ 5  
2.1   What are the opportunities that GVCs can offer small economies? ..................................... 5  
2.2   What are the challenges for smal l economies to integr ate into GVCs? ................................ 5  
3   EVIDENCE OF THE INTEGRATION OF  SMALL ECONOMIES IN GLOBAL VALUE 
CHAINS ........................................................................................................................ .. 11  
3.1   Goods va lue chains ................................................................................................... 12 
3.1.1   Agrifood .............................................................................................................. . 12 
3.1.2   Seafood ................................................................................................................ 18 
3.1.3   Textiles and apparel ............................................................................................... 22 
3.2   Services value chains ................................................................................................ 30 
3.2.1   Tourism ................................................................................................................ 30 
3.2.2   IT and business process outsourcing ......................................................................... 35 
4   THE ROLE OF FOREIGN DIRECT INVE STMENT IN GLOBAL VALUE CHAINS ................. 38  
5   CHALLENGES AND OPPORTUNITIES FOR SMALL AND MEDIUM-SIZED 
ENTERPRISES................................................................................................................. 43  
5.1   Regional integration .................................................................................................. 44 
5.2   SME busine ss strate gies ............................................................................................ 44 
5.3   Diversification into services and SME internationalization ................................................ 46 
5.4   Challenges for SMEs to ga in footholds in export markets ................................................ 47 
6   THE ROLE OF LOGISTICS AND TRADE FACI LITATION ................................................ 50  
7   TRADE POLICY EXPERIENCES .................................................................................... 55  
8   CONCLUSIONS ........................................................................................................... 58  
9   REFERE NCES ............................................................................................................. 61  
ANNEX ......................................................................................................................... .. 66  
                                               
1 This document has been prepared under the Secret ariat's own responsibility and is without prejudice 
to the positions of Members or to thei r rights and obligations under the WTO. WT/COMTD/SE/W/31 
 
- 2 - 
 
  1  INTRODUCTION 
1.1.  This background paper has been prepared  in response to a Ministerial decision of 
7 December 2013 taken at the WTO's Ninth Ministerial Conference (MC9) in Bali.2 The decision on 
the Work Programme on Small Economies instructed the WTO Secretariat to provide a factual 
analysis, for discussion among Members in the Committee on Trade and Development's Dedicated 
Session, on the challenges and opportunities expe rienced by small economies when linking into 
global value chains in trade in goods and services. The Bali Decision follows others taken at 
previous Ministerial Conferences and the WTO's General Council3, all of which relate to 
paragraph 35 of the Doha Ministerial Declaratio n of 2001, which states that a work programme, 
under the auspices of the General Council, "is to frame responses to the trade-related issues identified for the fuller integration of small, vu lnerable economies into the multilateral trading 
system, and not to create a sub-category of WTO Members".
4 Such a Work Programme was agreed 
in 2002.5   
1.2.  This paper focuses on the most recent deci sion by Ministers to examine the challenges and 
opportunities faced by small economies in linking into global value chains (GVCs). It seeks to 
further inform discussion at the Committee on Trade and Development's Dedicated Session on Small Economies and describes some of the challenges they face, or experiences they have had, 
with linking into GVCs in trade in goods and serv ices. In order to narrow the scope of the research, 
the paper focuses on those countries which qualify as "small economies" as per the text in the Doha Round's Revised Draft Modalities for Agricu lture (TN/AG/W/4/Rev.4). The latter describes a 
small economy as one whose average share for the period 1999-2004 (a) of world merchandise 
trade does not exceed 0.16%; and (b) of world no n-agricultural market access (NAMA) trade does 
not exceed 0.10%; and (c) of world agricultural trade does not exceed 0.40%.  
1.3.  While Annex I of the Agriculture Draft Modalities text lists 45 countries as meeting the above 
criteria, this paper examines the 32 countries which have been actively engaged in the Small 
Economies' Work Programme (Table 1).
6 The list does not include countries in WTO accession 
proceedings or LDCs (with the exception of Vanuatu, which is to graduate from least developed 
country (LDC) status in 2017). 
Table 1. Small economies included in the analysis 
ISO3 Country name ISO3 Country name ISO3 Country name 
Africa Caribbean Central and South America 
CPV Cabo Verde ATG Antigua and Barbuda BLZ Belize 
MUS Mauritius BRB Barbados ECU Ecuador 
SYC Seychelles, Rep. of CUB Cuba SLV El Salvador 
Asia/Pacific DMA Dominica GTM Guatemala 
BRN Brunei Darussalam DOM Dominican Republic GUY Guyana 
FJI Fiji GRD Grenada HND Honduras 
MDV Maldives JAM Jamaica NIC Nicaragua 
PNG Papua New Guinea KNA Saint Kitts and Nevis PAN Panama 
WSM Samoa LCA Saint Lucia PRY Paraguay 
LKA Sri Lanka VCT Saint Vincent an d the Grenadines SUR Suriname 
TON Tonga TTO Trinidad and Tobago   
VUT Vanuatu7         
 
1.4.  In a review of current research, small-sized countries are frequently referred to using a 
variety of terms. UNCTAD refers to them as Small Island Developing States (SIDS), the WTO as 
Small Economies or Small, Vulnerable Economies (SVEs) and the World Bank often uses the term 
"small island states". The lists of countries which the three organizations use in their research are 
                                               
2 Document WT/MIN(13)/33, WT/L/908. 
3 Documents WT/L/844, WT/COMTD/SE/6, paragraph 41 of WT/MIN(05)/DEC and paragraph 1(d) in the 
1 August 2004 General Council Decision in document WT/L/579. 
4 Document WT/L/447. 
5 Paragraph 35 of document WT/MIN(01)/DEC/1. 
6 Other countries which qualify as small economies and which are interested in obtaining such data, 
even though they are not included in the data sets pr epared for this paper, should contact the Secretariat. 
7 Vanuatu has been included in the list (unlike other LDCs) since it is slated for graduation in 2017. WT/COMTD/SE/W/31 
 
- 3 - 
 
  often quite similar. So are the distinguishing characteristics of these countries: many have a small 
market size, narrow resource base and small or restrictive economies of scale; many too are islands and are situated in remote locations. Mo reover, many of these countries are also highly 
vulnerable to natural disasters. For the purpose of  this paper, the terms SIDS and SVEs will be 
used interchangeably, as will the term small economy. 
1.5.  Roughly half of the countries which qualify as SIDS are referred to as small economies in the 
WTO. Whereas UNCTAD focuses more on states in the Pacific, the WTO's list includes non-island 
states, many of them located in Central America. Much of the analysis produced by both 
organizations is highly relevant to the further study of small economies and their relationship to GVCs. 
1.1  Structure of the paper 
1.6.  This background note looks at various aspects of GVCs and the involvement of small 
economies. Section 2 describes some of the main opportunities and challenges which small economies face when trying to connect to value chains. The discussion places particular emphasis 
on the natural constraints of size and physical remoteness to markets, which characterize many 
small economies. Analysing a number of statistical indicators and responses to Aid-for-Trade questionnaires, the section highlights the fact that trade costs related to transport infrastructure 
and trade facilitation, standards compliance, access to finance and labour skills, constitute some of 
the major barriers to integrate into GVCs for suppliers from small economies. 
1.7.  Section 3 examines the integration of small economies in goods and services value chains. In 
the case of goods value chains, the section analyses the integration of small economies in the 
agrifood, seafood and textiles and apparel sectors, and discusses how small economies have used 
some of their distinct advantages in these value chains. Section 3 further elaborates on value chains in services, discussing the importance of the tourism sector for small economies. It points 
to the potential of information technology (IT) and business process outsourcing for remote small 
economies.  
1.8.  Section 4 provides an overview of foreign direct investment (FDI) flows to small economies. 
It shows that firms in small economies with foreign ownership participation tend to be more 
integrated into a value chain than a domestically-owned firm and discusses how increased flows of FDI can actually help small economies gain a foothold in a value chain.  
1.9.  The involvement of small and medium-sized enterprises (SMEs) in value chains is discussed 
in section 5. Here, particular challenges concern accessing sufficient amounts of financing, 
improving the skills of the work force and having access to national support institutions. The section also discusses the different types of strategies which small firms in small economies could 
deploy to defend themselves against larger firms, and how these strategies actually differ from 
one sector to another.  
1.10.  Section 6 discusses the role of logistics an d trade facilitation as key determinants for GVC 
participation. It also shows that, in comparison to other countries, small economies have a lower 
maritime shipping connectivity and that air transport is of particular importance to small economies that are remote and dependent on tourism.  
1.11.  Finally, in section 7 on trade policy experiences, the paper looks back some 40 years to 
examine how our understanding of value chains ha s evolved and what policy options are available 
to small economies. Challenges with upgrading and diversification are discussed, as well as the role of imports for export competitiveness and whether a company in a small economy should 
place a greater emphasis on producing more volume rather than higher levels of value. 
1.2  The inter-connectedness of region al and global production processes 
1.12.  One of the most important changes in the nature of international trade has been the 
growing inter-connectedness of production processes across many countries, with each country 
specializing in a particular stage of a good's prod uction. In the trade literature, these processes are 
referred to as global supply chains, global value ch ains, international production networks, vertical 
specialization, offshore outsourcing and production fragmentation. For the sake of clarity, this WT/COMTD/SE/W/31 
 
- 4 - 
 
  paper will refer to "global value chains" or GVCs with the recognition that internationalized supply 
chains may often be regional, rather than global (WTO, 2013).  
1.13.  Many developing countries and small economies alike are trying to support domestic firms 
to link to GVCs. They are also trying to attract foreign firms and improve border procedures to 
facilitate trade flows. While some studies urge governments to further reform their trade policies 
and streamline border clearance measures, they also emphasize that inducing the long-term participation of firms in these competitive value chains can be very challenging. This is true 
especially since GVCs in today’s world are highly dynamic. They place strict demands on 
participating firms and are increasingly consolidated around a small number of strong global suppliers.  
1.14.  An OECD study, "Connecting local producers in developing countries to regional and global 
value chains," finds that regardless of a firm’s po sition in the value chain, minimum quality, cost, 
and reliability requirements must be consistently met in order to participate in the chain on an ongoing basis (Bamber, P. et al. 2014). It finds also that the capacity of firms to consistently meet 
some of these requirements is affected by the local institutional context in which they operate. 
These local-level aspects of value chains include "the skill level of the available human capital, the establishment of local standards systems, specific infrastructure policies and the degree of industry 
institutionalization". 
1.15.   Joining a GVC, however, does not always translate into positive development gains from 
trade. Concerns exist that GVCs can increase inequality or have other adverse effects. Therefore, polices to integrate into GVCs should include economic, social and environmental dimensions which 
could help to reduce such potentially negative impacts of GVC participation (Kaplinsky, 2005). In 
this regard, a focus on trade and investment policy alone is not sufficient to connect developing countries to GVCs and simultaneously facilitate development gains for the domestic economy. In 
order to coherently support development goals, some studies also call for more sustained efforts 
to be undertaken to help countries mainstream GVC trade into their broader national economic development agenda (Bamber, P. et al. 2014). 
1.16.  The fragmentation of production processes associated with the rise of GVCs allows firms in 
developing countries to participate in international trade without developing the full range of vertical capabilities across the value chain. By opening up access to new and often higher value markets, participation in GVCs can offer smaller and emerging economies an opportunity to add 
more value within their local industries, expand employment and raise incomes. But this also 
requires efforts at the national level to mainstream GVC trade into economic development, build greater internal capacity and generate more linkages with the local economy (Bamber, P. et al.  
2014). 
1.17.  GVCs may be comprised of only two countri es, a region or a global network. A typical GVC 
which produces an end-product for final consumption may involve activities across several sectors 
and industries, from mining and mineral extraction to agriculture, and from manufacturing 
industrial products to services. The growing importance of GVCs has led to the realization that the way international trade has traditionally been accounted for may no longer be sufficient to determine the level of value which each country can add in a given production process. According 
t o  a  r e c e n t  U N C T A D  p a p e r ,  " a  g r o w i n g  b o d y  o f  w o r k  e x i s t s  a i m e d  a t  n e t t i n g  o u t  t h e  
'double-counting' effect of GVCs on global trade, determining value-added in trade, and mapping how value-added moves between countries along GV Cs before final consumption of end-products" 
(UNCTAD, 2013a). This process is further complicated because many goods might be both final 
and intermediate depending on the context. Trade in value-added, therefore, is increasingly being estimated by using international or global input-output (I-O) tables which combine national I-O 
matrices with trade flows of intermediate and final goods and services. These help depict 
international production structures and allow for the tracing of "value chains" for each final good or service sold in the countries concerned (WTO, 2013).  WT/COMTD/SE/W/31 
 
- 5 - 
 
  2  OPPORTUNITIES AND CHALLENGES FOR JOINING GLOBAL VALUE CHAINS 
2.1  What are the opportunities that GVCs can offer small economies? 2.1.  The rise of GVCs offers developing countries, especially small economies, opportunities to 
integrate better into the international trading system and to advance their economic development. 
Countries can specialize in tasks or stages within the value chain, which helps them to industrialize 
faster. At the same time, activities might be re-located more quickly as easier entry and exit into value chains also implies fiercer competition among countries (Baldwin, 2011).  
2.2.  Integration into GVCs can help small economies diversify their production and export 
structure away from natural resources or primary agricultural commodities to manufacturing and services, where labour productivity and wages are higher (WTO, 2014). Typical sectors for an 
initial integration are apparel and clothing in manufacturing and call centres and IT business 
process outsourcing in services. Structural change can also be facilitated by the fact that certain 
tasks or skillsets can be exploited by different GVCs.  
2.3.  Furthermore, a main benefit from integration into GVCs is employment creation. The creation 
of new jobs does not only result in static gains by reducing underemployment but also allows for 
dynamic gains such as improved skills and employ ability of the labour force and better governance 
due to a reduction of people employed by the info rmal sector. However, successful integration into 
GVCs makes small economies also vulnerable to nega tive effects, at least in the short term, from 
potential GVC disintegration due to the decreasing competitiveness of domestic firms or due to the 
re-location of production by foreign investors.  
2.4.  Besides structural change and employme nt creation, developing countries can achieve 
dynamic gains from increased trade integration and FDI, which often accompany GVC integration 
(WTO, 2014). Both trade and FDI can lead to te chnology and knowledge transfers to domestic 
firms. This transfer can occur either through the technology embodied in imported inputs or 
through spillovers from foreign affiliates to their domestic suppliers and other firms. Similarly, the 
relationship and communication with trade and investment partners helps firms enhance their capabilities to adapt technology to local conditions, lowers information costs regarding product 
requirements in foreign markets and can build a positive reputation which facilitates the search for 
further investment and trade partners. 
2.5.  Small economies, which do not have the endowments to create economies of scale in a broad 
range of activities, can benefit from GVCs by specia lizing in specific tasks or products. Integration 
might be easier in services than manufacturing. In particular, transportation costs of 
manufacturing products tend to be high for small economies as several of them are islands and remote from potential trading partners. Besides economic development, GVCs can spread 
international best practices in social and environmental efforts through the use of standards linked 
to corporate social responsibility (UNCTAD, 2014d). 
2.2  What are the challenges for sma ll economies to integrate into GVCs? 
2.6.  Developing countries that are interested in having their firms join GVCs face two interlinked 
challenges. First, they need to establish policie s and a business environment that allow domestic 
firms to improve their productivity to the point that they are able to integrate into GVCs either through exports or by supplying foreign affiliat es located in their market. Second, developing 
countries compete amongst each other in their efforts to attract FDI through investment promotion 
and related policies. 
2.7.  According to UNCTAD (2013a), determinants for investment and GVC activities can be 
broadly grouped into horizontal determinants that are the same across sectors or production 
stages, and determinants that tend to be sector or stage-specific.  
2.8.  Horizontal determinants relate to political  and economic stability, the business environment, 
market size, infrastructure and the policy framew ork. These determinants often "make or break" 
investment decisions. Results from Aid-for-Trade questionnaires of firms operating in five different value chains show that these firms share a number of major obstacles when trying to connect to value chains. In particular, suppliers from de veloping countries and lead firms highlight WT/COMTD/SE/W/31 
 
- 6 - 
 
  transportation costs and related infrastructure, access to (trade) finance, customs procedures, 
labour skills, inadequate standards infrastructure  and the regulatory and business environment as 
major obstacles to the participation of developing country suppliers in GVCs (OECD/WTO, 2013). 
2.9.  Beyond these necessary horizontal conditions for GVC integration, different stages and 
sectors are characterised by specific requirements to be met by potential suppliers and their host 
countries. In the case of knowledge creation stag es such as research and development (R&D) and 
design, specific determinants to GVC integration include a developed national innovation system, 
skilled labour force, sound R&D and innovation policy as well as an intellectual property rights 
regime. In agrifood value chains, the ability of firms to comply with standards, including sanitary and phytosanitary (SPS) measures, as well as the availability of standards infrastructure for testing and certification, are key to GVC integration (Cattaneo, 2013). In information and 
communication technology (ICT) value chains, technological and language skills and the 
regulations of telecommunication providers are GVC-specific determinants (Lanz, 2013). 
Box 1. Determinants of GVC participation 
Recent research conducted by the OECD analyses the structural and policy determinants for a 
developing country's manufacturing companies to  engage in value chains. Using the OECD/WTO 
Trade in Value-Added (TiVA) Database, GVC participation is measured in terms of backward 
linkages (foreign inputs used for export produc tion) and forward linkages (inputs exported to 
foreign partners for their export production). The analysis presents four main findings regarding 
structural determinants of GVC participation: 
 
Market size : the larger the size of the domestic market, the lower the backward engagement of a 
country, and the higher the forward engagement. Th e intuition is that countries with a larger 
market can draw on a wider array of domestic intermediates both in terms of purchases and sales. 
Level of development : the higher the per capita income, the higher is the aggregate forward 
and backward engagement. Developed countries tend to source more from abroad and sell a 
higher share of their gross exports as intermediate products.  
Industrial structure : the higher the share of the manufacturing sector in the Gross Domestic 
Product (GDP) the higher the backward engage ment, and the lower the forward engagement.  
Location : GVC activity is organised around large manufacturing hubs—the larger the distance to 
the main manufacturing hubs in Europe, North America and the Asian/Pacific region, the lower the 
backward engagement, suggesting that there is a premium to locating close to large 'headquarter' 
economies. 
 
The study also finds evidence for a significant role that an appropriate trade policy can have, in 
particular:  
Low import tariffs, both at home and faced in expo rt markets, and engagement in regional trading 
agreements (RTAs) can all facilitate backward and forward GVC engagement. 
Inward FDI openness tends to have a significant association with both backward and forward 
integration.  
Logistics performance, including trade facilitation, intellectual property protection, the quality of 
infrastructure, as well as the quality of institutions are estimated to have strong impacts on GVC 
integration.  
Source: Kowalski et al. (2015). 
 
2.10.  Kowalski et al. (2015) find that the structural and policy determinants of GVC participation 
can differ significantly by sector and by the development level of countries. For instance, policy determinants such as import tariffs, tariffs faced in export markets and revealed FDI openness 
seem to be of lesser importance in the case of low-income countries compared to middle- and 
high- income countries. 
2.11.  Due to their small size and remoteness, small economies might find it particularly difficult to 
integrate into GVCs. Even though GVCs make it easier for small economies to specialize in specific 
stages of production, the lack of economies of scale can still constitute a problem for certain manufacturing activities. Furthermore, the small size of the home market reduces the scope to 
benefit from horizontal, i.e. market-seeking, FDI.  WT/COMTD/SE/W/31 
 
- 7 - 
 
  2.12.  The problem of size is aggravated if a small economy is remote from major markets or hubs 
of production networks. Closeness to a big market  such as the United States (US), the European 
Union (EU) or China will attract production that is subsequently exported to these markets. Similarly, closeness to a production hub, facilitates the integration into the value chain. Kowalski 
et al. (2015) show that countries that are more distant to manufacturing hubs in Europe, North 
America and Asia/Pacific are less integrated in GVCs in terms of backward linkages.
8 Examples of 
relatively small economies that have benefitted from closeness to big markets are the Baltic States 
and other countries in Eastern Europe, Singapore and Cambodia in Asia or Costa Rica in Central 
America.  
2.13.  Once an economy has integrated into GVCs, it faces policy challenges related to upgrading. 
Upgrading in GVCs means that firms move to conducting higher value-added activities resulting in 
an increased domestic value-added-capture wi thin GVCs. Firms can upgrade by improving 
processes (process upgrading), by producing new or improved products (product upgrading) or by 
embarking on new functions within or outside a given GVCs (functional upgrading). Upgrading can 
also occur through so-called intersectoral upgrading, where acquired capabilities are used to 
produce new products or engage in new activities  pertaining to different GVCs (WTO, 2014). The 
challenges and experiences of small economie s with GVC upgrading will be touched upon 
throughout this note and are covered in more detail in Section 7 on trade policy experiences. 
2.14.  After this, more general discussion on challenges for small economies to integrate into 
GVCs, indicators and survey results will be discussed. These refer to the framework conditions and problems of small economies. Table 2 provides a se t of framework conditions that are relevant for 
countries to integrate into GVCs. In particular, it groups several indicators under five different 
headings: trade costs, transportation infrastructure, communications infrastructure, legal institutions and the business environment.
9  
2.15.  According to indicators in the World Ba nk's "Doing Business – Trading Across Borders," 
trade costs are lower in small economies than for the average WTO Member. For all five indicators, the average small economy performs better than  the average WTO economy. For instance, in 
small economies, exporting a container requires, on average, 5.8 documents, takes 16.6 days and 
costs US$1,056 compared to 6.0 documents, 19.8 days and US$1,444 for the average WTO Member, respectively. Second, trade costs in small economies differ among regions. For instance, the costs to export a container amount to US$1,781 in the Caribbean economies compared to only 
US$1,014 in Asian/Pacific small economies. Interestingly, even though the costs to export and 
import are higher in Caribbean small economies than in Asian/Pacific small economies, it takes eight days less to export in the Caribbean. 
2.16.  Available data on transport infrastructure reveal that small economies in Central and South 
America have a lower quality of air, port and road infrastructure compared to the average WTO country. Furthermore, the number of broadband intern et subscribers and internet users is lower in 
small economies compared to the WTO average. While the Caribbean small economies have, on 
average, a better communications infrastructure than the average WTO Member, Central and South American as well as Asian/Pacific small economies lag behind other countries in terms of broadband infrastructure and internet usage.  
2.17.  Table 2 also shows that in terms of legal institutions small economies display heterogeneity. 
Small economies in Central and South America as well in Africa have, on average, weaker legal rights than small economies in both the Caribbean and Asia/Pacific, as well as the average LDC 
country.  
2.18.  The ease of doing business ranking provides a summary measure across ten topics related 
to the business environment. According to this meas ure, doing business is more difficult in Central 
and South American small economies, compared to small economies in other regions. Regional 
averages for the ease of access to loans and the protection of intellectual property can only be calculated for Central and South America and the three African small economies. While the access 
                                               
8 Backward linkages capture the use of intermedia te inputs in production. International backward 
linkages in value-added data are measured through th e share of foreign value-ad ded in gross exports.  
9 Certain indicators were not included  due to lack of data for small ec onomies. For instance, in the case 
of the World Bank Logistic Performance Index (LPI) an d the OECD Trade Facilitation Indicators, data are 
available for 17 and 21 sma ll economies, respectively. WT/COMTD/SE/W/31 
 
- 8 - 
 
  to loans is slightly easier compared to the WTO average, the protection of IP is slightly lower than 
in the average WTO country. 
Table 2. Framework conditions in sma ll economies, WTO Members and LDCs, 2014 
  Small Economies WTO 
Members  LDCs 
 All C. and S. 
America Caribbean Africa Asia/ 
Pacific   
Trade costs               
Cost to export (US$/container) 1,038 1,218 998 835 939 1,475 1,979 
Cost to import (US$/container) 1,339 1,367 1,781 770 966 1,792 2,483 
Documents to export 
(number) 5.8 6.1 5.1 5.3 6.5 5.9 7.6 
Documents to import 
(number) 6.7 6.2 7.2 5.7 7.3 7.0 8.8 
Time to export (days) 16.5 17.9 12.5 15.3 20.3 19.6 31.7 
Time to import (days) 17.5 18.5 13.3 15.3 22.4 21.6 35.8 
Transport infrastructure (quality)       
Air transport, 1-7 (best)* n.a. 4.16 n.a. 4.58 n.a. 4.40 3.15 
Port infrastructure, 1-7 (best)* n.a. 4.10 n.a. 4.61 n.a. 4.18 2.97 
Roads, 1-7 (best)* n.a. 3.73 n.a. 4.35 n.a. 4.07 3.02 
Communications infrastructure 
(2013)        
Fixed broadband Internet 
subscribers (per 100 people) 7.1 4.1 12.4 9.9 2.1 11.2 0.5 
Internet users (per 100 
people) 38.6 29.8 52.1 42.3 29.5 43.6 9.0 
Mobile cellular subscriptions 
(per 100 people) 108.8 114.6 110.6 123.6 91.5 110.2 59.6 
Legal institutions        
Strength of legal rights index 
(0=weak to 12=strong) 4.8 4.1 5.7 3.3 5.3 5.2 4.8 
Procedures to enforce a 
contract (number) 40 39 42 36 39 37 40 
Time required to enforce a 
contract (days) 723 868 712 620 593 625 713 
Business environment        
Ease of doing business index 97.0 106.7 96.3 78.3 92.8 87.8 148.7 
Time required to start a 
business (days) 26 30 16 18 37 22 29 
E a s e  o f  a c c e s s  t o  l o a n s ,  1 - 7  
(best)* n.a. 3.01 n.a. 2.99 n.a. 2.89 2.34 
Intellectual property 
protection, 1-7 (best)* n.a. 3.29 n.a. 3.74 n.a. 3.85 3.04 
Source: World Bank World Development Indi cators; *World Economic Forum (WEF). 
Note: Indicators represent simple averages across countries. Depending on the availability of data, 
averages are based on 31 to 32 small economies (10 in Central and South America, 10 to 11 in the Caribbean, 3 in Africa and 8 in Asia/Pacific), 156 to 158 WTO Members and 46 to 48 LDCs. *For the 
indicators from the WEF data availability allowed on ly calculating averages for C. and S. American 
(10) and African (3) small economies, WTO Members (137) and LDCs (30). 
2.19.  As part of the Fourth Global Review of Aid for Trade in 2013, the OECD and the WTO jointly 
surveyed the public and the private sectors on th eir views regarding the barriers that developing 
country firms face when connecting to value chains. From the public sector, 80 partner countries participated, 23 of which are small economies. Th e private sector questionnaire surveyed lead 
firms and suppliers from developing countries operating in such value chains as agrifood, ICT, 
textiles and apparel, tourism, and transport an d logistics. Out of 455 suppliers, 103 suppliers 
indicated that they have their head office in a small economy. 
2.20.  Figure 1 shows that the public sector in  small economies regards access to trade finance 
and domestic infrastructure as the two main obstacles to the participation of their firms in value 
chains. These two issues were mentioned by 57% (13 out of 23) and 48% (11 out of 23) of small 
economies, respectively. According to the su rvey, small economies and other developing WT/COMTD/SE/W/31 
 
- 9 - 
 
  economies face similar obstacles. Noteworthy diff erences are that other developing economies see 
domestic infrastructure as being the main obstacle. Meanwhile, border procedures in export markets are perceived as an obstacle by small ec onomies but not by other developing economies. 
Figure 1. Public sector: Main obstacles for a greater participation of their firms in value 
chains  
0%10%20%30%40%50%60%70%Small economies Other developing partners
 
Source:  OECD/WTO Questionnaire 2013. 
Note:  Based on answers from government official s from 23 small economies and 57 other developing 
partner countries. 
2.21.  Figure 2 and Figure 3 show respectively the difficulties and supply-side constraints that 
developing country suppliers face when connecting to value chains. Results should be interpreted 
with caution as the sample of firms is rather small, as is the number of small economies and 
sectors the firms pertain to.  
2.22.  Figure 2 shows that transport costs and trade facilitation constitute the main difficulties for 
suppliers from small economies. In particular, 49% and 47% of suppliers regard transportation 
costs and delays and customs procedures as some  of the key difficulties they encounter when 
trying to connect to value chains. Access to trade finance and inadequate transport capacity are further obstacles highlighted by suppliers from small economies. WT/COMTD/SE/W/31 
 
- 10 - 
 
  Figure 2. Private sector: Difficult ies to connect to value chains 
0%10%20%30%40%50%60%Small economies Other developing economies
 
Source:  OECD/WTO Questionnaire 2013. 
Note:  Results are based on answers from 98 suppliers from small economies and from 355 suppliers of 
other developing economies. The sectoral allocation  of suppliers from small economies is as follows: 
agrifood (26), information and co mmunication technology (5), textiles and apparel (16), tourism 
(41), and transport and logistics (10). Shares ar e calculated based on the sectors for which the 
respective issue could be selected as an answer, e.g. access to trade finance and customs 
procedures were no answer possi bilities for tourism suppliers. 
2.23.  Figure 3 shows that the lack of labour sk ills, 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 supply appear to be minor issues. An 
exception is inadequate transport infrastructure, which is mentioned as a constraint by 30% of 
suppliers from small economies.  WT/COMTD/SE/W/31 
 
- 11 - 
 
  Figure 3. Private sector: Main national supply- side constraints to connect to value chains 
0.0%10.0%20.0%30.0%40.0%50.0%60.0%Small economies Other deveveloping economies
 
Source:  OECD/WTO Questionnaire 2013. 
Note:  Based on answers of 95 suppliers from small economies and of 357 suppliers of other developing 
economies. The sectoral allocation of suppliers from small economies is as follows: agrifood (25), 
information and communication te chnology (5), textiles and a pparel (14), tourism (41), and 
transport and logistics (10). Shares are calculated based on the sectors for which the respective 
issue could be selected as an answer, i.e. powe r supply and lack of dialogue were no answer 
possibilities for logistics and tourism suppliers, respectively. 
2.24.  The results show that to a large extent , the public and private sector views regarding 
barriers to GVC integration for small economy firms coincide. Access to (trade) finance, transport infrastructure and related trade costs were most  often mentioned. Further barriers highlighted 
include standards compliance and the business environment. While relatively few public officials 
consider labour skills as a major obstacle, it is mentioned by about 45% of the responding firms as a main national supply-side constraint. 
2.25.  Results from the Aid-for-Trade monitoring  exercise complement the information from the 
different indicators presented in Table 2. The re sults from the monitoring exercise underscore the 
need to improve transport infrastructure and improve customs procedures to lower trade costs. Furthermore, while the firms participating in the monitoring exercise do not prioritise ICT 
infrastructure development, indicators of internet usage further suggest that small economies, 
particularly in Central and South America as well as in Asia/Pacific, lag behind in this area. 
3  EVIDENCE OF THE INTEGRATION OF SM ALL ECONOMIES IN GLOBAL VALUE CHAINS 
3.1.  This section assesses the level of integration of small economies into GVCs for different 
sectors of major importance for small economies using goods and services trade data and case stories.
10 In the case of goods, the section covers ag rifood, seafood and textiles, while for services 
it covers tourism and IT and business process offshoring. 
                                               
10 In the case of goods trade data, the analysis uses  the BACI trade database from the French research 
institute CEPII, which provides bilateral exports at the 6-digit level of the HS 2002 product classification. BACI 
is based on the UN Comtrade database but uses reconc iliation and estimation techniques to increase data 
coverage and consistency. The dataset and the methodol ogy used is described in Gaulier and Zignago (2010). WT/COMTD/SE/W/31 
 
- 12 - 
 
  3.2.  Integration into GVCs is often analysed using data on trade in intermediate goods. Figure 4 
shows that in 2013 non-fuel intermediate good s constituted 34% and 40% of small economies' 
exports and imports, respectively. Trade in intermediate goods is relatively more important at the world level, where it accounted for 46% of total trade in 2013. This lower share of intermediate 
exports and imports indicates on the one hand, the relatively lower integration of small economies 
into GVCs, and, on the other, the product and sector specialization of small economies.  
Figure 4. Share of non-fuel intermediates in exports and imports of small economies 
0%10%20%30%40%50%60%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013SEs: exports SEs: imports World
 
Source: CEPII BACI trade database. 
 
3.1  Goods value chains 
3.1.1  Agrifood 3.3.  Agrifood products are among the main export products of developing countries and small 
economies in particular. The integration and upgrading within agrifood GVCs can help economic 
development and poverty alleviation. The agrifood  value chain has experienced significant changes 
over the last decades due to population growth, urbanization, changing diets, ICT and structural 
transformation in retail markets (Cattaneo, 2013). 
3.4.  Modern agrifood value chains are buyer-driven chains where large retailers or food 
manufacturers constitute the lead firms. These lead firms typically operate either in regional or global markets and vertically coordinate the value chain, also ensuring that products meet food 
safety and other standards. To reduce transaction costs, buyers tend to limit the number of their 
suppliers, which results in fierce competition among potential suppliers (Bamper et al., 2014). 
3.5.  Firms from developing countries face a number of horizontal and sector-specific challenges 
when trying to integrate into agrifood chains markets (Cattaneo, 2013). The most important 
sector-specific obstacles to participation in agrifood chains are compliance with a myriad of public and private food standards, which become particularly important in the case of upgrading into 
packaging and processing. According to Bamper et al. (2014), the competitiveness of developing 
countries in agrifood GVCs depends on five broad factors, i.e. availability of both low-cost labour and skilled labour; local SPS standards and their implementation; transportation infrastructure and services; industry maturity; and access to finance.  
3.6.  Small economies face particular challenges to integrate and upgrade in value chains due to 
their vulnerability to exogenous demand and supp ly shocks, their vulnerability to market access WT/COMTD/SE/W/31 
 
- 13 - 
 
  conditions and the prevalence of small-scale farmers. Box 2 illustrates these challenges and 
opportunities for the Fijian taro crop value chain and Jamaican hot pepper. 
Box 2. Agriculture and food value chains in the Caribbean and the Pacific Islands 
Taro crop – Fiji 
Taro is a tropical root crop whose corm represen ts an important element of the diet in Pacific 
Islands Countries (PICs). The production and subsequently exports of Taro in Fiji increased as a 
result of the taro leaf blight that damaged the successful Samoan taro industry in 1993. The Fiji 
island Taveuni subsequently has become the main producer of taro accounting for about 70% of 
Fiji's taro exports. Out of the current 2,000 taro farmers on Taveuni, 750 are fully commercial. 
Export agents compete to buy the crop, which is then shipped to Fiji's capital Suva, where about 
six independent exporters re-grade and wash the corms prior to shipment in refrigerated 
containers to New Zealand or by air to Australia. New Zealand is the biggest export market 
accounting for 65% of Fiji's Taro exports, followed by Australia with 30% and smaller amounts to 
the US and other destinations. Exports are driven by the diaspora of PICs, in particular of Samoan 
origin. 
The case of the taro value chain illustrates the vulnerability of small islands to exogenous demand 
or supply shocks. In the case of Taro, Samoa expe rienced a negative supply shock due to a blight, 
while Fiji benefitted from the resulting positive shock of increased demand from New Zealand.  
However, the Fiji taro value chain faces three major challenges that need to be addressed to 
counter falling exports. First, due to deforestation and industrial production, soil fertility has 
declined resulting in lower productivity and higher production costs. To counter the decline in 
productivity, two grower organizations, with financial and technical support from Australian Centre 
for International Agricultural Research (ACIAR), Organic Matters Foundation (OMF), Australian 
Agency for International Development (AusAid), Caritas Australia, Secretariat of the Pacific 
Community (SPC), United Nations Development Programme (UNDP) and the Fiji Ministry of 
Agriculture, have started adopting sustainable farming practices.  
A second challenge is the value chain's vulnerability to market access conditions. For instance, 
Australia, which has its own small taro industry, requires, in contrast to other countries, that the 
taro corm be devitalised in Fiji prior to exporting it to Australia. This costly devitalisation process 
increases the perishability of the corm making air transport necessary and has hampered market 
expansion in Australia for almost two decades. Such SPS measures are a particular problem for 
small economies as they tend to be mo re dependent on agricultural products. 
A third challenge relates to the threat of biological disasters and climate change. While taro leaf 
blight (TLB) devastated the Samoan taro industry , the disease has not yet been discovered in Fiji, 
even though higher minimum night temperatures in crease the susceptibility to the disease. As a 
response to this threat, a breeding programme to develop TLB resistance for Fijian taro has been 
started. 
Hot pepper – Jamaica  
This case study provides an example of a vertica lly integrated hot pepper value chain through the 
Grace Agro Processors Division (GAPD) of GK F oods and Services LTD, a wholly-owned subsidiary 
of the Food Division of the Grace Kennedy Group (GK). GK is a Jamaican food and financial 
services conglomerate with establishments in the Caribbean, North America and Europe. GK's food 
brand "Grace" has a strong recognition among the Caribbean diaspora and its food processing and 
distribution accounts for about two thirds of GK's revenue.  
The production of finished pepper sauces requires the mechanical crushing of peppers into pepper 
mash, the addition of salt and a period of fermen tation in a container. The resulting hot pepper 
mash can be traded internationally before being processed into sauces by adding vinegar and 
other ingredients.  
In the 1990s and 2000s, GK produced hot pepper sauces mostly through arm's length contracting 
arrangements. GAPD established its hot pepper value chain in 2009 when it started contracting WT/COMTD/SE/W/31 
 
- 14 - 
 
  farms to produce hot peppers to be processed at Southern Fruits and Food Processors Ltd into 
pepper mash and then into Grace pepper sauce.  
In 2012, GAPD vertically integrated the processing of fresh peppers by opening a new agri-
processing plant in Hounslow, Jamaica. The fresh peppers are supplied by more than 50 farmers 
that are contracted by GADP. These contracts cover the supply of inputs for farming at discounted 
prices and deferred payment by GAPD. Farmers re ceive technical assistance and information on 
the quantities and prices of peppers to be delivered, delivery schedules, and procurements 
standards such as maximum pesticide levels and ri peness. The mash produced by GADP's plant is 
then processed into GK labelled products through co-packing arrangements with other processing 
Jamaican firms. These Jamaican processing firms also acquire the mash to produce their own 
products. 
GK sells its products, including its pepper products, to over 40 countries either through its network 
of independent distributors or through its subsidiaries in the countries Jamaica, Canada, Belize and 
the United Kingdom (UK). Foreign demand has mostly been from the Caribbean diaspora but GK is 
progressively moving into mainstream markets where it faces competition from global brands such 
as Heinz.  
The hot pepper case study provides an example of  how to include small-scale farmers in the value 
chain, whilst ensuring that the value chain re mains competitive and sustainable. Small-scale 
farmers are included in the value chain through contract farming, which consists of forward 
agreements between the farmers and the buying firm. Since small-scale farmers typically have 
limited access to finance, in forward agreements , the customer provides the farmer with farming 
inputs as a form of credit in kind. Furthermore, forward agreements help the buyer to keep control 
over the inputs used, the farming method and the quality of the agricultural products. 
The two case studies further point to the potential importance of niche markets for small 
economies. The Diaspora living in developed countries constituted a main target of the taro and 
hot pepper sauce exports. Other possibilities to establish niche markets include the focus on high 
quality products with unique characteristics or the exploitation of seasonality. For instance, Tonga 
supplies squash (pumpkin) to Japan and watermel on to New Zealand when local production is 
unavailable in these countries.  
Source: Mc Gregor, A. and K. Stice (2014); Westlake, M. J. (2014a), Westlake, M. J. (2014b). 
  
3.7.  Figure 5 illustrates the positioning of small economies in agrifood GVCs through exports of 
primary and processed products of cocoa, coffee and fruits and nuts. Among the three product 
groups, exports of fruits and nuts are highest in value reaching almost US$5.8 billion for primary 
products and US$0.7 billion for processed products in 2013. Figure 5 shows that small economies are positioned at the initial stages of the agrif ood value chain. For all three product groups, small 
economies display a substantially higher share in world exports of primary products compared to 
processed products. For instance, in 2013, small economies accounted for 12.6% of world exports of primary coffee but only for 0.4% of proce ssed coffee. Furthermore, comparing 2003 and 2014 
reveals that in terms of processed exports, small economies could only gain market share in fruits 
and nuts.  WT/COMTD/SE/W/31 
 
- 15 - 
 
  Figure 5. Selected agrifood exports of smal l economies by processing stage (US$ billion) 
5.7%7.2%15.4%
12.6%
6.8%
5.8%
0.6% 0.5%1.1%
0.4%1.8%2.0%
0%2%4%6%8%10%12%14%16%18%
0.01.02.03.04.05.06.07.0
2003 2013 2003 2013 2003 2013
Cocoa Coffee Fruits and nutsPrimary exports Processed exports
SE share in World primary (%) SE share in World processed (%)
 
Source: CEPII BACI database. 
Note: The Broad Economic Categories (BEC) classifi cation is used to distinguish between primary 
(BEC 111, 112, 21) and processed (BEC 121, 122, 22) agrifood products. The products are defined following the HS 2002 product classification: Cocoa – HS chapter 18; Coffee – HS chapter 09; Fruits and nuts – HS chapter 08 and HS headings 2006, 2007, 2008 and 2009.  
 
3.8.  Table 3 provides more detail for small econom ies at the regional level. Exports of fruits and 
nuts are the most important among the three prod uct groups, accounting for almost 5% of small 
economies' exports compared to 1.8% and 0.7% in the case of coffee and cocoa, respectively. 
Coffee and fruits and nuts are of particular importance for small economies in Central and Latin 
America where they account for 3.1% and 7.6% of  exports, respectively. Tables 1 to 3 of the 
Annex provide country level detail for the three product groups. 
3.9.  Revealed comparative advantage (RCA) values substantially higher than one indicate that 
small economies have a comparative advantage in all three product groups.11 However, this 
comparative advantage stems mainly from specialization in primary as compared to processed exports. Nevertheless, small economies, in particular in the Caribbean and Central and South 
America, still have a comparative advantage in processed coffee and fruit products. However, the 
gap in export competitiveness in primary versus processed agrifood products points to untapped export potential in the latter and to upgrading challenges in agrifood value chains.  
                                               
11 The indicator RCA measures the export specializat ion of a country relative to the world. It is 
calculated as the ratio of the share of a product in a country's merchandise exports divided by the share of the 
product in world merchandise exports. An RCA measur e larger than one indicates that the country has a 
revealed comparative advantag e in a particular product. WT/COMTD/SE/W/31 
 
- 16 - 
 
  Table 3. Agrifood exports of small ec onomy groupings by processing stage 
  Total (primary+processed)  Primary Processed 
  US$ 
(mill.) Share 
in 
group 
exports 
(%) Share 
in WLD 
product 
exports 
(%) RCA Growth 
p.a. 
(03-13; 
%) US$ 
(mill.) Prim.
share 
(%) RCA US$ 
(mill.) Proc. 
share 
(%) RCA 
 Cocoa 
Small 
economies 972.1 0.7 2.1 2.7 10.1 808.4 83.2 9.4 163.7 16.8 0.6 
Africa 0.2 0.0 0.0 0.0 13.7 0.0 0.0 0.0 0.2 100.0 0.0 
Asia/Pacific 136.2 0.5 0.3 1.8 6.7 128.8 94.5 6.9 7.4 5.5 0.1 
Caribbean 215.6 0.7 0.5 2.8 8.2 192.5 89.3 10.6 23.0 10.7 0.4 
C. and S. 
America 620.1 0.8 1.3 3.1 11.8 487.0 78.5 10.3 133.1 21.5 0.9 
 Coffee 
Small 
economies 2,523.8 1.8 8.9 11.5 10.3 2,489.5 98.6 16.3 34.3 1.4 0.5 
Africa 0.3 0.0 0.0 0.1 19.5 0.2 63.3 0.0 0.1 36.7 0.1 
Asia/Pacific 148.5 0.5 0.5 3.1 3.4 147.4 99.2 4.5 1.1 0.8 0.1 
Caribbean 47.1 0.2 0.2 1.0 -2.5 33.4 71.0 1.0 13.6 29.0 1.0 
C. and S. 
America 2,327.9 3.1 8.2 19.4 11.5 2,308.5 99.2 27.5 19.4 0.8 0.5 
 Fruits and nuts 
Small 
economies 6,508.0 4.7 4.8 6.3 7.9 5,841.8 89.8 7.5 666.2 10.2 2.6 
Africa 11.0 0.3 0.0 0.4 15.5 9.9 90.5 0.5 1.0 9.5 0.2 
Asia/Pacific 169.8 0.6 0.1 0.8 9.9 122.7 72.3 0.7 47.0 27.7 0.8 
Caribbean 597.6 2.1 0.4 2.7 7.0 516.2 86.4 3.1 81.4 13.6 1.5 
C. and S. 
America 5,729.6 7.6 4.3 10.0 7.9 5,192.9 90.6 12.1 536.7 9.4 3.8 
Source: CEPII BACI database. 
Note:  The BEC classification is used to distinguish between primary (BEC 111, 112, 21) and processed 
(BEC 121, 122, 22) agrifood products. The products are defined following the HS 2002 product classification: Cocoa – HS chapter 18; Coffee – HS chapter 09; Fruits and nuts – HS chapter 08 and HS headings 2006, 2007, 2008 and 2009. See footnote 11 for a definition of RCA. 
 
3.10.  Upgrading within GVCs can be facilitated when SMEs collaborate with larger institutions, 
which can provide technical support and assistance. For instance, Box 3 illustrates collaborative efforts between Trinidad and Tobago and the European Business Chamber, to help develop 
business plans and upgrade farms and agro-processing operations. 
Box 3. Tobago Good Foods Project – Trinid ad and Tobago and the European Business 
Chamber 
As many as 12 agricultural producers active in fruit growing, dairy goat farming, bee keeping, 
nature reserve maintenance, cocoa and coconut production and herbs and spice production were 
included in this project to develop business plans and upgrade farms and agro-processing 
operations. This Aid-for-Trade project was planned by the European Business Chamber in Trinidad 
and Tobago and provided farmers with technica l expertise to increase exports, facilitate 
partnerships and attract investment. The project which began in January 2014 is scheduled to be 
implemented over a three to five-year period and sp ecifically helps farmers with developing viable 
business plans and upgrading their farm and agro-processing operations. The project aims to 
improve the quality of the products on offer by introducing food safety measures and technology 
to enhance productivity and innovation. It has already led to an increase in employment 
opportunities and a diversification of exports.  
Source: OECD/WTO Aid-for-Trade Case Stories (2015), "European Business Chamber in Trinidad and 
Tobago". 
 
3.11.  Small economies face not only challenges related to upgrading their production but also with 
respect to integrating small and medium-sized agricultural producers into international value WT/COMTD/SE/W/31 
 
- 17 - 
 
  chains. Small producers typically face difficulties related to skills, access to finance and value chain 
linkages with buyers and suppliers. Box 4 illustrat es these difficulties by describing the lessons 
from development interventions in Latin America which were targeted at integrating small and medium-sized producers into agrifood value chains. 
Box 4. Lessons from interventions in ag rifood value chains in Latin America 
Bamper and Fernandez-Stark (2014) provide an assessment of interventions of five Inter-
American Development Bank (IDB) multilateral investment fund projects in agrifood value chains. 
Their assessment is based on a "holistic" model for overcoming competitiveness constraints faced 
by small and medium-sized producers. This mode l for intervention encompasses four pillars: 
(i) access to markets; (ii) access to training; (iii) access to finance; and (iv) collaboration and 
cooperation building.  
 
Improving access to markets refers to establishi ng value chain linkages between producers and 
buyers. Matching initiatives of producers and buyers can be undertaken at the national level or 
also at the international level, either directly or through intermediary exporters. Since rural 
education levels in many developing countries are low, training to producers should cover 
awareness-building regarding the need of training, technical training as well as the development of 
business and social skills. Access to finance is a main problem for small producers, which often do 
not have access to formal finance channels, thereb y preventing productivity increasing investment. 
Access to finance can be facilitated through direct financing or contract guarantees from the 
buyers or through coordinated efforts by the executing agency, other funding institutions and 
banks to create effective financial instruments for small producers.  
 
Coordination and collaboration building should focus on horizontal coordination among producers 
facilitating the formation of producer groups or associations that will allow achieving economies of 
scale and upgrading. Vertical coordination and collaboration with other chain actors such as 
suppliers, producers, intermediaries, buyers, finance institutions, export promotion agencies and 
other public agencies is important for upgrading of value chains. Development interventions also 
need to consider the economic, social and environmental sustainability of projects.  
 
Table 4 provides an overview of the five develo pment projects targeted at integrating small and 
medium-sized producers into agrifood value chains. One of the initiatives focused on increasing the 
competitiveness of coffee producers in Costa Rica, El Salvador, Guatemala, Honduras and 
Nicaragua. The intervention focused on providing technical assistance for the cultivation of high 
quality coffee and on establishing links with foreign buyers.  
Table 4. Value chain initiatives agrifood sect ors by the IDB Multilateral Investment Fund 
Geographic 
Coverage Targeted 
Product Number of 
beneficiaries Targeted 
stage of 
the value 
chain Executing 
agency Project 
duration 
and end 
date 
 Funding 
(US$) 
Inter-
American 
Development 
Bank Counterpart
Central 
America Coffee 6 000 Production Technoserve 54 
months, 
2008 3,000,000  1,615,450  
Paraguay Stevia 2 500 Production, 
R&D CAPASTE 36 
months, 
2012 1,269,400  1,364,470  
Peru Organic 
cacao 200 Production Naranjillo 
Cooperative 27 
months, 
2008 100,000  67,000  
(+87,307) (+127,000) 
Peru Organic 
fruit and 
vegetables 415 (100 
certified) Production, 
packing IDMA 
(National 
NGO) 33 
months, 
2011 397,990  264,930  
Nicaragua 
and 
Honduras Honey 542 Production Swisscontact 
(International 
NGO) 36 
months, 982,026  448,700  
2012 (+200000) 
 
While the project initially included 3,000 bene ficiaries (mostly experienced coffee growers 
organized in ten cooperatives), it was expanded to include 6,000 beneficiaries in 2008, the last 
year of the project. The technical assistance regarding cultivation consisted of training to grow 
speciality coffee and in administrative and technical support to help producers obtain the 
certification required by foreign buyers. The cr eation of linkages between coffee producers and WT/COMTD/SE/W/31 
 
- 18 - 
 
  international buyers was central to the success of the initiative. International buyers selected and 
sponsored ten cooperatives. Once the coffee reached the threshold quality required, buyers 
purchased the coffee.  
 
The success of the project was facilitated by the fact that the beneficiaries were already 
experienced coffee growers and organized in cooperatives, which had access to credit and 
constituted a network among coffee producers. In contrast, the lack of coordination with other 
large donor initiatives limited the potential impact of the project.  
 
Bamper and Fernandez-Stark (2014) draw four key lessons from their assessment of the five 
interventions. First, a market based-approach is essential to any intervention. This involves a clear 
market analysis and information on certification requirements and business plans. Second, small 
and medium-sized producers are heterogeneous in their capabilities and their potential to 
participate in value chains. Interventions need to take this into account when designing and 
implementing interventions. Third, development agencies need to assess the implementation 
requirements before they embark on a project. Fo r example, they have to ensure that they will 
have the local experience and trust of small prod ucers, seek collaboration with other agencies 
where feasible and ensure that small producers are integrated sustainably in the chain once the 
project is finished. 
 
Fourth, interventions should have a holistic view and address the four pillars of access to training, 
access to markets, access to finance and the buil ding of coordination and collaboration among 
producers and other actors in the chain. Accord ing to Bamper and Fernandez-Stark (2014), the 
five projects lacked such a holistic value chain approach and therefore missed applying a market-
oriented perspective with a view to improving producer's competitiveness.  
Source: Fernandez-Stark, K. and Bamber, P. (2012) ;  Fernandez-Stark, K. and P. Bamber (2014). 
  
3.1.2  Seafood 
3.12.  Seafood value chains are similar to the agrifood value chains in that both have experienced 
profound changes in the last decades. Large re tailers have emerged as lead firms and have 
increased their influence through procurement conditions, often involving private standards and labels. Technology improvements such as GPS, satellite monitoring or genetically modified 
organisms have increased the productivity of wild fishing and boosted aquaculture production. 
3.13.  Figure 6 shows a typical seafood value chai n (OECD, 2010). Harvesting in the form of wild 
fish capture covers activities such as catching, gutting, storing (cool, ice, freeze) and landing in the port. Harvesting in the form of aquaculture covers the production of brood stock and juveniles and 
subsequent on-growth in pens before the fish are harvested. Fish processors typically buy the fish 
from harvesting or fish farms and engage in primary processing activities such as filleting or preserving activities such as freezing, curing  (drying, salting smoking and freeze drying) or 
vacuum packaging. Secondary activities include canning or other value-added activities to create 
ready to eat products. In the distribution of fi sh products, large retailers have become more 
important. The growing importance of large retailers makes the fish value chain more 
buyer-driven, which is changing the nature of procurement and has led to the proliferation of 
private standards and labels. WT/COMTD/SE/W/31 
 
- 19 - 
 
  Figure 6. The seafood value chain 
 
  
 
  
 
   
 
  
Source: OECD (2010), based on FAO and Glitnir Bank. 
 
3.14.  The seafood value chain is similar to the agrifood value chain regarding the value 
distribution along the chain. Primary sectors receiv e a relatively lower share of the retail value of 
highly processed products and a higher share in less processed and fresh products (Gudmundsson 
et al., 2008). Ownership of the seafood value chain does not, however, necessarily improve the 
livelihoods of fishermen and fishing companies. Sound management of fisheries is crucial to allow fishermen to benefit from higher export prices and to guarantee a sustainable fish stock.  
3.15.  Developing countries have experienced significant growth in both the production and 
consumption of seafood (OECD, 2010). Aquaculture has been of particular importance to boost the share of developing countries in fish production thanks to developing countries' lower labour costs and more appropriate natural conditions. Furthermore, developing countries have tried to attract 
FDI in aquaculture to create employment and expand as well as upgrade their aquaculture 
production.  
3.16.  When analysing the seafood value chain it is vital to distinguish between large-scale and 
small-scale fishery. The small-scale sector is considered to account for 90% of fishery employment 
and is particularly relevant in developing countries. According to a Food and Agriculture 
Organization of the United Nations (FAO) study on value chain dynamics in small-scale fisheries 
(Bjorndal et al., 2014), small-scale fishers and fish farmers receive relatively less value compared 
to processors and retailers. One way to support the viability of small-scale fishery in small economies is through the creation of linkages with the tourism value chain. 
3.17.  Figure 7 shows the evolution of primary and processed crustacean (e.g., shrimps, crabs) 
and fish products for small economies. Small economies have intensified their production of 
processed fish products. While small economies ex ported below half a billion US$ of primary fish 
products in both 2003 and 2013, their exports of processed fish almost tripled from below 
US$1.5 billion in 2003 to US$4.2 billion in 2013. This increase also reflects an increasing 
positioning of small economies at processing stages in fish value chains, as their share in world trade of processed fish increased from 5.2% in 2003 to 6.5% in 2013.  
3.18.  The situation is the opposite for crusta cean and mollusc products. Small economies have 
almost tripled their primary exports from US$0.9 billion in 2003 to US$2.7 billion in 2013, so that 
their world market share increased from 4.8% to  8.1%. In contrast, processed crustacean and 
mollusc exports accounted for only 0.8% of resp ective world exports in both 2003 and 2013, even 
though exports doubled from close to US $0.4 billion to just below US$0.8 billion.
12 
                                               
12 It should be noted that, while frozen fish prod ucts are classified as processed products, frozen 
crustacean and mollusc products are classified as primary products.   
Capture 
Value of landings 
US$84.9 billion 
 
 
Aquaculture 
Value of 
production 
US$63 billion  
Primary fish  
processing 
 
 
 
 
Sales: US$60 
billion  
Secondary fish  
processing 
 
 
 
 
Sales: US$120 
billion  
Distribution and 
retail 
 
 
 
 
Sales of fish:  
US$80 billion WT/COMTD/SE/W/31 
 
- 20 - 
 
  Figure 7. Crustaceans and fish exports of small economies by processing stage 
4.8%8.2%
3.7%
2.3%
0.8% 0.8%5.2%6.5%
0%1%2%3%4%5%6%7%8%9%
0.00.51.01.52.02.53.03.54.04.5
2003 2013 2003 2013
Crustaceans and molluscs FishPrimary exports Processed exports
SE share in World primary (%) SE share in World processed (%)
 
Source: CEPII BACI database. 
Note: The BEC classification is used to distinguish between primary (BEC 112) and processed (BEC 121 
and 122) fish and crustacean products of HS chap ters 03 and 16. Ornamental fish, corals and fish 
fats and oils are not included as they are not categorized as food.   
 
3.19.  Table 5 reveals differences in specialization patterns of small economies. Small economies in 
Central and South America specialize in both crustaceans and fish exports, which together account for more than 3% of their exports. Central and South American small economies have a strong 
comparative advantage in exports of crustaceans as indicated by a revealed comparative 
advantage measure of 14.5 and a world market sh are of 6.1%. Annex Table 5 shows that Ecuador 
is by far the biggest exporter among the small ec onomies in the region followed by Honduras and 
Nicaragua. 
3.20.  Whereas crustaceans and fish are of similar importance for small economies in Central and 
South America as well as in the Caribbean, the three small economies in Africa (Mauritius, Cabo Verde, and Seychelles, Rep. of) and in Asia/P acific are more dependent on fish exports. In 
the three African islands, fish exports of US$1,076 million, most of which are in processed form, 
account for 30% of the countries' overall exports. In the Asian/Pacific region, small economies differ in their dependence on fish exports. Fish account for 91% of country exports in the Maldives, 
68% in Vanuatu, 19% in Fiji, 11% in Tonga, 2%  in Sri Lanka and less than 1% in Papua New 
Guinea and Brunei Darussalam.   WT/COMTD/SE/W/31 
 
- 21 - 
 
  Table 5. Crustacean and fish exports of sm all economy groupings by processing stage 
  Total (primary+processed)  Primary Processed 
  US$ 
(mill.) Share 
in 
group 
exports 
(%) Share 
in WLD 
product 
exports 
(%) RCA Growt
h p.a. 
(03-
13; 
%) US$ 
(mill.) Prim. 
share 
(%) RCA US$ 
(mill.) Proc. 
share 
(%) RCA 
 Crustaceans and molluscs 
Small 
economies 2,819.8 2.1 6.5 8.4 11.2 2,742.8 97.3 10.6 77.0 2.7 1.0 
Africa 5.5 0.2 0.0 0.6 -9.6 5.4 98.2 0.8 0.1 1.8 0.1 
Asia/Pacific 90.3 0.3 0.2 1.3 0.2 85.6 94.8 1.5 4.7 5.2 0.3 
Caribbean 73.7 0.3 0.2 1.1 -1.3 73.2 99.2 1.3 0.6 0.8 0.0 
C. and S. 
America 2,650.2 3.5 6.1 14.5 12.9 2,578.5 97.3 18.2 71.7 2.7 1.7 
 Fish 
Small 
economies 4,698.6 3.4 5.5 7.1 9.7 444.9 9.5 2.9 4,253.7 90.5 8.4 
Africa 1,075.8 30.1 1.3 62.7 9.6 7.2 0.7 1.8 1,068.6 99.3 81.1 
Asia/Pacific 1,145.8 3.9 1.3 8.1 10.3 152.3 13.3 4.6 993.5 86.7 9.1 
Caribbean 61.1 0.2 0.1 0.4 -0.3 46.1 75.4 1.4 15.1 24.6 0.1 
C. and S. 
America 2,415.8 3.2 2.8 6.7 10.0 239.4 9.9 2.9 2,176.5 90.1 7.8 
Source:  CEPII BACI database. 
Note:  The BEC classification is used to distinguish between primary (BEC 112) and processed (BEC 121 
and 122) fish and crustacean products of HS chap ters 03 and 16. Ornamental fish, corals and fish 
fats and oils are not included as they are not cate gorized as food. See footnote 11 for a definition of 
RCA. 
 
3.21.  In the Maldives, exports of fish, most of which is tuna, account for 91% of the islands' 
exports. Box 5 describes the participation of the Maldives in the fish value chain illustrating the importance of upgrading the harvesting and processing technology as well as the need for fishery management to ensure a sustainable fish stock. 
Box 5. Fisheries value chains in the Maldives 
Alongside tourism, the fish industry in the Maldives plays an important role in the country's 
economy. The fish industry represented about 5-6% of Maldives' GDP in 2009, with tuna 
constituting about 70-90% of the total harvest exported. Wild-caught skipjack tuna and wild-
caught yellowfin tuna are the two main fish caught in the Maldives. Skipjack contributes 60% to 
70% of the total fish catch, and yellowfin tuna ma kes up around 17% of the total fish harvested. 
In general, the annual fish harvest has increa sed from 118,115 tonnes in 1998 to 185,980 tonnes 
in 2005. However, in 2008 this figure decreased by about 30%, with 133,076 tonnes of fish 
caught.  
 
Skipjack tuna is mostly exported to Thailand (frozen), Germany (canned) and the UK (canned), 
and a significant portion of dried or smoked skipjack is also exported to Sri Lanka. Yellowfin tuna 
is mainly exported as frozen loins, steak and fresh to Japan, the US, the UK, France and Germany. 
However, due to an increase in price and demand for yellowfin tuna in the fresh fish markets of 
Japan, Europe and America, a market shift has oc curred from the skipjack to the yellowfin tuna 
industry. 
 
There are two major companies in the Maldives that specialize in exporting tuna, the state-owned 
Maldives Industrial Fisheries Company (MIFCO) and the private enterprise Horizon Fish Ltd. There 
are also 11 EU certified yellowfin processing factories in the country. This illustrates that both 
domestic and foreign investment are important for the tuna value chain in the Maldives. 
 
In recent efforts to upgrade its operations, the fish industry in the Maldives has acquired more 
modern and larger vessels. The modern vessels are equipped with satellite navigation systems, 
hydraulic line haulers, fish finders, sonar and ot her technological equipment. The vessels can also 
provide crew accommodation, thus resulting in longer fishing trips lasting 2-3 days as opposed to WT/COMTD/SE/W/31 
 
- 22 - 
 
  single day trips in the past.  
 
The tuna fish industry has few regulations to control harvest, and such regulations can be indirect, 
with restrictions limiting the number of agents involved in the processing sector. More recently in 
2010, a programme was introduced to encourage small and medium-sized enterprises to purchase 
skipjack tuna for processing in the post-harvesting sector. As a result, 35 firms are now registered 
with the Ministry of Fisheries and Agriculture. In relation to yellowfin tuna, processors have to pay 
a royalty charge on harvest tonnage increasing their processing cost. 
 
The industry is seasonal with the fishes mostly being caught around April and November at the 
onset and offset of the Northwest monsoon season. Employment for the tuna industry is, 
therefore, periodic. Despite the fish industry em ploying around 20% of the total workforce in the 
Maldives, it still does not ensure fishermen and processor agents permanent employment all year 
round.  
 
Concerns have also been raised as to whether stoc ks of tuna may be declining. Given the Maldives' 
dependence on tuna exports, a lower tuna harvest would likely have negative socio-economic 
consequences. However, efforts to ensure the sust ainability of stocks are being undertaken. For 
instance, the traditional pole and line method is now being used to catch skipjack tuna, whereby 
the fish are caught one by one. Furthermore, the Maldives has been certified by the Marine 
Stewardship Council and recognized by the World Wi de Fund for nature organization (WWF) for its 
fishing methods. 
 
The tuna fish industry is an inherent source of GDP in the Maldives that faces continuous 
challenges related to sustainability of fish st ocks and economic upgrading. Sustainable fishing 
methods and recently implemented regulations and programmes are aimed at enhancing the 
sustainability and the productivity of the value chain.  
Source: Gordon, D. V. and S. Hussain (2012). 
 
3.1.3  Textiles and apparel 
3.22.  The textile and apparel value chain has se rved many developing countries as a starting 
point for export-led development. This is mainly due to its labour-intensive production. The value 
chain is buyer-driven, where the respective lead firms are positioned downstream in the chain, i.e. close to the consumer (Gereffi, 1999). Lead firms, such as retailers, brand manufacturers or brand marketers typically control high-value-added activities such as R&D, design, marketing and 
distribution and outsource manufacturing activities to suppliers. 
3.23.  Figure 8 provides an illustration of the textile and apparel value chain and its four main 
stages. Raw materials in the form of natural (cotton, silk) or synthetic fibres constitute inputs to 
the production of textile components, i.e. yarn an d fabric. These textile inputs are then used to 
manufacture apparel or other final products for home furnishing or industry. Once the product has been made, distribution and sales services bring it to the final consumer.   WT/COMTD/SE/W/31 
 
- 23 - 
 
  Figure 8. Illustration of the textile and apparel value chain 
 
Source: Frederick et al. (2014). 
Note: In English only 
 
3.24.  Figure 9 shows the "smiley curve" or the f unctional capabilities and related upgrading paths 
in apparel value chains. While the smiley curve, including its shortcomings, is discussed in greater 
detail in Section 7, Figure 9 illustrates that at the lower end of value-added the "assembly" of apparel involves low-skilled, labour-intensive activities such as cutting, making (sewing) and trimming (CMT). Under the so-called CMT arrangements, the supplier produces the apparel using 
the textile inputs (yarn and fabric) and the product specifications provided by the lead firm. In the 
case of original equipment manufacturing (OEM ), the apparel producer takes on additional 
manufacturing and logistics functions such as the purchase or production of textile inputs and 
inbound or outbound logistics services.  
3.25.  As an original design manufacturer (ODM), the apparel producer becomes further 
responsible for design and product development, of ten in collaboration with the lead firm. In the 
case of original brand manufacturing (OBM), th e supplier overtakes responsibilities regarding 
branding and marketing. Thereby, the supplier may either act in close collaboration with the lead 
firm or sell the product independently on domestic or regional markets. The latter would mark the transition from an apparel supp lier to becoming a lead firm.  WT/COMTD/SE/W/31 
 
- 24 - 
 
  Figure 9. Value-added stages in the apparel value chain 
 
  
                
  
   
                
 
           
 
  
 
  
Source: Gereffi et al. (2011). 
 
3.26.  Textile and apparel value chains are of major importance for several small economies, 
particularly in Central America and the Caribbean, but also in the Asia/Pacific region. Small economies differ in their position in the textile and apparel value chain. Sri Lanka is at the stage of an OEM and ODM focus. Building on strong linkages with global buyers (Gap, Victoria's Secret and 
Nike), Sri Lankan firms have been able to upgrade by adding design to their functional portfolio 
and by producing more complex niche products su ch as  women's underwear, intimate apparel and 
sportswear (Gereffi and Frederick, 2010; Gereffi et al., 2011b).  
3.27.  Small economies in the Caribbean and Central America, meanwhile, tend to conduct CMT 
functions. Box 6 describes in more detail the positioning and participation of Nicaragua in regional and global textiles and apparel GVCs.  
Box 6. Nicaragua and apparel GVCs 
The apparel industry in Nicaragua plays an important role in the country's economy, accounting for 
36.8% of its GDP in 2008. Nicaragua mainly participates in the initial CMT stage of the apparel 
value chain, with apparel manufacturers focusing on trousers, such as denim jeans, twill trousers 
and t-shirts. This means that Nicaragua is essentially involved in assembly production, with 
employees receiving training ranging from two w eeks to three months. Training normally takes 
place in-house and includes an ability test, which examines manual dexterity, basic reading, 
writing and arithmetic skills. However, over the years, training has been reduced considerably 
since many factories are increasingly recruiting more experienced personnel.  
With Nicaragua's openness to foreign investment, the apparel industry is mostly foreign owned 
with key investors coming from Korea and the US, and others from El Salvador, Honduras, Mexico 
and Chinese Taipei. When Nicaragua began to stab ilize politically in the mid-1990s, many foreign 
investors particularly from Asia were attracted to the country due to its cheap labour force and its 
close proximity to the US. Growth began to acce lerate in 2006 after the implementation of the 
Dominican Republic – Central American Free Trad e Agreement (CAFTA – DR). This helped boost 
trade with the US and resulted in 89% of Nicaraguan apparel exported to the US in 2009. CAFTA-
DR guarantees preferential access to the US market for a certain quantity of apparel sewn in 
Nicaragua, giving the country an important competitive advantage over its regional neighbours 
(Gereffi et al., 2011). Nicaragua receives Tariff Preference Levels (TPLS) under the CAFTA-DR 
since Nicaragua's textile industry is underdeveloped in relation to other CAFTA-DR members. Such 
preferences temporarily exempt the country from  complying with the CAFTA requirement that 
imported textiles must originate in the US. As a result, Nicaragua is able to source fabric from 
inexpensive suppliers in Asia, thus allowing them to gain substantial ground in specific segments 
such as woven cotton trousers.  3. ODM Design 
2. OEM/FOB
Purchasing 
1. 
Assembly/CMT 
Production  2. OEM/FOB
Distribution 4. OBM 
Marketing R&D Services WT/COMTD/SE/W/31 
 
- 25 - 
 
  Since the implementation of CAFTA, Nicaragua ha s seen a growth in exports from 2% in 1995 to 
15% in 2009. However, despite such an increase, Nicaragua has had limited success moving up 
the apparel value chain. Due to the economic cris is and an economic slowdown in the US, exports 
in 2009 fell back to their 2006 levels. Furthermore, it is important to note that the apparel value 
chain faces challenges when it comes to upgrading. Since most of the factories are foreign-owned, 
most of these firms follow business models where relatively high-value upstream and downstream 
activities are conducted in the Asian headquarters. As a result, Nicaragua will most likely face 
difficulties with upgrading further in the value chain.  
There are other implications due to the expiration  of the TPLs under CAFTA-DR in December 2014, 
which is said to have caused a contraction in th e country's apparel manufacturing sector. However, 
implications will vary depending on the type of apparel (Gereffi et al., 2014). For instance, a 
significant contraction of the knit sector is expected, since a large percentage of Nicaragua's knit 
garments enter the US under the pr eferential regime. Many of the apparel firms are subsidiaries of 
large knitwear manufacturers based in Asia and these companies may shift their orders to other 
factories located in their global production networ k. In terms of the woven garments, production is 
said to depend on whether Nicaragua is able to sustain the production of woven fabric and the 
degree to which other regional suppliers of denim and khaki such as the US, Mexico and 
Guatemala are cost-competitive with Asian suppliers. Consequently, if there is a contraction for 
both types of garments, this may cause buyers to shift their business elsewhere in order to 
minimize disruption costs. However the consequences of TPL expiration remain unclear. There is a 
possibility that a new preference scheme will replace the past regime. Two options have been 
proposed – the Feinstein and Hagan bills. The Feinstein bill would extend TPL preferences for knit 
products and the Hagan bill is limited to woven apparel, meaning that knit garments containing 
fabric not originating from the US would not qualify for duty-free access to the US. The Feinstein 
bill would be more preferential as the knitted in dustry is much more important to Nicaragua in 
terms of exports and employment. For instance, knitted apparel manufacturers are the largest 
employers in the country's apparel industry. Therefore, if the TPLs are not extended, 
manufacturers will need to work with buyers to develop supply chains that comply with the yarn-
forward rule of origin. 
It is true that the global apparel value chain has been facilitated by openness to foreign 
investment and TPLs under CAFTA-DR. Both have contributed significantly to Nicaragua's 
economy. However, challenges still remain ahead concerning upgrading within the GVC and the 
expiration of the TPLs. Developments in the near  future for the apparel value chain depend on 
whether such TPL agreements get extended and whether the foreign owned firms seek production 
in other factories in their global production network.  
Source: Frederick et al. (2014); Fernandez-Stark et al. (2011). 
 
3.28.  Figure 10 provides a first indication of the importance of textiles for small economies' 
exports and of the latter's positioning in the textile and apparel value chain. Exports of textiles 
amounted to almost US$17 billion in 2013, corresponding to 12% of total small economies' 
exports. The export share of textiles decreased in the years 2005 to 2007. This was likely due to the phasing out of quotas under the WTO Agreemen t on Textiles and Clothing (ATC). Exports have 
remained relatively constant since then.  
3.29.  The share of intermediates in exports of small economies has fluctuated around 10% in 
recent years. This indicates that small economies tend to produce mostly final apparel products. This low share of intermediates contrasts with the respective share at the world level, which is 
35%. Hence, in comparison to the rest of the world, small economies tend to be specialised in the 
assembly stages of apparel production while othe r countries tend to produce more intermediate 
textiles such as yarn and fabrics. 
 WT/COMTD/SE/W/31 
 
- 26 - 
 
  Figure 10. Textiles exports of small economies and share of intermediates 
0%5%10%15%20%25%30%35%40%
024681012141618
2005 2006 2007 2008 2009 2010 2011 2012 2013SE exports (billion US$) Share of intermediates in SE exports (%)
Share of textiles in SE exports (%) Share of intermediates in World exports (%)
US$ bill.
 
Source: CEPII BACI database. 
Note:  The BEC classification is used to distinguish between intermediate and final textile products. Textiles 
and textile products correspond to Section XI (chapters 50-63) of the HS 2002 product classification. 
 
3.30.  Table 6 provides more detail at the regional  level for both exports and imports of textiles. 
South and Central American small economies are the main traders in textiles, accounting for 
US$10 billion out of US$17 billion of exports and US $8 billion out of US$12.5 billion of imports in 
2013. Textiles are of major importance for small economies in Africa, Asia, and South and Central America as shown by the relatively high shares of textiles in merchandise exports and a measure 
of revealed comparative advantage substantially higher than one.  
3.31.  Table 6 confirms that small economies  are positioned at the assembly stage of the chain as 
between 67% and 82% of their imported textiles are intermediate inputs while only 3% to 13% of 
textile exports constitute intermediates. While both  export and imports of textiles have increased 
between 2003 and 2013, the relative importance of textiles has actually diminished for small 
economies. In 2003, textiles accounted for 22%  of exports and 10% of imports of small 
economies, while in 2013 these shares went down to 12% for exports and 6% for imports, 
respectively.  WT/COMTD/SE/W/31 
 
- 27 - 
 
  Table 6. Export and imports of textiles and textile products by small economy region 
  Exports Imports 
2013 US$ (bill.) Share
in 
group 
total 
(%) RCA Interme
diates 
(%) US$ 
(bill.) Share  
in 
group 
total 
(%) RCA Interme
diates 
(%) 
Small economies 16.98 12% 3.01 9% 12.52 6% 1.53 70%
Africa 1.00 28% 6.80 13% 0.49 7% 1.70 77%
Asia/Pacific 5.05 17% 4.16 6% 2.46 7% 1.74 82%
Caribbean 0.92 3% 0.78 3% 1.50 4% 1.01 69%
Central and South 
America 10.01 13% 3.24 10% 8.08 7% 1.62 67%
2003   
Small economies 11.27 22% 3.71 5% 7.83 10% 1.79 68%
Africa 1.08 46% 7.89 6% 0.50 15% 2.59 89%
Asia/Pacific 3.53 28% 4.77 6% 2.00 17% 2.93 88%
Caribbean  2.46 17% 2.90 1% 1.88 11% 1.82 53%
Central and South 
America 4.19 19% 3.20 7% 3.45 8% 1.41 63%
Source: CEPII BACI database. 
Note:  The BEC classification is used to distinguish between intermediate and final textile products. Textiles 
and textile products correspond to HS section XI (chapters 50-63) of the HS 2002 product classification. See footnote 11  for a definition of RCA. 
 
3.32.  Table 7 illustrates the geographical partic ipation of small economies in the textile value 
chain by providing the shares of imports and expo rt markets for selected textile products and the 
aggregate textile section. The selected textile prod ucts are quite homogenous in the sense that the 
HS chapters 61 (Knitted or crocheted apparel) and 62 (Apparel, not knitted or crocheted) consist almost entirely of final products while the other product chapters consist almost entirely of raw or 
intermediate inputs. Two main messages are worth highlighting. 
3.33.  First, low shares of intra-regional imports in intermediate textile products such as cotton, 
man-made filaments and stable fibres, or knitted or crotched fabrics point to limited regional integration of textile value chains. For example, South and Central American small economies 
import 70% of cotton intermediates from North America, 19% from Asia and only 10% from other 
economies in South and Central America. Imports of intra-regional knitted or crocheted fabrics are higher with 24%, but still lower than respective imports from North America (35%) and from Asia 
(41%). 
3.34.  Second, Europe and North America constitute the main markets for exports of final products 
(HS 61 and HS 62) obtaining between 75% and 97% of apparel exports. While small economies in 
Africa and in Asia/Pacific export more apparel to Europe than to North America, small economies in 
the Caribbean and South and Central America al most exclusively deliver the North American 
market. For instance, for knitted or crocheted ap parel (HS 61), the three African small economies 
export 70% to Europe, 5% to North America and 21% to Africa; and the Asian/Pacific small 
economies export 52% to Europe and 37% to North America. The Caribbean and South and 
Central America export 96% and 90% of knitted or crocheted apparel to North America.  
  
  WT/COMTD/SE/W/31
 
- 28 - Table 7. Imports and exports of textile products  of small economies (by region) with partners 
 Imports (value and % by import region) Exports (value and % by export region)
Small 
econo-
mies 
(by 
region) HS-2dig. Chapte r US$ 
mill. Africa Asia Carib-
bean Europe N. 
America S. and 
C. 
America US$ mill. Africa Asia Carib-
bean Europe N. 
America S. and 
C. 
America 
 
 
 
 
 
 
 
 
Africa 50 to 51 Silk and wool (raw, 
yarn, fabric) 32.6 6 65 0 29 0 0 20.9 56 14 0 28 2 0 
52 Cotton (raw, yarn, 
fabric) 199.6 24 73 0 3 0 1 57.8 72 11 0 17 0 0 
53 Vegetable textile 
fibres 2.5 0 32 0 66 1 0 0.4 21 27 0 53 0 0 
54 to 55 Man-made filaments 
and staple fibres 75.1 1 86 0 12 0 0 8.2 76 16 0 8 0 0 
60 Knitted or crocheted 
fabrics 18.4 2 76 0 22 0 0 31.9 87 12 0 1 0 0 
61 Knitted or crocheted 
apparel 30.6 18 53 0 26 0 1 478.2 21 2 0 70 5 0 
62 Apparel, not knitted 
or crocheted 59.3 10 73 0 16 1 0 387.0 14 3 0 30 48 2 
50 to 63 Textiles and textile 
products 489.1 14 71 0 14 0 0 995.2 25 4 0 47 21 1 
 
 
 
 
 
 
 
Asia/ 
Pacific 50 to 51 Silk and wool (raw, 
yarn, fabric) 29.8 0 82 0 17 0 0 0.7 2 77 0 19 0 0 
52 Cotton (raw, yarn, 
fabric) 591.5 0 97 0 2 0 0 46.7 3 84 1 4 2 0 
53 Vegetable textile 
fibres 21.1 0 96 0 3 1 0 96.6 3 39 0 30 20 1 
54 to 55 Man-made filaments 
and staple fibres 525.8 0 85 0 10 4 0 52.7 4 34 0 36 5 8 
60 Knitted or crocheted 
fabrics 531.0 0 84 0 16 0 0 39.8 3 85 0 6 3 0 
61 Knitted or crocheted 
apparel 167.2 0 95 0 3 1 0 2,527.9 0 7 0 52 37 1 
62 Apparel, not knitted 
or crocheted 195.8 0 94 0 3 2 0 2,142.0 0 9 0 43 43 1 
50 to 63 Textiles and textile 
products 2,471.9 0 88 0 9 2 0 5,044.5 1 11 0 46 38 1  
  WT/COMTD/SE/W/31
 
- 29 -  Imports (value and % by import region) Exports (value and % by export region)
Small 
econo-
mies 
(by 
region) HS-2dig. Chapte r US$ 
mill. Africa Asia Carib-
bean Europe N. 
America S. and 
C. 
America US$ mill. Africa Asia Carib-
bean Europe N. 
America S. and 
C. 
America 
 
 
 
 
 
 
 
Carib-
bean 50 to 51 Silk and wool (raw, 
yarn, fabric) 24.9 0 73 0 19 8 0 0.5 73 0 0 9 16 1 
52 Cotton (raw, yarn, 
fabric) 430.5 0 17 0 3 76 4 2.6 0 13 1 34 6 45 
53 Vegetable textile 
fibres 3.5 0 43 0 11 26 19 3.2 0 0 0 10 82 8 
54 to 55 Man-made filaments 
and staple fibres 237.4 0 47 0 5 44 4 1.8 0 16 13 10 18 43 
60 Knitted or crocheted 
fabrics 96.3 0 28 0 4 65 3 0.7 0 7 1 2 73 19 
61 Knitted or crocheted 
apparel 154.3 0 67 1 12 14 6 406.1 0 1 0 1 96 1 
62 Apparel, not knitted 
or crocheted 191.0 0 32 1 15 46 6 351.4 0 1 1 7 90 1 
50 to 63 Textiles and textile 
products 1,495.6 0 33 0 9 53 5 922.4 0 1 1 4 93 1 
 
 
 
 
 
 
 
S. and 
C. 
America 50 to 51 Silk and wool (raw, 
yarn, fabric) 30.6 0 35 0 10 44 12 2.9 2 6 0 58 7 27 
52 Cotton (raw, yarn, 
fabric) 1,694.2 0 19 0 1 70 10 244.6 0 4 6 4 16 71 
53 Vegetable textile 
fibres 9.3 1 56 3 15 12 13 15.0 0 47 1 43 7 1 
54 to 55 Man-made filaments 
and staple fibres 1,640.9 0 35 0 2 50 13 249.8 0 1 2 0 19 78 
60 Knitted or crocheted 
fabrics 1,219.3 0 41 0 0 35 24 242.1 0 1 1 0 4 94 
61 Knitted or crocheted 
apparel 1,375.9 0 45 0 4 16 35 6,647.5 0 1 0 2 90 7 
62 Apparel, not knitted 
or crocheted 1,053.8 1 47 0 7 21 24 2,186.4 0 1 0 1 86 11 
50 to 63 Textiles and textile 
products 8,077.4 0 35 0 3 41 20 10,012.2 0 1 0 2 81 16 
Source: CEPII BACI database. 
 
 
 WT/COMTD/SE/W/31 
 
- 30 - 
 
  3.2  Services value chains 
3.2.1  Tourism 3.35.  Tourism is a sector of major importance for many developing countries and in particular for 
small economies. Figure 11 shows the direct cont ribution of tourism to GDP in small economies 
and the world for selected years. In 2013, tourism accounted, on average, for almost 9% of GDP 
across 30 small economies, which is three times as much as the world (3%). At the regional level, the average share of tourism in GDP was 16% in  the three small economies in Africa, 14% in 
Asian/Pacific small economies, 8% in the Caribbean and only 4% in Central and South America.  
3.36.  Small economies differ in their dependency on tourism. Tourism constitutes 48% of GDP in 
the Maldives compared to only 1% in Papua New Guinea, Paraguay and Suriname. In Cuba, a prominent tourist destination, the share of tourism in GDP is only 3%, which reflects the 
diversification of Cuba's economy. The share of tourism in GDP differs not only across countries 
but also over time. In particular, the contribution of tourism to GDP is more volatile for small economies that are prominent tourist destinations. For example, in the Seychelles, Rep. of, the 
share of tourism in GDP was 19% in 2003, increased to 29% in 2008 and fell back to 21% in 
2013. 
3.37.  The tourism value chain consists of various international and national activities. In 
particular, core components of the tourism value chain include travel organization and booking, 
transportation, accommodation, food and beverage provision, handicrafts, excursions as well as cultural and natural assets (UNWTO, 2013). Internat ional linkages in the value chain are mostly 
related to travel organization and booking as well as international transportation. However, most 
of the activities in the tourism value chain take place in the destination country and are related to 
accommodation and food, as well as to the provision of other domestic goods and services for tourists. 
3.38.  Tourism has many backward linkages to other sectors in the domestic economy such as 
agriculture (e.g. food supply to hotels), construc tion, communications, utilities (e.g. supply of 
electricity and water to hotels) and conference and events management. Figure 12 takes into 
account the broader role that tourism plays for the national economy by showing both the direct 
and indirect contribution of travel and tourism to GDP in 2013. The indirect contribution to GDP 
covers capital investment, government spending and the backward linkages of tourism, i.e. the purchases of domestic goods and services by the travel and tourism sector as inputs to their final 
tourism output. 
3.39.  Figure 12 shows that the importance of tour ism for small economies increases significantly if 
one takes into account domestic supply chain linkages, capital investment and government 
spending. In particular, while the direct contributi on of travel and tourism to GDP is, on average, 
9%, their total contribution (direct plus indirect) amounts to 24% of GDP for the average small economy. Moreover, for most small economies the in direct contribution is larger than the direct 
contribution. For instance, in Barbados, the activities of the travel and tourism sector directly 
contribute 11% to GDP, while its indirect contri bution amounts to a quarter (25%) of Barbados' 
GDP.  
3.40.  Hence, when the development of the tourism value chain results in the creation of backward 
linkages to other sectors, it can contribute to the economic diversification of small economies. If 
adequately integrated into national development plans, it can contribute to the growth of sectors such as agriculture, fishing and services. But if  not properly planned and managed, tourism can 
also have negative social and environmental impacts, degrade the environment on which it is so 
dependent and cause damage to ecosystems. 
  
  WT/COMTD/SE/W/31
 
- 31 - Figure 11. Direct contribution of tourism to GDP in small economies and the world in 2003, 2008 and 2013 
16
1121
21448
14623
16
11
310
568
613
613
23336
46
113
05101520253035404550
Cabo Verde
Mauritius
Seychelles, Rep. of
Brunei
Fiji
Maldives
Papua New Guinea
Sri Lanka
Tonga
Vanuatu
Antigua and Barbuda
Barbados
Cuba
Dominica
Dominican Republic
Grenada
Jamaica
St Kitts
St Lucia
St Vincent and the G.
Belize
Ecuador
El Salvador
Guatemala
Guyana
Honduras
Nicaragua
Panama
Paraguay
Suriname
World
Africa Asia/Pacific Caribbean Central and South America2013 2008 2003%
 
Source: World Travel & Tourism Council (WTTC).  
  WT/COMTD/SE/W/31
 
- 32 - Figure 12. Direct and indirect contribution of tour ism to GDP in small economies and the world in 2013 
16
1121
21448
14623
16
11
310
568613
613
2333646
11327
1435
52346
251042
46
25
722
1115181626
1523
465510
58
317
0102030405060708090100
Cabo Verde
Mauritius
Seychelles, Rep. of
Brunei
Fiji
Maldives
Papua New Guinea
Sri Lanka
Tonga
Vanuatu
Antigua and Barbuda
Barbados
Cuba
Dominica
Dominican Republic
Grenada
Jamaica
St Kitts
St Lucia
St Vincent and the G.
Belize
Ecuador
El Salvador
Guatemala
Guyana
Honduras
Nicaragua
Panama
Paraguay
Suriname
World
Africa Asia/Pacific Caribbean C entral and South AmericaDirect contribution to GDP Indirect contribution to GDP%
 
Source: World Travel & Tourism Council (WTTC). 
Note: The indirect contribution of travel and tourism to GDP incl udes capital investment, governme nt spending in support of tou rism activity, and backward linkages, 
i.e. purchases of domestic goods and serv ices by the travel and tourism sectors as inputs to their final tourism output. WT/COMTD/SE/W/31 
 
- 33 - 
 
  3.41.  Data on travel exports, which covers  both business and personal travel, provide a 
complementary picture on the importance of tourism for small economies. Table 6 of the Annex shows that all small economies, except Papua Ne w Guinea and Cuba, have a revealed comparative 
advantage in the exports of travel services.
13 Compared to other regions, travel exports are the 
highest for the ten small economies in the Caribbean amounting to US$10,777 million, with the 
Dominican Republic, Cuba and Jamaica being the biggest exporters. In more detail, for all Caribbean small economies except Cuba, travel exports constituted between two thirds and 85% 
of total services exports in 2011. 
3.42.  Tourism can be a driver for development. It played an important role in the graduation from 
LDC status of Cabo Verde and the Maldives in 2007 and 2011, respectively (Honeck, 2012). Table 6 of the Annex shows that the Maldives ex perienced the fastest annual growth of travel 
exports (37%) between 2005 and 2011 and is the biggest exporter of tourism services among 
Asian/Pacific small economies. Furthermore, the Maldives is also the most specialised economy with travel exports accounting for 93.4% of its serv ices exports. Similarly, for Cabo Verde, travel 
exports grew 20% per year between 2005 and 2011 amounting to 66% of its services exports in 
2011. 
3.43.  Since tourism can enhance development, it is important to understand what kind of tourism 
can be beneficial for SMEs. For instance, an EU -funded project, which was implemented by the 
South Pacific Tourism Industry, initiated a project to organize workshops on how to improve awareness of the cruise ship industry in the Pacific region. Subsequently, the workshops had 
positive socio-economic results. This example is illustrated in Box 7. 
Box 7.  Sustainable growth and development of the cruise shipping sector in the Pacific 
Funded by the EU and implemented by the South Pa cific Tourism Organization, a main aim of this 
project was to organize Port Preparedness workshops in eight countries to raise awareness of four 
main components of the cruise ship industry: development of shore excursion activities for 
passengers; the importance of marine infrastructure and support services; addressing 
management issues; and establishing marketing and promotion activities for cruise ship 
destinations. Workshops were held in 2013 in Vanuatu, Samoa, Tonga, Cook Islands, Solomon 
Islands, Palau Port, Kiribati and the Marshall Is lands and a main output was improved awareness 
of the Pacific region's potential as a cruise ship destination. As for officials in the region working 
with the cruise ship industry, there was an impr oved awareness and understanding of the specific 
needs of the international and regional cruise tourism market. The project resulted in several 
impacts, mainly increases in domestic and foreign investment, greater employment, especially 
amongst women, and an increase in consumer welfare.  
Source: OECD/WTO Aid-for-Trade Case Stories (2015), "South Pacific Tourism Industry".  
 
3.44.  The development of the tourism value chain and the strengthening of backward linkages 
pose various challenges to developing countries. Figure 13 shows the main operational difficulties for developing country suppliers in tourism value chains. More than half of the 41 suppliers from 
small economies replying to the OECD/WTO questionnaire mentioned low labour skills as the main 
operational difficulty. The business environment constitutes the second most often mentioned difficulty with 46%. Furthermore, access to finance as well as airport or port capacity and 
infrastructure was mentioned by more than a third of suppliers from small economies.  
3.45.  In contrast, restrictions on tour operator s and on FDI are only mentioned by a few firms as 
a difficulty. The top three operational difficulties are the same for the 44 suppliers from other developing countries. However, suppliers from other developing countries mentioned labour skills 
less often and access to finance as a main operational difficulty. 
                                               
13 Revealed comparative advantage measures the expo rt specialization of a country relative to the 
world. In particular, a country has a revealed comparativ e advantage in tourism, if the share of tourism in the 
country's services exports is higher than the share of tourism in world services exports. WT/COMTD/SE/W/31 
 
- 34 - 
 
  Figure 13. Main operational difficulties for developing country suppliers in tourism value 
chains 
0%10%20%30%40%50%60%Small economies Other developing economies
 
Source:  OECD/WTO Questionnaire 2013. 
Note:  Based on answers of 41 suppliers from sma ll economies and 44 suppliers from other developing 
economies. 
3.46.  According to the OECD/WTO questionnaire, the inability to meet international hospitality 
standards, the lack of dialogue with authorit ies, the regulatory business environment and the 
inability to meet food quality and safety standard s constitute the main difficulties for firms in the 
tourism sector to establish backward linkages (OECD/UNWTO/WTO, 2013). Lejárraga and 
Walkenhorst (2013) find that a sound business environment and a liberal trade regime are 
positively correlated with backward linkages of the tourism sector, which can thereby contribute to the diversification of the national economy.  
3.47.  Given the many linkages of tourism to other sectors of the economy such as infrastructure, 
handicraft or agriculture, tourism policy and also aid for trade targeted at tourism requires co-ordination across different ministries and implementing agencies (Jansen, 2013). Similarly, Honeck (2012) argues that if tourism seeks to alleviate poverty and to increase local employment, 
specific mechanisms have to be explicitly included in the planning of tourism policy. This also 
requires public-private sector cooperation and regulatory oversight. 
3.48.  However, while tourism can help small economies foster economic development, it also 
makes the countries vulnerable to demand side shocks as experienced during the financial and 
economic crisis from 2008 onwards. Furthermore, travel warnings in response to natural disasters, political unrest or terrorism can have detrimental effects on tourism (WTO, 2009). Fortunately, 
tourism has the capacity to recover relatively quickly after demand side shocks. For instance, 
employment in hotels and restaurants was less affe cted than in other industries during the 2009 
economic crisis (UNTWO, 2013). 
3.49.  Christian et al. identify four upgrading trajectories of countries in the tourism value chain. 
Firstly, FDI can help upgrade the size and quality of hotel infrastructure. FDI was a main driver of 
tourism growth in small economies during 2003- 2008 (UNCTAD, 2013a). Hence, a transparent and 
predictable FDI regime can help attract investors to develop tourism infrastructure. Secondly, tour 
operators can functionally upgrade their services from being local guides and excursion operators WT/COMTD/SE/W/31 
 
- 35 - 
 
  to becoming local or national organizers for an incoming agent. Thirdly, the use of IT technology 
allows internet-based marketing and the use of online reservation systems.  
3.50.  Fourthly, countries can deepen or expand tourism products as well as diversify to new 
markets. For instance, the Seychelles, Rep. of, has been diversifying away from its traditional 
developed country markets towards visitors from Asia, while Mauritius has focused its efforts on 
becoming a destination for medical tourism (UNCTAD, 2013a). 
3.2.2  IT and business process outsourcing 
3.51.  Figure 14 shows the large variety of services that companies can potentially offshore and 
which are then typically supplied cross-border, i. e. Mode 1 in GATS terminology. They include 
services related to information technology outsourcing (ITO), business process outsourcing (BPO), or knowledge process outsourcing (KPO). Small econ omies might seek to enter services offshoring 
through the activities that correspond to their infrastructure capacities, cost structure and skills of 
the local labour force. 
Figure 14. Offshore services 
 
Source: Gereffi et al. (2011b). 
Note: In English only. 
 1 Vertical Activities, Industry Specific: Each industry has its own value chain. Within each of these 
chains, there are associated services that can be offshored. This diagram captures the industries 
with the highest demand for offshore  services. This graphica l depiction of vertical  activities does not 
imply value levels. Each industry may include ITO, BPO, and advanced activities. 
 
3.52.  Only few small economies have been relatively successful in developing an IT and BPO 
sector. Table 6 of the Annex shows that computer and information services account for only 1.7% 
of small economies exports while other business services account for 7.3%. Among the 32 small 
economies, Sri Lanka, Mauritius and Jamaica ar e the three biggest exporters of computer and 
information services. WT/COMTD/SE/W/31 
 
- 36 - 
 
  3.53.  Jamaica has a locational advantage as a "nearshore" investment location to North America, 
operating in the same time zone and sharing English as a main language. Supported by the government, the ICT sector grew significantly in the last decade (UNCTAD, 2013). In particular, 
thanks to government support, Jamaica experienced large FDI inflows into its telecommunications 
infrastructure, including the development of the IT-focused Montego Bay Free Zone. Similarly, 
Central American countries such as the Dominican Republic, El Salvador and Guatemala are trying to position themselves as "nearshore" platforms for offshore services to the Hispanic market in the 
US (Fernandez-Stark et al., 2011). 
3.54.  Table 8 illustrates offshore services in th e Dominican Republic, El Salvador and Guatemala, 
where the three respective countries have ente red the GVC by catering primarily for the US 
Hispanic market through their call services. Since entering the value chain, there has also been an 
increase in industry employment from 2006 to 2010, and all countries envisage further expansion. 
Guatemala and the Dominican Republic have since upgraded within BPO services and provide their 
clients with both Spanish and English-speaking call centres, finance and accounting services, 
human resources outsourcing and supply chain management. Both countries seek to maintain 
global standards for call centres and the number of training institutes has increased.  
3.55.  English has become an important focus for the call centres since the centres mostly 
accommodate customers in the US. Training in English has, therefore, become an important aspect 
of training as have programmes to improve custom er service. Incorporating English and offering 
courses on customer services within the call cent res provides an example of key developments in 
the value chain by responding to further needs of  the US clientele. A large firm, Transactel, in 
Guatemala is now seeking to imitate the Indian corporate-university model, by creating an 
in-house university, which provides business related courses to its employees. Once countries have entered the value chain, there are many diff erent trajectories for industries to expand and 
upgrade (Fernandez Stark et al., 2011). 
Table 8. The offshore services industry selected Central American small economies 
 Dominican Republic El Salvador Guatemala 
Entry Point Call centre, Spanish 
speaking  Call centre, Spanish 
speaking Call centre, Spanish 
speaking 
Highest Value Activity in 2010 BPO, finance & 
accounting, HRO Contact centre BPO, finance & 
accounting 
Industry Employment 2006 18,000 4,700  
2008 22,000 6,800 6,500 
2010 25,000 9,000 9,000 
Number of Offshore Centres 
in 2010 65 38 50 
Source: Fernandez-Stark et al. (2011) 
 
3.56.  Sri Lanka has made good progress in following India's path to position itself as an offshore 
destination for IT and BPO services. Box 8 describes in more detail the situation of the IT and 
business process outsourcing sector in Sri Lanka. 
Box 8. IT and business process outsourcing in Sri Lanka 
Sri Lanka has been able to successfully establish itself as an offshore destination for IT software 
services and business process outsourcing. Colombo, Sri Lanka's capital is already recognised as a 
prime outsourcing destination. In a ranking of the top 100 outsourcing cities, Colombo is placed at 
rank 19. Only four other cities of the 32 small ec onomies are included in the ranking. In contrast 
to Colombo, Managua (Nicaragua), Port Louis (Mauritius), Guatemala City (Guatemala) and 
Asunción (Paraguay) take lower positions in the ranking, i.e. 87th, 89th, 92nd and 94th, respectively. 
Furthermore, Sri Lanka ranked 21st in a ranking of the top 50 services offshoring countries. Other 
small economies included in the ranking are Jama ica (33), Panama (34) and Mauritius (36). The 
British National Outsourcing Association (NOA) named Sri Lanka as the "Outsourcing Destination of 
the Year" in 2013. 
 
The Sri Lankan Investment Board highlights kn owledge services, which include IT software 
development, KPO/BPO, IT enabled services and IT training centres, as potential key growth 
sectors for Sri Lanka. Sri Lanka focuses on developing niche competencies and aims to become a 
centre of excellence (COE). WT/COMTD/SE/W/31 
 
- 37 - 
 
  There are over 300 IT and BPO companies that op erate in Sri Lanka, mostly small and medium 
companies and a few large global players. Among the leading global IT-BPO companies operating 
in Sri Lanka are HSBC, WNS Global Services, Aviva, Microsoft, Motorola, Industrial & Financial 
Systems (IFS), Amba Research, RR Donnelley, Qua ttro, Virtusa, eCollge, Valista, Millennium 
Information Technology and Innodata Isogen.  
 
Sri Lanka has developed an export-oriented software industry. The software services sector 
focuses on Telecommunications, Banking Financial Services and Insurance (BFSI) and Software 
Testing. In 2010, the sector consisted of 147 companies, 60% of which were domestically owned, 
29% of which were foreign owned and 11% were  joint ventures. While domestically owned 
companies are typically SMEs, the foreign owned and joint venture companies are larger in size 
and account for the bulk of exports. Table 6 of  the Annex shows that Sri Lanka's exports in 
computer and information services grew by 28% per year between 2005 and 2011 amounting to 
US$355 million or 12% of services exports in 2011.  Furthermore, Sri Lanka is the only small 
economy that has a revealed comparative advantage in computer and information services 
exports. 
 
Given the small size of the domestic market, the internationalization of its activities is an 
important factor for the development and growth of  the sector. The diffusion of mobile telephony 
and rapid growth of mobile broadband as well as government-led rural infrastructure development 
programmes are other drivers of domestic  demand for software applications. 
 
The BPO sector in Sri Lanka focuses on financial and accounting services, investment research, 
engineering services, call centre services and UK based legal services. In particular, the financial 
and accounting services sector has shown a notable growth. Colombo now has the world’s largest 
pool of UK qualified English-speaking accounting professionals outside the UK itself. Compared to 
computer and information services, export growth in other business services has been relatively 
modest at 6% per year but still accounts for 9% of total services exports. 
 
As the Sri Lankan government has identified the IT-BPO sector as a priority growth sector for 
economic development, it provides financial incentives to promote investments. For instance, tax 
holidays range from five to 12 years and grants are provided for Training, Consulting expertise, 
Marketing, Quality enhancements (CMMi, COPC, ISO etc.) and for a host of other developmental 
activities. 
 
Besides financial support, low-labour costs, an English-speaking and a skilled labour force have 
been further success factors for the development of the IT software and BPO industry. Schooling 
up to secondary level is free and widespread, leading to the country’s high 91% literacy rate. 
Graduate and postgraduate education is provided by the 15 state universities and numerous 
private universities and educational institutions, many of which award degrees from international 
universities. 
 
However, while Colombo is already a well-recognised services offshore location, Sri Lanka 
currently lacks so-called tier-two offshoring locations. And other cities are significantly behind 
Colombo in terms of both skilled labour and ICT infrastructure.
Source: UNCTAD (2012); Slasscom (2015); Board of Investment of Sri Lanka (2015); Outsource (2013). 
 
3.57.  The results of the Aid for Trade at a Glance study (OECD/WTO, 2013) describe the main 
obstacles and challenges that developing country suppliers face when trying to integrate into ICT 
value chains. While some constraints in the ICT sector are common to other sectors such as access 
to finance as well as the business and the regulatory environment, certain constraints are more particular to ICT value chains. For instance, the lack of ICT skills has been highlighted as a major 
constraint by developing country suppliers. IT offshoring requires skills such as software 
engineering, database administration or programming. Furthermore, an advanced ICT infrastructure and sound telecommunications regulations are key for a cost-effective and high-quality delivery of IT and BPO services. 
3.58.  In the past, the remoteness of several small economies has hampered their connectivity to 
telecommunications networks. However, thanks to technological advances and increased demand, a number of projects have built submarine cables to deliver high-speed bandwidth connections to 
isolated communities thereby supporting socio-economic development. For instance, the WT/COMTD/SE/W/31 
 
- 38 - 
 
  Interchange Cable Network linking Vanuatu to Fiji has generated several positive socio-economic 
impacts in Vanuatu, allowing it to become the most competitive ICT/Telecommunications hub in the South Pacific region. A more detailed description of such developments is illustrated in Box 9. 
Box 9. Connecting Vanuatu to the World 
The Interchange Cable Network linking Vanuatu to Fi ji and thereby to the rest of the world is a 
submarine cable project that has already helped Vanuatu reduce the price of broadband internet 
by some 70%. Prices are to decrease even further as Vanuatu adds more customers through 
redundant cables linking New Caledonia, Solomon Islands and Papua New Guinea. The island will 
thereby further secure its position as the most competitive ICT/Telecommunications hub of the 
South Pacific.  
 
The US$30 million project to lay the 1,259 kilomete r cable is a public-private partnership between 
the local telecoms company, Interchange Vanuatu Limited, the Government of Vanuatu and other 
stakeholders. Not only are telecoms services soon  expected to contribute about 5% of Vanuatu’s 
GDP, the cable will help boost other ICT dependent services such as agriculture, trade, tourism 
and finance. The new cable and telecommunications infrastructure has already had several positive 
impacts for Vanuatu’s economy, including an increase in domestic and foreign investment, more 
employment and a higher level of consumer welfare, especially in regard to access to information 
and other audio-visual services.  
Source: OECD/WTO Aid-for-Trade Case Stories (2015), "Prime Minister's Office via trade development 
Division, Ministry of Tourism, trade, Co mmerce and Ni-Vanuatu Business, Vanuatu". 
3.59.  Bamper et al. (2014) describe several factors that affect the competitiveness of developing 
countries in several GVCs, including in offshore services. They regard the skills and the cost of 
human capital as the most important factor for competitiveness in offshore services. The skills of 
the labour force are determined by the education level, language skills, cultural affinity and 
internationally recognized qualifications. Sound regulation, also in relation to data protection, is another factor that can, for instance, determine investment decisions in more sensitive areas related to accounting or finance. Furthermore, ICT infrastructure, in particular broadband internet, 
and competition in telecommunications are fundamental when providing competitive offshore 
services through ICT networks. 
3.60.  Trade policy for IT and BPO matters mostly in the GATS context. In the context of BPO of 
professional services such as accounting, engineering or lawyering, qualification requirements and 
the recognition of foreign qualifications are an important determinant for the ability of developing countries to export such services to develope d counties. Furthermore, commitments regarding 
commercial presence (Mode 3) of small economies could very well influence investment decisions 
of foreign companies. The liberalization and regulation of telecommunications markets ensure competition and competitive pricing of ICT services. 
4  THE ROLE OF FOREIGN DIRECT IN VESTMENT IN GLOBAL VALUE CHAINS 
4.1.  FDI flows to developing countries represented more than half of global FDI in 2013. While 
flows to developed countries increased by 9% to US$566 billion – representing 39% of global flows - those to developing economies reached a new high of US$778 billion, or 54% of total FDI (Table 
9). As much as US$108 billion was invested in transition economies. Consequently, developing and 
transition economies now constitute half of the top 20 destinations ranked by FDI inflows 
(UNCTAD, 2014d). 
4.2.  Besides inflows, FDI outflows from developi ng countries also reached record levels in 2013, 
as transnational corporations from developing economies increasingly acquired foreign affiliates from developed countries located either in their home markets or in their regions. Together, developing and transition economies invested US$553 billion, or 39% of global FDI outflows, 
compared with only 12% at the beginning of the 2000s (UNCTAD, 2014d).  
4.3.  UNCTAD's report also shows that FDI inflows to SIDS declined by 16% to US$5.7 billion in 
2013. This curtailed a two-year period where inflows had been increasing. FDI in small island 
states went mainly to the mineral extraction sector and related processing activities. Smaller 
inflows went to the business, finance and tourism sectors. The report found that tourism and WT/COMTD/SE/W/31 
 
- 39 - 
 
  related services were attracting increasing intere st by foreign investors. Manufacturing industries 
such as those in the apparel and processed fish sectors had been important sectors for attracting 
FDI recently but both noted declines in 2013.   
Table 9. FDI flows by region, 2011-2013, (U S$ billion and percentage of World FDI) 
Region 
 FDI Inflows FDI outflows 
 2011 2012 2013 2011 2012 2013 
World 1700 1330 1452 1712 1347 1411
Developed economies 
  European Union   North America Developing economies   Africa   Asia      East and South-East Asia 
     South Asia 
     West Asia   Latin America and the Caribbean ..Oceania Transition economies 880 
490 263 725 
48 
431 333 
44 
53 
244 
2 
95 517 
216 204 729 
55 
415 334 
32 
48 
256 
3 
84 566 
246 250 778 
57 
426 347 
36 
44 
292 
3 
108 1216 
585 439 423 
7 
304 270 
13 
22 
111 
1 
73 853 
238 422 440 
12 
302 274 
9 
19 
124 
2 
54 857 
250 381 454 
12 
326 293 
2 
31 
115 
1 
99 
Structurally weak, vulnerable and small 
economiesa 58 58 57 12 10 9
LDCs LLDCs SIDS 22 
36 
6 24 
34 
7 28 
30 
6 4 
6 2 4 
3 2 5 
4 1 
Memorandum: percentage share in world 
FDI flows       
Developed economies   European Union   North America Developing economies   Africa   Asia      East and South-East Asia      South Asia      West Asia   Latin America and the Caribbean ..Oceania 
Transition economies 51.8 
28.8 15.5 42.6 
2.8 
25.3 19.6 
2.6 3.1 
14.3 
0.1 
5.6 38.8 
16.2 15.3 54.8 
4.1 
31.2 25.1 
2.4 3.6 
19.2 
0.2 
6.3 39.0 
17.0 17.2 53.6 
3.9 
29.4 23.9 
2.4 3.0 
20.1 
0.2 
7.4 71.0 
34.2 25.6 24.7 
0.4 
17.8 15.8 
0.8 1.3 6.5 0.1 
4.3 63.3 
17.7 31.4 32.7 
0.9 
22.4 20.3 
0.7 1.4 9.2 0.1 
4.0 60.8 
17.8 27.0 32.2 
0.9 
23.1 20.7 
0.2 2.2 8.1 0.1 
7.0 
Structurally weak, vulnerable and small 
economiesa 3.4 4.4 3.9 0.7 
 0.7 
 0.7
LDCs 
LLDCs SIDS 1.3 
2.1 0.4 1.8 
2.5 0.5 1.9 
2.0 0.4 0.3 
0.4 0.1 0.3 
0.2 0.2 0.3 
0.3 0.1 
Source: Global Investment Trends Monitor, UNCTAD, September 2014.  
4.4.  UNCTAD notes that Trinidad and Tobago alone accounted for 26% of the total FDI stocks in 
SIDS in 2013. This large influx is attributed mainly  to the presence of large oil and gas resources, 
and Trinidad and Tobago's geographic proximity to North America and the rest of the Caribbean, 
both important markets for its sales of liquefied natural gas. 
4.5.  The Bahamas, which enjoys the highest GDP per capita among SIDS, accounted for 19% of 
total FDI stock whereas Jamaica, which has metal mineral deposits and is the second most 
populated SIDS after Papua New Guinea, receiv ed 14%. The report found that among the ten 
largest host countries of FDI stock to SIDS, three are rich in mineral deposits (Papua New Guinea, 
Trinidad and Tobago, and Jamaica), four concentrate the bulk of SIDS' population (Papua New 
Guinea, Jamaica, Trinidad and Tobago and Mauritius), and some offer fiscal advantages (Bahamas, Barbados, Mauritius and Seychelles, Rep. of). At the bottom of the ranking of countries attracting 
FDI in the period under review were six Pacific states, which are some of the smallest and most 
remote islands in the world (UNCTAD 2014c). Many SIDS, however, especially those in the Pacific, possess valuable renewable and non-renewable natural resources in their vast exclusive economic zones (EEZs). Some are able to secure revenues from  the issuance of marine and fishing licences.  WT/COMTD/SE/W/31 
 
- 40 - 
 
  4.6.  While natural resources attract the most FDI in small economies, other sectors also interest 
foreign investors, mainly tourism, financial services and offshore business services. The report found that tourism and related activities had become an increasingly important economic sector for many small island states, especially those located in the Caribbean. Many of the infrastructure 
needs in the region, such as air and sea ports, are in place and many of the countries in the region 
benefit from an improved North American econom y and the recent increases in the number of 
tourists. By contrast, tourism makes a much lower contribution to national income in many African 
and Pacific SIDS mainly because of poor physical infrastructure, the great distances potential 
tourists have to travel and weak aviation, sea and communication links. There are some exceptions, however, and UNCTAD's report does note that Cabo Verde, the Cook Islands, Fiji, the Maldives, Samoa, Seychelles, Rep. of, and Vanuatu have also recorded recent increases in tourist 
revenues and associated investment.  
4.7.  One sector which has attracted investors to small economies is the establishment of offshore 
financial centres. UNCTAD's report notes that a number of these centres in the Caribbean (located 
in Antigua and Barbuda, Barbados, Saint Kitts and Nevis, The Bahamas), the Pacific (Vanuatu, 
Nauru), or the Indian Ocean (Mauritius, Seychelle s, Rep. of) – have become hosts of offshore 
financial centres (OFCs). Such centres typically benefit from a variety of incentives including 
reduced taxes for financial institutions and traders as well foreigners seeking tax advantages. 
Some small states have also extended privileges and incentives to multinational actors. Those countries offering such incentives view these services as a source of growth and economic 
diversification which can also result in positive effects on other activities, including tourism, hotels 
and restaurants, telecommunications and transport.  
4.8.  The study remarks that countries which offer such advantages could actually place tax 
havens under the scrutiny of countries affected by such services. Therefore, international efforts to 
tackle tax avoidance by international busine ss and wealthy individuals may start to erode 
FDI-attraction advantages for those SIDS involved in offering such services. Recent research on 
private wealth flows found that developed markets such as Switzerland and the UK lost 
US$135 million and US$300 million, respectively in 2014 because of increased efforts and 
regulations to fight tax evasion whereas as much as US$1.3 trillion of offshore wealth drained away from Panama and the Caribbean. In this case, the proximity to major markets, where regulations are being enforced more rigorously than in the past, was actually seen as a major 
factor contributing to the reduction of weal th being managed in the region (Swissinfo, 
2 February 2015). 
4.9.  FDI continues flowing into the Caribbean, however, by businesses seeking to take advantage 
of off-shoring possibilities to establish call centres and to set up sites engaged in office 
administration services. Here location and close proximity to the US (see Section 3 for more details) is seen to be as much as an advantage as the fact that many small states in the region 
use English as a first language. Jamaica is a main beneficiary of investment in this sector as is 
Trinidad and Tobago. While many of these services have not yet attracted large levels of investment, they are considered as important sources of job creation and export earnings. They can also help stimulate technology transfer in the long term and create conditions to future 
enhanced activities.  
4.10.  Other opportunities important for SIDS trying to attract increased flows of FDI include 
transport-related services for freighters and cruise ships. This sector is particularly promising in 
the Caribbean with the soon to be completed expansion of the Panama Canal and the ongoing 
construction of the Nicaraguan canal. The Caribbean region is well positioned to take advantage of these large infrastructure projects and signs are th at transport-related activities in Caribbean ports 
will increase as shipping traffic intensifies. UNCTAD cites the planned expansion of Jamaica's 
existing container terminal, airports and roads and the signing by Jamaica's Government of a framework agreement with China Harbour Engineering Co Ltd. to develop a future US$1.5 billion trans-shipment and logistic hub. The latter would also help provide a key gateway for Jamaica to 
link into more global supply chains. 
4.11.  FDI can be a door-opener for firms to join GVCs. Figure 15 shows that firms in small 
economies with at least 10% of foreign ownership tend to be more integrated in GVCs than 
domestically-owned firms. On average, 84% of manufacturing firms with foreign participation 
source 54% of inputs from abroad for their production. Such backward linkages are lower for purely domestically-owned firms, with 68% of firms using foreign inputs in their production with WT/COMTD/SE/W/31 
 
- 41 - 
 
  the average share of foreign inputs being 38%. Firm s with foreign ownership participation are also 
more likely to export and tend to export a higher share of their sales compared to entirely domestically-owned firms. 
Figure 15. Trade participation and ow nership of firms in small economies 
84
54
25
1368
38
11
4
0102030405060708090
Share of firms using
foreign inputs (%)Share of inputs of
foreign origin (%)Share of exporting
firms (%)Share of exports in
sales (%)Foreign ownership (min. 10%) Domestic ownership
 
Source:  World Bank, Worl d Enterprise Surveys. 
Note:  Indicators are computed as si mple average across 26 small economies. 
 
4.12.  Much of the research (e.g. Reed, 2007) conducted to date has found that FDI represents an important additional source of investment capital and is a potentially critical contributor to growth 
and development for SIDS. Furthermore, flows of FD I may actually embody further growth factors, 
including technology, know-how and managerial expe rtise. Reed (2007) claims, therefore, that FDI 
can be an important contributor to the growth process in developing countries and especially in 
small economies because it can accelerate "the transfer, acquisition and absorption of new 
technologies and enhance the stock of human capital in recipient countries". 
Box 10. Foreign direct investment 
FDI is a key element in international economic integration. FDI creates direct, stable and long-
lasting links between economies. It encourages th e transfer of technology and know-how between 
countries, and allows the host economy to promote its products more widely in international 
markets. Finally, FDI is an additional source of  funding for investment and, under the right policy 
environment it can be an important vehicle for enterprise development. 
 
FDI is defined as investment by a resident entity in one economy that reflects the objective of 
obtaining a lasting interest in an enterprise resident in another economy. The lasting interest 
implies the existence of a long-term relationship between the direct investor and the enterprise 
and a significant degree of influence by the direct  investor on the management of the enterprise. 
The ownership of at least 10% of the voting power, representing the influence by the investor, is 
the basic criterion used. Hence, control by the foreign investor (ownership of more than 50% of 
the voting power) is not required. Inward stocks are all direct investments held by non-residents 
in the reporting economy; outward stocks are the investments of the reporting economy held 
abroad.  
Source: OECD/WTO (2013). 
 
4.13.  While FDI can certainly help SIDS to grow and develop, questions about how and why 
investors make decisions to invest in one country and not in another are not obvious. Dunning 
(1977) developed a comprehensive economic theory to explain the existence, activities and 
strategies of multinationals through the synthesis of macro- and micro-economic determinants of FDI flows. In his framework, firms decide to engage in international production and become WT/COMTD/SE/W/31 
 
- 42 - 
 
  multinational companies based on three sources of advantage related to ownership, location and 
internalization (OLI). Box 11 describes these three advantages in more detail. 
Box 11. Sources of advantage of FDI and international production 
According to Dunning (1977), firms engage in FDI and international production to exploit 
advantages related to ownership, location or internalization.  
 
Ownership advantage refers to the need for multinationals to possess firm-specific competitive 
advantages over domestic firms in serving particular markets. These advantages include both 
tangible and intangible sources of advantage and arise from the monopoly control of the assets by 
multinationals, often reflecting the factor endowments and characteristics of their home countries.  
 
Location advantages relate to the profitable exploitation of a firm's ownership advantage from 
firm-specific assets in host countries. Hence, the firm's decision to actually locate at least some 
part of its activities in a particular host country is influenced by the actual and perceived 
competitive advantages of that country. These includ e: the availability of low-cost raw materials, 
particularly natural resources; intermediate inputs and low-cost labour; high quality human 
capital, including local research and development facilities; a large domestic market requiring 
proximity of production; a mix of clusters of prod ucers and suppliers; good quality infrastructure; 
favourable government policies, including political stability; and a favourable "business culture". 
 
The internalization advantage is the advantage of a company producing on its own rather than 
through an independent supplier or through a partnership arrangement such as a licensing 
agreement or a joint venture. The greater the net benefits of internalizing cross-border 
intermediate product markets, the more likely a fi rm will prefer to engage in foreign production 
itself rather than license the right to do so (Dunning, 2000).  
Source: Dunning (1997); (2000). 
 
4.14.  Dunning’s approach provides a useful fr amework for the analysis of FDI flows and the 
international production strategies of multinationals. Although he argues that the possession of the 
advantages explained above are a necessary pre-co ndition for FDI to take place, Read believes 
they remain insufficient, given potential financial and managerial resource constraints as well as high-level strategic objectives. For him, capital flows also embody advanced technology, superior 
know-how and accrued managerial expertise in a complementary "package". These additional 
characteristics could also be expected to generate additional growth effects in host economies over and above pure capital through positive spill-overs. FDI in developing countries and especially in SIDS may, therefore, have greater growth effects than similar investment flows to industrialized 
countries. 
4.15.  Read also discusses a country's openness to trade as playing a role in attracting FDI. He 
states that since one of the salient economic characteristics of small states in general is their 
openness to trade, SIDS are likely to be relatively favourable locations for inflows of FDI. He 
remarks that while small states are generally highly open in a structural sense, the policy stance of their individual governments towards trade, and by implication FDI, may still vary. This suggests 
that the policy stance of SIDS towards trade and FDI inflows remains critically important. 
4.16.  Much has been written to date on the vari ous limitations small economies face when trying 
to attract FDI or even when trying to enter GV Cs. For example, a recent paper on FDI in SIDS 
(UNCTAD, 2014) explains that smaller markets impl y that much economic activity cannot reach 
the minimum efficient scale of production, result ing in high unit costs. The small size of an 
economy also translates into a high dependence on trade for the development of some activities, both on imports – for the supply of raw materials and intermediate products – and on exports – for 
the sale of the output. The paper finds that a strong reliance on trade, added to the limited room 
for economic and export diversification due to size, exposes small economies and SIDS to high risks of exogenous shocks.  
4.17.  While FDI is important for small economies interested in joining value chains, the distance 
to markets and the small size of the local market ca n dissuade investors. Even if they did decide to 
produce for local consumption and export any surplus production, the remote locations of some of these small states could prove to be a further dete rrent. This is exacerbated when local production WT/COMTD/SE/W/31 
 
- 43 - 
 
  is more dependent on imported goods. The same UNCTAD report explains that small economies 
are less attractive to market-seeking FDI and to FDI aimed at the export of goods, with the 
exception of raw materials. In addition, with the li beralization of markets and the reduction of tariff 
barriers, high transport costs have become a far more restrictive barrier to trade than tariffs. 
Higher costs for moving goods can make small economies much less attractive to FDI that is 
dependent on the trade of goods, in particular to  global production networks which rely on intra-
firm trade. 
4.18.  These constraints are reduced when it comes to trade in services such as retailing, tourism, 
IT and BPO, telecommunications and energy. In the case of efficiency-seeking FDI, the development of ICT has opened up opportunities in areas such as call centres, data entry and 
processing centres, and back offices (such as purc hases, logistics, accounting, claims and payment 
processing). However, many of these sectors require a skilled labour force and access to 
telecommunication and information networks.
14 A more in-depth discussion of the role of tourism 
and IT and BPO for small economies is provided in Section 3.4.1. 
4.19.  The small size of SIDS means that development and the environment are closely 
interrelated and interdependent. There is usually great competition for land and water resources among tourism, agriculture and other land uses (such as mining, in resource-rich countries), and 
the overdevelopment of any of these sectors could be detrimental to another sector. The challenge 
for SIDS is to ensure that FDI and its use for economic development do not cause any permanent harm to the sustainable use of land, water and marine resources. 
4.20.  Kolstad and E. Villanger (2004) examined efforts to promote investment in small states, and 
especially in the Caribbean. They find that the chances of states increasing FDI flows – both 
domestic and foreign - to their countries are higher in states that are open to international trade and also to those which pursue regional trade arrangements. Since investment is higher in 
countries whose domestic markets are larger and more advanced, regional integration to expand 
what is considered the domestic market is therefore deemed to be beneficial. Other factors which help attract investment to the region is political stability, attention to governance and inclusive and 
participatory policies. 
5  CHALLENGES AND OPPORTUNITIES FOR SMALL AND MEDIUM-SIZED ENTERPRISES 5.1.  Most commercial activity in small economies is conducted by SMEs. As is the case in other 
developing countries, SMEs in small economies are the main source of employment and they make 
a significant contribution to GDP. While busi ness studies and economic research has long 
acknowledged the significant role SMEs play in developed economies or in larger emerging markets, it is relatively recent that academics have focussed on the role that SMEs play in small 
economies or even very small island states. This is surprising since most of the economies in the 
world are relatively small when measured by GDP. And some are considered to be very small since 
their GDP is less than the annual revenue of a mid-sized company in a large developed economy 
such as the US or Japan (Akhter and Pounder, 2008). 
                                               
14 Global Investment Trends Monitor, September 2014, UNCTAD. WT/COMTD/SE/W/31 
 
- 44 - 
 
  Box 12. What is an SME?  
The term "SME" encompasses a broad spectrum of  definitions which vary between country and 
region. While international organizations and financial institutions use their own guidelines for 
defining an SME, almost all definitions are based on some combination of the number of 
employees, turnover and assets (see Table 10).  
Table 10: Criterion used by listed institutions for defining "SME" 
Institutions Maximum No. 
of Employees Maximum Revenue or 
turnover (US$) Maximum 
Assets (US$) 
World Bank 300 15,000,000 15,000,000 
Inter-American 
Development Bank 100 3,000,000 None 
African Development Bank 50 None None 
Asian Development Bank 50 None None 
UNDP 200 None None 
 
Source: ITC and WTO research. 
 
5.2.  Firms operating in small economies are said to face two major obstacles in regard to the 
global integration of markets: first they lack financial and managerial resources to compete with 
corporations from large developed or developing economies; and second, they operate in small 
markets where the limited size prevents them fr om exploiting the necessary economies of scale. 
As may be recalled, similar concerns were raised in the previous section dealing with FDI flows to 
small economies. Some researchers believe that the challenges which SMEs face in small 
economies, especially in regard to countering international competition, can be mitigated through the use of certain measures, as previously elaborated. 
5.1  Regional integration  
5.3.  Regional integration can help small economies achieve economies of scale and increase the 
size of the available market. Akhter and Pounder (2008) cite the Caribbean Community (CARICOM) with its 15 member states, as providing a good example of how to ensure such market 
expansion. Another effort is to go a step further and deepen such integration with the single 
regional market known as the Caribbean Single Market Economy. The latter seeks to eliminate 
barriers to the intra-regional movement of goods and services, to harmonize standards and to put 
in place other regional market integration enhancing measures. Such efforts are needed to expand 
the consumer base for an SME operating in the Caribbean. For example, with the CARICOM regional market at its doorstep, Barbados has effectively increased its potential market size by more than 40 times, or from some 300,000 consumers to more than 13 million (Akhter, 2008).  
5.4.  A recent OECD study (Kowalski et al., 2015) discusses developing country participation in 
GVCs and finds that business survival rates seem to  be linked to higher levels of intra-regional 
trade. It suggests that regional integration can be  a way of learning by doing and serves as good 
preparation for competing in global markets.  
5.2  SME business strategies 5.5.  While regional integration is considered a policy objective which could help make it easier for 
SMEs to operate in small economies, business owners  too have to apply specific strategies if they 
want their businesses to survive. For example, when faced with increased foreign competition, 
strategies are needed to counter the growing number of imported products from countries with lower labour costs and larger economies of scale. Not only do SMEs in small economies face price 
pressures from increased global competition, they gradually also face pressure from consumers 
who expect better services, lower prices and better quality goods. It is not surprising then that many small business owners facing increased competition in regard to certain products believe 
that there is little future for manufacturing them in small economies.   
5.6.  Specific research carried out in Barbados in 2008 (Akhter and Pounder, 2008) showed how 
various SMEs in different economic sectors were affected by globalization and generally higher 
levels of competition. For firms in the craft sect or, the greater exposure did not have much of an WT/COMTD/SE/W/31 
 
- 45 - 
 
  impact. The same was true for the construction materials sector. In the retail and maritime 
sectors, however, there was even a favourable impact with some firms seeing their market positions improve mainly because of the domestic consolidation of firms or because it was now also possible for some firms to ex pand into foreign markets.   
5.7.  Already in the late 1990s, researchers had found that much of the success of SMEs depended 
on a strategic response which enabled them to exploit opportunities and neutralize threats due to globalization. Dawar and Frost (1999) developed a framework of strategic responses that a small 
company could use to compete against considerably larger firms. They identified four groups of 
strategies: dodgers, defenders, contenders and extenders. "Dodgers focus on capitalizing specific links in the local value chain where their assets are still valuable. Defenders leverage their assets in local segments where multinationals are weak. Contenders upgrade capabilities and resources 
and compete with multinationals globally in niche markets. Extenders expand into global markets 
similar to their home base, exploiting competencies they have developed at home." 
Figure 16. Breakdown of formal SMEs by region 
 
Source: IFC (2013). 
 
5.8.  While Akhter's and Pounder's research focused on interviewing SME owners and operators in 
Barbados, their findings are also relevant to SMEs in other small island states in the Caribbean and elsewhere. Their research found that SMEs active in the food sector followed mostly dodger and 
defender strategies. These firms used their good relationships with retailers and focused on 
assisting them and offering a variety of services that actually created entry barriers for other SMEs. They also relied on customer loyalty, br and building, new product development and sales 
promotion. One of the food businesses used the extender strategy to start some international 
involvements with foreign businesses.  
5.9.  In the garments sectors, the researchers said firms used dodger and defender strategies, 
with emphasis on leveraging relationships. These same firms extended some of the value chain 
activities into neighbouring countries and formed strategic alliances with foreign firms. For these 
SMEs, the major threat came from imports from highly competitive countries with lower labour costs and highly developed production capabilities. While these same companies saw their future 
i n  m a n u f a c t u r i n g  a s  l i m i t e d ,  t h e y  c o n s i d e r e d  a  f u t u r e  i n  d i s t r i b u t i o n  o f  t e x t i l e s  a n d  c l o t h i n g  a s  
promising.  
5.10.  Firms in the chemicals, crafts, and mariti me sectors followed mostly defender strategies, 
building on new product development, managing customer relationships and moving up value 
chains. Some firms in these sectors also extended their business internationally by capitalizing on their competencies.  
5.11.  SMEs active in packaging, plastics, sola r heating, after-market retail and construction 
materials were found to have followed both defender and extender strategies. These firms focused WT/COMTD/SE/W/31 
 
- 46 - 
 
  on producing quality products in small batches for local markets, solidifying relationships and 
extending their business through exporting, mainly to other markets in the Caribbean region. One firm obtained a certification from the International Standards Organization and another responded to the challenges of economic globalization by implementing a series of strategic actions that 
focused on meeting the specific needs of its cu stomer segments, improving customer service and 
data-based marketing, and expanding internationally. 
5.3  Diversification into services and SME internationalization 
5.12.  A main conclusion in the research referred to above was that as manufacturing and 
processing became less feasible in the garments and food processing sectors, affected SMEs could contemplate moving into distribution services of similar products. Other services include financial, educational, tourism and health services (Akhter and Pounder, 2008). Given the increasing role of 
services in the economic development of developing countries, policy makers will have to assess 
various options and identify the reforms that will lead to the right conditions for the development of a competitive domestic services sector and for the efficient trading of services across borders 
(Kowalski, 2015). 
5.13.  A better understanding of where SME exporters are concentrated and in which sectors they 
are active, may provide insights into the types of activities in which SMEs engage. Data on the 
companies of African, Caribbean and Pacific (ACP) countries reveal that sectors such as wholesale 
and retail trade, auxiliary transport activities, hote ls and restaurants, and other services, comprise 
a large proportion of small and medium-sized ente rprises. Meanwhile, the manufacture of textiles, 
food products and beverages, and chemical and chemical products, relies more on large companies 
(Figure 17). Thus, there appears to be a tendency for SMEs to gravitate towards the delivery of 
services.   
Figure 17. Sector breakdown of small-, me dium- and large-sized companies from the 
African, Caribbean and Pacifi c (ACP) group of countries 
 
Source:  ITC (2014). 
 
5.14.  When successful SMEs increase their domestic market share to a point where they become 
the main supplier of a given product, they often st art to look to other markets located across their 
borders or in their region as an additional place to  do business. This so-called "internationalization" 
of an SME's activities can be carried out in different ways: through exporting directly; exporting 
with the help of independent, foreign agents; using subsidiaries to carry out this function; or establishing production facilities in the said export market.
15  
                                               
15 The stages described here are the essential features of the Uppsala model (U-model; Johanson and 
Wiedersheim-Paul, 1975; Johanson and Vahlne, 1977). WT/COMTD/SE/W/31 
 
- 47 - 
 
  5.15.  Figure 18 compares the internationalizatio n of small, medium and large firms in 26 small 
economies. In line with existing research, it shows that participation in international trade increases with firm size. For example, on average, 62% of small firms use inputs of foreign origin compared to 77% of medium firms and 85% of la rge firms; and only 9% of small firms export 
directly compared to 17% and 32% of medium and large firms, respectively. 
Figure 18. The internationalization of fi rms in small economies by firm size 
62
34
9
412
277
44
17
722
385
51
32
1644
11
0102030405060708090
Share of firms
using foreign
inputsShare of inputs of
foreign originShare of exporting
firmsShare of exports
in salesShare of direct or
indirectly
exporting firmsShare of indirect
exports in salessmall (5-19) medium (20-99) large (100+)%
 
Source: World Bank Enterprise Surveys. 
Note: Indicators are calculated as si mple averages of 26 small economies. 
 
5.4  Challenges for SMEs to gain footholds in export markets 
5.16.  This section takes a closer look at some of the reasons why SMEs have difficulties gaining 
footholds in key export markets. Some of the challe nges such as distance to export markets, small 
size and low levels of FDI have already been alluded to in some detail, but other difficulties exist. They contribute not only to lower survival rates observed for some SME exporters, especially in 
their first year of doing business, but also to the hardships such firms face in accessing the 
necessary levels of financing required to launch and sustain a business. Access to long-term finance, and not just the smaller loans which many banks provide to newer SMEs, has been perceived as a major obstacle to the growth and development of SMEs in low- and middle-income 
countries (International Finance Corporation, 2010) . Figure 19 shows the percentage of firms, by 
firm size and country income group, which regard access to finance as a major obstacle to securing sales abroad. The situation seems particularly acute for SMEs in developing countries. For 
example, the WTO’s World Trade Report 2012 sh owed that banks serving SMEs in non-OECD 
countries reached only about 20% of formal micr o enterprises and SMEs. In sub-Saharan Africa, 
this number was even lower, at 5%.  WT/COMTD/SE/W/31 
 
- 48 - 
 
  Figure 19. Percentage of firms viewing access to  finance as a major obstacle by firm size 
and country income 
 
Source: IFC (2010). 
 5.17.  Accessing trade finance is another area where SMEs in developing countries, including small economies, face potential obstacles. The OECD  has found that many SME managers fortunate 
enough to secure export business opportunities, la ck an understanding of relevant trade financing 
instruments. As a result, while they may start to benefit from exports, their chances of participating in GVCs in the longer term are diminished. While many buyers are allowed one or 
several months to pay their suppliers, this delay – however short - can create serious financial 
burdens for SMEs which need to ensure adequate cash flows to pay salaries and buy the necessary inputs to produce more goods.   
Box 13. Accessing affordable trade finance, an ongoing challenge for SMEs 
Experts have reported on the increasing difficulti es faced by low-income countries to access trade 
finance on affordable terms. Part of these difficulties existed prior to the financial crisis. 
"Structural" constraints range from the lack of know-how in local banks to mistrust, resulting in 
traders having to set aside large collateral requirements for a loan in addition to high fees. These 
problems in accessing affordable trade finance may have worsened somewhat since the 2009 
financial crisis. The downsizing of some key global financial industry players since 2009 has 
certainly contributed to this situation. Capital for lending in low-income countries has become 
scarcer and the selectivity of risks greater, so ne gative expectations regarding the cost of doing 
business in poorly- (or non-) rated countries translated into higher costs for traders locally, or 
simply in less finance being available. Several global banks have been reducing their network of 
"correspondent banks" in these countries, thereby limiting the scope of local banks to find suitable 
counterparties internationally.16 Emerging countries' banks, while generally gaining market shares, 
have not filled the gap, because of the "start-up" cost of doing business.  
Source: WTO (2014). 
 
5.18.  Still other challenges confronting SMEs and their operators revolve around acquiring relevant market information concerning prices in export markets, currency fluctuations, consumer 
preferences and conformity with non-tariff measures . The latter has been examined in detail in a 
2013 WTO Secretariat background paper on how such measures in the areas of agricultural and manufactured goods affect small economy exports.
17  
                                               
16 According to BIS (2014), global banks play a very important role in the market for trade finance. 
They " appear to account for a quarter to a third of the glob al supply of bank-intermediated trade finance, with 
local and regional banks providing the remainder" . In 2011, such banks provided US$2 trillion of the estimated 
US$6.5-8 trillion of bank-intermediated , short-term trade finance recorded. 
17 WT/COMTD/SE/W/28 – Further examination of the e ffects of non-tariff measures on the exports of 
small economies – Background note by the Secretariat. WT/COMTD/SE/W/31 
 
- 49 - 
 
  5.19.  In regard to how SMEs can improve their access to market information, there is the 
possibility of working with and through national and regional institutions, such as Chambers of 
Commerce and diplomatic missions abroad. Such contacts can help exporters establish footholds in foreign markets and provide business owners with key information as to the market and regulatory 
changes taking place. Another way for SMEs to present a stronger position is through associations 
of SMEs which export a similar line of product or which would like to create a stronger image for the exports of a region. 
Box 14. The Pacific Agreement on Closer Econ omic Relations (PACER) and the 14 Pacific 
Island Countries (PICs) 
The cost of doing business in PICs is amongst the highest in the world. According to the World 
Bank, higher prices for everything from electricity to transportation, has contributed to generally 
lower levels of FDI and has limited the participation of PICs in international trade. The parties to 
the PACER Agreement recognized these limitations  and agreed to tackle regulatory measures 
related to customs procedures, SPS measures, te chnical regulations, standards and conformity 
assessment procedures. In a survey, a number of small suppliers in the Pacific confirmed that 
conformity assessment costs were one of the main reasons they were not exporting more goods to 
New Zealand and Australia. In many cases, the costs incurred exceeded the narrow profit margins, 
making it economically unattractive for them to export. By providing assistance, Australia and New 
Zealand hope that countries in the region can better meet the various technical requirements. PICs 
should also be able to meet specific supply-side constraints which have prevented them from 
taking advantage not only of the PACER regional trade agreement but of preferences offered to the 
region’s LDCs under the duty-free quota-free (DFQF)  scheme. This additional assistance to help 
PICs overcome regulatory issues should also improve the attractiveness of PICs to foreign 
investors and enhance the competitiveness of th eir firms. One key element of the PACER plus 
assistance programme is its services component to help the region reduce the cost of supplying 
services and to improve the skills levels of service providers. This includes PACER countries 
removing restrictions on the movement of natu ral persons, as in mode four of the General 
Agreement on Trade in Services. 
Source: OECD/WTO Aid-for-Trade Case Stories (2015), "Office of the Chief trade Advisor for Pacific Island 
Countries, Vanuatu". 
 
5.20.  Two final areas to mention in this section concern difficulties SMEs have in keeping up with 
technological changes and skills shortages. In re gard to ICT, many small economies still face 
challenges with establishing sustained access to the internet. In those countries where internet access is facilitated through broadband connections, costs of going on line have decreased (see 
case story on Vanuatu and its submarine connection to Fiji). However, other issues arise mainly in 
regard to the creation and maintenance of websites to show and eventually sell goods on line. These issues and others related to internet paym ent schemes and the final delivery of products 
ordered online were also examined in depth in a WTO Secretariat background paper in April 2013 
concerning SMEs and ICT in developing countries.
18  
5.21.  As concerns SMEs having access to a skilled workforce, this has been consistently identified 
as one of the areas constituting a barrier to the internationalization of SMEs (Figure 20). Much has been written about the need for workers to adapt not only to the new technological trends, but to the changing demands in export markets and also to the variations in consumer demand. Hiring 
skilled workers is costly as is training existing workers to move up to a higher skills set. This is one 
of the reasons often cited as to why SMEs lose competitiveness over time (Cedefop, 2012). It can also be seen as a reason why some SMEs are not able to move up in GVCs, since this requires a 
skilled labour force. Even though many SMEs in small economies and in developing countries in 
general engage in activities and value chains which are not skill intensive, the higher these 
businesses move up the value chains, the more attention they will have to pay to ensure their 
workers have the necessary skills.  
                                               
18 (WT/COMTD/W/193) – Electronic commerce, development and small and medium-sized businesses. 
Background note by the Secretariat. WT/COMTD/SE/W/31 
 
- 50 - 
 
  Figure 20. Share of firms by income grou p identifying an inadequately educated 
workforce as a major constraint to their operations  
0510152025303540
Small
economiesLDCs LMICs UMICs HICsSmall (5-19) Medium (20-99) Large (100+)%
 
Source: World Bank Enterprise Surveys. 
Note:  Indicators for country groups are calculated as simple averages across countries and are based on 
26 small economies, 36 LDCs, 26 lower middle-income countries (LMICs), 33 upper middle income 
countries (UMICs) and 17 high-income countries (HICs). 
 
6  THE ROLE OF LOGISTICS AND TRADE FACILITATION 
6.1.  While the emergence of GVCs may have mitigated size-related difficulties for small 
economies, the fact that many small economies are islands or remote from major markets still 
represents a major challenge. High costs, and the fact that air and sea transport are sometimes 
the only options for the movement of goods and people, constrain the ability of small economies to expand their economies through the trade of goods and to take part in global patterns of specialization.  
6.2.  Many value chains in manufacturing take the form of regional networks or hub-and-spoke 
structures where remoteness from the hub can hamper value chain participation. Examples of regional networks include electronics in Asia, the automotive industry in the EU or apparel 
manufacturing in Mexico and Central American countries. 
6.3.  Trade in manufacturing is more regional th an trade in services (WTO, 2014) and distance to 
production hubs is a stronger impediment to GVC integration in manufacturing as compared to 
services (OECD, 2014). While remoteness from manufacturing hubs can hamper the establishment 
of backward linkages, logistic performance and th e quality of infrastructure are among the policy 
factors that have the strongest positive impact on developing countries' GVC integration (OECD, 2014). Similarly, Lanz and Piermartini (2015) find that countries with better transport 
infrastructure and trade facilitation tend to specialize in value chain products. 
6.4.  In several value chains, time-related trade costs are of particular relevance. These costs 
relate to two, often intertwined, dimensions of time, namely the ability to deliver quickly (speed) 
and the ability to deliver on time (predictability and punctuality). The ability to make fast deliveries 
is very important in value chains mainly because of demand fluctuations (e.g. apparel), perishability of products (e.g. agricultur e and food) or rapid technological change 
(e.g. electronics). The ability to deliver on time is crucial in GVCs characterised by high inventory 
costs or just-in-time production, where further pr ocessing or assembly depends on the punctual 
arrival of intermediate inputs (e.g. automotive). Various studies have highlighted the importance of transport infrastructure and/or time in sectors such as textiles (Nordas and Piermartini, 2004; WT/COMTD/SE/W/31 
 
- 51 - 
 
  Evans and Harrigan, 2005), agricultural products (Djankov et al., 2010), or automotive goods 
(Hummels and Schaur, 2013). 
6.5.  Hummels and Schaur (2013) estimate the value of time costs by assessing a firm's choice 
between fast and expensive air transport and cheap,  slow maritime transport. In particular, they 
estimate that each day in transit is equivalent to an ad valorem  tariff of 0.6% to 2.1% and that 
parts and components have a 60% higher time sensitivity than other goods. Similarly, Hummels and Schaur (2010) show that businesses are more li kely to choose air transport when faced with 
volatile consumer demand. Djankov et al. (2010) analyse the importance of the time required to 
export as measured by the number of days it takes to transport a container of product from the factory gate to the ship. They estimate that each additional day reduces exports by at least 1% and that the incidence of time is larger on time-sensitive goods in manufacturing and in perishable 
agricultural products. 
6.6.  Time does not only affect the mode of tran sport but also the location of production in GVCs. 
Time-sensitive products are more likely to be shipped by air and tend to be produced closer to the 
source of intermediate or final demand. For exam ple, Evans and Harrigan (2005) use data on retail 
demand to show that the production of time-sen sitive US apparel imports has shifted to nearby 
countries. Small economies in Central America are, therefore, benefitting from their proximity to 
the US markets as seen by their specialization in apparel products. 
6.7.  Table 2 in Section 2 provides an overview of  indicators related to transport logistics and trade 
facilitation for small economies. According to the World Bank indicators measuring the cost, documents and time to trade, trade costs are lo wer in small economies than for the average WTO 
Member. They also differ among regions. However, these indicators only measure the trade costs 
related to inland transport and to customs procedures and do not capture distance-related trade costs.  In terms of transport infrastructure, small economies in Central and South America have a 
lower quality of air, port and road infrastructure compared to the average WTO Member. 
6.8.  Trade facilitation reform can help small economies to diversify their export structure. 
Beverelli et al. (2015) find that improvements in trade facilitation increase the number of products 
and the number of markets served by exporting countries. Improvements in trade facilitation can 
also lower monetary and time-related trade costs and can facilitate the integration of small economies in GVCs. Box 15 describes a customs clearance initiative in Central America where new customs procedures, border clearance equipment and network infrastructure has helped channel 
goods more efficiently within the region. 
Box 15. Central American – SIECA – Customs Clearance Public Sector 
New customs procedures, border clearance equi pment and network infrastructure for Central 
America helped to reduce trade costs for merchandise goods and accelerated clearance times from 
several hours to just minutes. The project began in 2011 and quickly recorded increases in the 
number of documents processed as well as the volume of goods cleared in the region. For 
example, the value of electronically channelled transactions using FAUCA, a document established 
by the General Treaty on Central American Economic Integration, increased from slightly more 
than US$1 billion in 2011 (about 13% of the value of interregional exports registered in Central 
America) to US$4.4 billion in 2013, accounting for ab out 51% of the value of interregional exports. 
The goods clearance system for the region has helped  to reduce both ship dwelling times and road 
hauler waiting times, and has led to reductions of both customs clearance times as well as costs to 
clear goods. Furthermore, it has resulted in an increase in both the region’s exports and imports 
while augmenting domestic and foreign investment as well as the number of women employed as 
customs clearance agents.  
Source: OECD/WTO Aid-for-Trade Case Studies (2014) , "Secretariat for Central American Economic 
Integration". 
 
6.9.  Similarly, Box 16 provides a further exampl e of the beneficial consequences of improving 
road connectivity and road infrastructure between Belize and the rest of Central America's Mesoamerican trade network hub. WT/COMTD/SE/W/31 
 
- 52 - 
 
  Box 16. Improving road connectivity in Be lize and to the Mesoamerican trade network 
hub 
Improving road connectivity between Belize and the rest of Central America's Mesoamerican trade 
network hub is the main aim of this 31-kilomete r long road improvement project. The road will 
help improve transportation facilities between Belmopan, the capital, and Belize's western Cayo 
District and is expected to provide a huge boost to the country's inland tourism industry. Also to 
benefit from the new infrastructure project is the highly productive agricultural sector and certain 
petroleum production sites. Increases in the num ber of trucks and buses supporting the growing 
tourism sectors, petroleum and agricultural sectors had caused significant deterioration of the road 
and is a main reason behind Belize's high road fa tality rate. Implemented over a five year period, 
the road renewal project is expected to save us ers some US$53 million in the course of the next 
20 years. Included in this are reduced trade costs for transporting merchandise goods and for 
services-related industries such as tourism and a reduction of prices for consumer goods. The 
project has already led to a vast improvement in the region's infrastructure including roads, 
bridges and airports, has generated employment opportunities, mainly for women, and has helped 
to reduce rates of absolute poverty in the country.  
Source: OECD/WTO Aid-for-Trade Case Stories (2015), "Directorate for Trade, Ministry of Trade, Investment 
and Promotion, Private Sector Development and Consumer Protection, Belize".  
 
6.10.  Maritime transport costs pose a real ch allenge for small economies. Out of the 32 small 
economies studied in this report, 29 fall under the UN categorization of SIDS, which share common 
characteristics such as smallness, sea-lockedness and remoteness. These countries face relatively high transport costs because small trade volumes need to travel long and indirect routes to reach 
distant markets (UNCTAD, 2014b).  Relatively low cargo volume s limit the ability of small 
economies to benefit from economies of scale. Meanwhile, shipping imbalances, i.e. higher import volumes than export volumes, drive up cost.  
6.11.  The remote location of several small ec onomies further hampers their access to global 
shipping networks. Several small economies, in particular Pacific islands, are relatively far from the global East-West container shipping corridor located in the Northern Hemisphere that carries 85% of global containerized trade. While Caribbean sma ll economies are directly located on the corridor, 
Pacific SIDS can connect to the main corridor through the hub ports of Singapore; Hong Kong, 
China; and Busan. Furthermore, inadequate services regarding inter-island domestic shipping result in economic and social challenges for these islands (UNCTAD, 2014a).  
6.12.  Expenditures on international transport tend to be higher in SIDS as compared to the world 
average. Whereas transport costs for the average co untry correspond to 8.1% of import value, the 
relative transport cost expenditure of the averag e SIDS country is 2% higher (UNCTAD, 2014b). 
Among the small economies, transport costs are particularly high for the Seychelles, Rep. of, 
Barbados and Jamaica.  
6.13.  The UNCTAD Liner shipping connectivity inde x (LSCI) measures the shipping connectivity of 
countries based on five components related to the deployment of container ships: (a) the number 
of ships; (b) the total container-carrying capacity of those ships; (c) the maximum vessel size; 
(d) the number of services; and (e) the number of  companies that deploy container ships on 
services from and to a country’s ports. 
6.14.  Figure 21 shows that small economies have  a lower shipping connectivity compared to the 
world average. Small economies had an average LD CI of 11.7 in 2014 (out of a maximum of 100), 
which represents less than the half of the in dex value of 25.5 for the World average. Small 
economies in all regions have, however, improv ed their connectivity between 2004 and 2014, with 
small economies in Central and South America being the best connected in terms of shipping. 
  
 WT/COMTD/SE/W/31 
 
- 53 - 
 
  Figure 21. Liner shipping connectivity inde x for small economies by region, 2004 and 
2014 
051015202530
World
averageAll regions Africa Asia/Pacific Caribbean C. and S.
America
Small economies2004 2014Maximum 2004=100
 
Source: UNCTADstat. 
Note: The regional aggregates of the liner shipping co nnectivity index are calculated using simple averages 
of 154 countries for the World average and of 31 countries in the case of small economies. The indicator is not available for Paraguay as it is landlocked.  
 
6.15.  Table 11 ranks the top and bottom five small economies in terms of the LSCI in 2014. 
Sri Lanka had the best shipping connectivity in 2014, followed by Panama, the 
Dominican Republic, Jamaica and Ecuador. Three of the top five performers are small economies in the Caribbean. Despite their geographic proximity, four of the bottom five small economies 
(Dominica, Saint Kitts and Nevis, Saint Vincent and the Grenadines and Antigua and Barbuda) are 
also Caribbean islands.  
Table 11. Liner shipping connectivity inde x 2014: Top and bottom five small economies 
Top five 2004 2014 Bottom five 2004 2014 
Sri Lanka 34.68 53.04 Dominica 2.33 1.59 
Panama 32.05 43.65 Saint Kitts and Nevis 5.49 2.35 
Dominican Republic 12.45 26.29 Tonga 3.81 3.58 
Jamaica 21.32 24.55 St. Vincent and the 
Grenadines 3.56 3.85 
Ecuador 11.84 21.80 Antigua and Barbuda 2.33 4.07 
Source: UNCTADstat. 
 
6.16.  For example, Table 12 illustrates how the Dominican Republic is served by 122 ships from 
21 companies, whereas Dominica is only served by  five ships from two companies. Furthermore, 
while the Dominican Republic accommodates ships up to a vessel size of 6,750 TEU, Dominica accommodates ships with a size of only 430 TEU (UNCTAD, 2014b). Besides remoteness and 
smallness, such differences in shipping connectivity can also be explained by port characteristics 
and the regulatory framework for liner shipping. 
  
 WT/COMTD/SE/W/31 
 
- 54 - 
 
  Table 12. Container-ship fleet deploy ment for small economies, May 2014 
Country Number of 
Ships TEU carrying 
capacity Largest ship 
(TEU) Number of 
companies Number of 
services 
Antigua and 
Barbuda 11 6880 1250 3 6 
Barbados 15 10504 1250 6 9 
Cabo Verde 4 4027 1325 3 5 
Dominica 5 1494 430 2 3 
Dominican 
Republic 122 397375 6750 21 55 
Fiji 23 42993 2758 8 18 
Grenada 10 6182 1284 5 6 
Jamaica 109 355837 6750 15 41 
Maldives 5 12871 2765 3 2 
Mauritius 40 124005 6712 7 12 
Papua New 
Guinea 29 34646 2546 8 21 
Saint Kitts and 
Nevis 5 2864 660 3 3 
Saint Lucia 14 10188 1284 5 7 
Saint Vincent 
and the 
Grenadines 9 4988 1122 4 6 
Samoa 7 7229 1304 4 11 
Seychelles, 
Rep. of 10 21723 2764 3 8 
Tonga 6 5049 1043 3 12 
Trinidad and 
Tobago 52 110424 5089 13 25 
Vanuatu 11 12143 2082 4 8 
Average rest of 
the World 166 749001 7076 20 90 
Source: UNCTAD (2014b). 
 
6.17.  Besides maritime transport, air transport is of particular importance to small economies 
because of their remoteness and because of their de pendence on tourism. The existence of flight 
connections and the level of flight prices influence tourist numbers. Tourism arrivals by air are 
particularly high for the Caribbean islands and the three African small economies, Mauritius, Seychelles, Rep. of, and Cabo Verde (UNCTAD, 2014a). In the Caribbean, intra-Caribbean tourism has increased thanks to regional air carriers such as Leeward Island Air Transport. 
6.18.  Tourism and freight transport by air are mu tually supportive as the majority of air cargo 
actually is shipped in the belly of passenger aircrafts. In terms of policy, air travel is governed by bilateral Air Services Agreements (ASAs). In the GA TS, air transport is covered by a specific annex 
that excludes the largest part of air transport services such as traffic rights and traffic-related 
services.  
6.19.  The WTO Air Liberalization Index (ALI) is an index measuring the openness of the bilateral 
ASAs ranging from 0 (very restrictive) to 50 (very open). Figure 22 shows the WTO ALI for small 
economies groupings as compared to the world. On average, small economies have a more liberal air services regime compared to the world. This is the case for the average small economy in Asia/Pacific, Caribbean and Central and South America but not for the three small economies in 
Africa.  WT/COMTD/SE/W/31 
 
- 55 - 
 
  Figure 22. WTO Air Liberalizat ion Index (ALI), 0-50, 2011 
0246810121416
All Africa Asia/Pacific Caribbean South and
Central
America
Small economies Worldmax. 50
 
Source: WTO Secretariat. 
 
6.20.  Table 13 shows the five most open and five most restricted small economies in terms of air services. Antigua and Barbuda has the most open regime, followed by Tonga and Samoa. In 
contrast, Belize, Seychelles, Rep. of, Mauritius and Fiji have the most restrictive regimes. Table 13 
further shows the weighted ALI (WALI), where the ALIs of the different bilateral ASAs are averaged using the passenger traffic covered by the respective agreement as weight. In the case o f  F i j i ,  t h e  w e i g h t e d  A L I  ( W A L I )  s u g g e s t s  a  m o r e  o p e n  r e g i m e  t h a n  t h e  s t a n d a r d  A L I ,  w h i c h  
indicates that a large number of passengers fly to Fiji under relatively liberal bilateral ASAs. 
Table 13. Air Liberalization Index (ALI ): Top 5 and bottom 5 small economies 
Top 5 Bottom 5 
 ALI WALI  ALI WALI 
Antigua and Barbuda 38.0 38.0 Cuba 7.8 4.4 
Tonga 29.0 31.4 Fiji 7.7 16.0 
Samoa 21.4 29.3 Mauritius 7.2 10.5 
El Salvador 20.5 27.8 Seychelles, Rep. of 4.5 2.6 
Grenada 18.0 26.0 Belize 4.0 4.0 
Source: WTO Secretariat. 
 
7  TRADE POLICY EXPERIENCES 
7.1.  This report has thus far provided a focused discussion of some of the evidence of integration 
of small economies in GVCs and their various expe riences, especially in the agrifood, seafood and 
the textiles and clothing value chains. Some services value chains have also been examined in the 
tourism and information technology sectors. In order to complement the research so far, this 
section will take a closer look at how the understanding about value chains has evolved and what small economies can do to secure either a greater share of the production process of a value chain or retain more value in their respective markets.  
7.2.  More than 20 years ago, an often cited "global value chains" typology was developed by 
Gary Gereffi. It separated value chains into tw o major types: the first was buyer driven; the 
second, production driven. Production driven value chains are run by global companies which 
coordinate the backward and forward linkages described earlier in this report. Such value chains 
are usually run by capital and technology-intensive industries active in automobile and aircraft manufacturing and industries related to computer assembly and heavy machinery. Buyer-driven WT/COMTD/SE/W/31 
 
- 56 - 
 
  value chains, on the other hand, refer to activities in which large retailers and branded 
manufacturers play the pivotal roles in setting up decentralized production networks in a variety of exporting countries.  
7.3.  For small economies it is typically the buyer-driven type which provides access to a value 
chain. Buyer-driven chains usually exist in more labour-intensive consumer goods industries such 
as the garments, footwear, toys, housewares and consumer electronics sectors and are more prevalent in developing countries and in small economies.  
7.4.  The ways of thinking about value chains has evolved since the mid-1990s and has expanded 
to include characteristics such as the level of complexity of inter-firm transactions, the extent to which information can be codified, and finally the de gree of capability of the supply base in relation 
to the requirements of the transaction (Gereffi et al., 2005).  
7.5.  These levels are described in the WTO's World Trade Report 2014 and are alluded to as 
evolving elements which are subject to change . They may evolve, especially in regard to 
technological advances and domestic, regional or international regulations. This requires 
companies, especially those which wish to continue to dominate a particular production 
component, to manage various types of knowledg e and know-how particular to that production 
sector.  
7.6.  Many suppliers in developing countries produce for lead firms in GVCs. This can be a direct or 
indirect transaction and may go through specific distribution channels in the destination market. Lead firms are not directly involved in the manufacturing of particular products but do concentrate on downstream and upstream processes such as lo gistics, finance, design and marketing, areas 
which are generally more skill intensive (Fernandez-Stark et al., 2011). Already a decade ago, 
researchers focused on how gains are distributed between parties in a GVC-based business relationship and found that much has to do with the relative bargaining power of each (Gereffi 
et al., 2005). This can depend on how unique and desi rable the supplier is and whether or not a 
lead firm can do without its services or whether or not its contribution can be performed elsewhere in another country at a lower price or can be automated or codified. The WTO's World Trade 
Report 2014 summarizes it this way: 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. 
7.7.  Nearly 25 years ago, Stan Shih who owne d an IT business proposed  "the smiling curve," 
(briefly discussed earlier in Section 3) to show the distribution of value-added through the product 
life cycle. The curve shows that upstream acti vities, such as research and development, and 
downstream ones such as marketing and distribu tion, are characterized by higher value-added 
creation than manufacturing or assembly activities (Dedrick and Kraemer, 1998).  
7.8.  Since then, the smiling curve (also known as the "smiley curve") which portrays unit value 
and not volume, has changed under the forces of increased globalization of manufacturing 
activities. It has deepened and there are now lower-levels of value-added in the middle stages of 
the value chain. Much of this is due to offshoring to less expensive production sites, increased competition and competitiveness gains amongst countries offering similar production capabilities and the IT revolution, which further reduces coordination costs (Baldwin, 2012). 
7.9.  Upgrading scenarios are by no means easy  for small economies. Diversification along the 
value chain is much more difficult because of small size. Even small, industrialized economies have tended to specialize in just a small part of th e overall chain where a large share of what they 
export includes a large proportion of imported components. Any further diversification in the 
gamut of export products would, therefore, also require more imports.  
7.10.  While productivity gains may be realized with the initial shift in labour from agriculture to 
manufacturing and services, the gains are no longer as large as they were in the past, especially 
not since the 1970s when such trends began. Recent research (Escaith, 2013; Kowalski et al., 
2015) argues that the volume of the activity may matter as much as the domestic value-added share or the level of sophistication. In particular, upgrading can also be achieved by doing more of 
the same where margins may be small but where volumes are high.  WT/COMTD/SE/W/31 
 
- 57 - 
 
  7.11.  In business, small margins can be more th an compensated by high volumes. For example, a 
large assembly company may only create US$20 wo rth of value-added per smartphone assembled 
in its factories in China, but it makes millions of  them. Conversely, "a start-up in Silicon Valley 
may make a lot of money with one patent, but not invent anything else after that" (Escaith, 2013). 
Hence, important benefits can be derived from specializing in less sophisticated assembly activities 
according to comparative advantages and performing these on a large scale. 
7.12.  Escaith (2013) also argues that while the smiley curve addresses apparent production costs, 
it does not consider the underlying investments an d the risks attached to them. For a firm in a 
small economy, gains are probably higher at the intensive margin (doing more of what you know) 
than trying to "capture" other parts of the GVC such as research and development tasks, which can be both risky and expensive. 
7.13.  In small economies, smaller businesses usua lly have knowledge of local clients, tastes and 
needs but can find themselves in weaker positions when they try to integrate or upgrade in a value chain. In the research literature, this has been referred to as "high road’" to competitiveness, 
contrasting with the "low road", which is typical of firms which compete by squeezing wages and 
profit margins rather than by improving produc tivity, wages, and profits. The key difference 
between the high and the low road to competit iveness is often explained by the different 
capabilities of firms to "upgrade" or the capacity of a firm to innovate to increase the value-added 
of its products and processes (Humphrey & Schmitz, 2002).  
7.14.  Upgrading over time has been shown to be closely linked to innovation. Enterprises may 
achieve this by entering higher unit value market niches or new sectors, or by undertaking new 
productive functions. Humphrey and Schmitz identified four types of upgrading: (i) process 
upgrading or transforming inputs into outputs more efficiently by reorganizing the production system or introducing superior technology; (ii) product upgrading by moving into more 
sophisticated product lines in terms of increased unit values; (iii) functional upgrading by acquiring 
new, superior functions in the chain, such as desi gn or marketing or abandoning existing low-value 
added functions to focus on higher-value added ac tivities and; (iv) inter-sectoral upgrading by 
applying the competence acquired in a particular function to move into a new sector. For instance, 
in Chinese Taipei, the competence gained in prod ucing TVs was used to make monitors and then 
eventually computers (Guerrieri & Pietrobelli, 2004; Humphrey & Schmitz, 2002b).  
7.15.  It has also been shown that companies in small economies which are located near each 
other or in industrial clusters actually have a bett er chance of upgrading. This has also been found 
to be true for businesses in larger developing and developed countries because together, companies (especially SMEs) are able to overcome such obstacles as lack of trained workers, 
inadequate technology and availability of key data to remain informed of market developments. It 
also facilitates access to credit to expand a busi ness, upgrade equipment or to engage in export 
activities (Gereffi, G. et al. 2001). 
7.16.  Chinese Taipei; Singapore; and Hong Kong , China are good examples of how to achieve 
production expertise and marketing know-how. There are many SMEs in these economies which co-exist in designated business areas. The high quality products they produce are offered at competitive prices and enable them to enter established markets and to compete with products 
made by larger companies with more money, more employees and greater economies of scale. 
Already in the late 1990s, J. E. Stiglitz wrote that the success of these East Asian countries resulted from a mix of domestic policies they developed to create competitive markets, promote 
exports, education and technology and encourage more collaboration between government and 
industry and among firms.  
7.17.  An UNCTAD study conducted in 2013 pointed to similar policies which developing countries 
and small economies used effectively to engage in and upgrade along GVCs. It said developing 
countries could build productive capacities including through technology dissemination and skill building, thereby opening up opportunities for longer-term industrial upgrading. According to UNCTAD, however, reaping the potential benefits of  GVCs is not automatic. Therefore, industrial 
and government policies play a role as does a supporting development strategy. This is all the 
more important given the dynamic nature of GVCs and the fact that value chains can move quite easily to other international production networks (UNCTAD, 2013b). WT/COMTD/SE/W/31 
 
- 58 - 
 
  7.18.  The study also identified distinct GVC development paths which are based primarily on 
prevalent trade and investment patterns. To begin the GVC integration process, increased FDI should flow to those sectors of an economy with domestic productive capacity. This can help move these activities to intermediate goods and services which help not only to replace some imports 
but to stimulate exports. Greater levels of FDI into those sectors which are already integrated in 
GVCs can also result in some countries increasing their exports of higher value-added products and services or in capturing a greater share of  value chain segments and higher technology 
segments.  
7.19.  There is also the path of competition in GVCs where companies with stronger levels of 
domestic productive capacity compete successfully to export high value-added products. The study states that such companies tend to attract buyers interested in integrating domestic operators in 
international production networks.  
7.20.  Furthermore, there are companies which have shifted their production processes to 
industries requiring more inputs or which have co nverted their export capacity to one specializing 
in particular tasks that are part of GVCs. Finally, there is leap-frogging in GVCs. This is when there 
has been a rapid development of domestic producti ve capacity for exports competing successfully 
at high-value-added levels. Here, the study says FDI has stimulated both trade integration and 
domestic productive capacity.  
7.21.  Another policy issue arising from advances in ICT and the international fragmentation of 
production relates to the increasingly blurred borderline between goods and services (Lanz and Maurer, 2015). Firms today conduct both manufacturing and services activities as part of their 
business. They switch from being a producer of go ods to being a producer of services. The splitting 
up of manufacturing production processes creates tasks that can be considered a service.  
7.22.  Statistical frameworks try to adapt to these changes in production. For instance, in the IMF's 
Balance of Payments Manual (BPM6) the item "goods for processing" has been reclassified as 
"manufacturing services on physical inputs owned by others", which will lead to shifts in the goods-services split of an economy's trade (Maurer et al., 2015). This increasing blurriness raises 
challenges for trade policy as multilateral tr ade agreements, such as the GATT and the GATS, 
foresee distinct rules for goods and services tr ade. For example, Cernat and Kutlina-Dimitrova 
(2014) argue that domestic services embodied in traded goods increases the complexities of existing trade rules, such as in the area of customs valuation. There is little doubt that the subject 
of services components embodied in goods will  constitute a new area of future research. 
8  CONCLUSIONS 8.1.  This background note presents an overview  of both the challenges and opportunities small 
economies face when trying to integrate into GVCs.  While it is not an exhaustive study of this 
subject, the report does delve into some importan t areas associated with value chains. And it does 
provide some new material and analysis in light of the special circumstances small economies face 
in regard to value chain integration.  
8.2.  The report discusses how GVCs offer small economies opportunities to better integrate into 
international trade and to advance their economic development. By specializing in specific tasks or stages within the value chain, small economies can, to a certain extent, mitigate their lack of 
economies of scale and realize economic benefits. GVCs can further help small economies diversify 
their export structure away from primary co mmodities towards manufacturing and services. 
However, this is by no means an automatic process. 
8.3.  In order to benefit as much as possible from goods and services value chains, sustained 
efforts are required to mainstream GVC trade into the broader national economic development agenda. This requires coordinating diverse elements involving transport and customs clearance 
issues and managing the general business and invest ment environment. It also requires a focus on 
building adequate port and air links as well as transportation and IT infrastructure. Still other issues include governance, rule of law, access to finance, labour policies related to training and skills building, and general national education levels. WT/COMTD/SE/W/31 
 
- 59 - 
 
  8.4.  Of the 32 small economies in the Asian/Pacific, African, Caribbean and Central and South 
American regions examined in this report, several have distinct advantages and are actively pursuing value addition in specific GVCs such as  textiles, as well as in agrifood and seafood. The 
services sector provides other possibilities, especially services linked to call centres, tourism and 
business process offshoring. These are all areas where small economies have made significant 
inroads. 
8.5.  Small economies face two main constraints which affect their participation in GVCs. These 
constraints are their limited market size and their remoteness from major manufacturing hubs and 
consumer markets. Even though the fragmentation of production allows small economies to specialize in a few production stages, their small ma rket size makes it difficult to attain efficient 
scales of production in manufacturing activities. This results in high unit costs. It also makes it 
harder for small economies to attract foreign investment for starting or expanding manufacturing 
activities. The situation is exacerbated if a small economy finds itself in a remote location where transportation costs and time delays play havoc with the delivery times demanded by many of the 
lead companies at the top of the value chains.  
8.6.  Size- and geographically-related disadvanta ges are less important for certain services such 
as tourism, finance or IT and business process outsourcing. Small economies are also more open 
to trade and have more liberal air transport regimes than the average developing country. Their 
small size also allows them to adapt faster th an larger economies to rapidly changing market 
conditions. 
8.7.  Non-fuel intermediate goods constitute 34%  of small economies' exports compared to 46% 
at the global level. This indicates a relatively lower participation of small economies in GVCs. 
However, this lower share of intermediate goods in exports also reflects the fact that small economies tend to participate in goods GVCs that are characterized by higher shares of final 
products such as agrifood, seafood and textiles. 
8.8.  Agrifood products are among the main expo rt products of small economies with fruits and 
nuts, for instance, accounting for almost 5% of small economies' exports in 2013. Small 
economies are more integrated in the first stages of the agrifood chain and consequently more 
competitive in the exports of primary, as compar ed to processed products. For example, in 2013, 
small economies accounted for 12.6% of world exports of primary coffee and for only 0.4% of processed coffee. The gap in export competitiveness in primary versus processed agrifood exports 
points to untapped export potential and upgradin g challenges in agrifood value chains. Amongst 
others, such challenges relate to exogenou s demand and supply shocks, SPS standards, 
supplier-buyer linkages, the prevalence of small-scal e farming, labour skills and access to finance.  
8.9.  Seafood value chains, which can be based on either capture or aquaculture, often take the 
form of small-scale fishery in developing countries. They are of major importance to many small economies that have access to the sea or are islands. Aquaculture has been a main driver of fish 
production in developing countries and continues to attract significant levels of FDI. Small 
economies increasingly participate in processing stages of fish value chains. Their share in world trade of processed fish increased from 5.2% in  2003 to 6.5% in 2013. While small economies in 
Africa and Asia/Pacific are more dependent on fish exports, small economies in the Caribbean, and 
particularly in Central and South America, are successful exporters of both fish and crustaceans 
such as shrimps. Besides upgrading the technology related to harvesting and processing, a major challenge in seafood value chains is the need for sound fishery management to ensure the 
sustainability of fish stocks. 
8.10.  With regard to the textiles and the apparel value chain, it is buyer-driven and has served 
several developing countries, including small economies, as a starting point for export-led 
development. Small economies in Central America and also Sri Lanka in Asia have successfully 
integrated into textile and apparel value chains. Small economies in Central America are positioned in the assembly stages of apparel production as 67% of their imported textiles are intermediate 
inputs and 90% of their exports constitute final apparel products. Small economies in Central 
America serve almost exclusively the North American market, while small economies in Africa and 
Asia/Pacific export the majority of their products to Europe. WT/COMTD/SE/W/31 
 
- 60 - 
 
  8.11.  In 2013, tourism accounted, on average for almost 9% of GDP across 30 small economies, 
which is three times as much as for the world. Small islands are particularly dependent on tourism. For instance, in the Maldives, tourism constitu tes 48% of GDP and 93% of services exports. 
Tourism has many backward linkages to other sectors in the domestic economy and therefore 
plays an important role for employment creation and economic diversification in small economies. 
Tourist operators in small economies face challenges related to low labour skills, the general business environment, access to finance and travel infrastructure. Maximising the potential 
benefits from tourism requires sound policy planning, FDI, the establishments of backward 
linkages, and improvements in ICT and travel infrastructure. Tourism can also contribute to increased freight transport by air as air cargo is often shipped in the belly of passenger aircrafts. 
8.12.  IT and business process offshoring are other services which offer great potential to small 
economies as physical distance and economies of scale are of lesser relevance compared to 
manufacturing. So far, only a few small economies such as Sri Lanka, Mauritius and Jamaica have been relatively successful in developing IT an d offshore business services. Success factors and 
challenges are a low-cost and skilled workforce, both in terms of IT and language skills, as well as 
a high-quality ICT infrastructure and related services.  
8.13.  The report also examined the vital role FD I plays in value chains. FDI can lead to knowledge 
and technology transfer to domestic suppliers or other firms. FDI inflows can actually help small 
economies gain a foothold in a value chain. In small economies, firms with at least 10% foreign ownership participation tend to be more integrated into GVCs than domestically-owned firms. Firms with foreign ownership source a higher shar e of inputs from abroad and export a higher 
share of their output.  
8.14.  To a large extent investments go to small economies that have sizeable mineral deposits (oil 
and gas in Trinidad and Tobago for example), a large population (Papua New Guinea), or where 
incentives and fiscal advantages are on offer (Barbados).  
8.15.  Other than natural resources, FDI also appe ars to go to sectors such as tourism, financial 
services and offshore business services. The latter sector is an area of unexplored potential for 
small economies. The high value of call centres and other office administration services are 
important sources of employment, job creation and export earnings but are also areas which have 
not yet attracted large levels of investment. Othe r sectors attracting investment include transport-
related services for freighters and cruise ships, especially in countries located near major shipping 
channels (Nicaragua) or tourist zones (the Caribbean or Pacific islands). 
8.16.  With regard to the challenges facing SMEs in small economies, it is evident that SMEs in 
small economies are able to participate less in international trade and GVCs compared to larger 
firms. Particular challenges that SMEs face when trying to participate in GVCs include access to 
finance, workforce skills, market information and a small market that prevents them from growing. 
However, there are options, such as using forw ard agreements between a lead firm and small-
scale farmers (Box 2 provides an example for Jama ica) to help mitigate the problem of access to 
finance, and making more use of national trade support institutions to obtain key market information. Small economies can also gain in market size and in experience by joining other small economies through regional integration agreemen ts such as CARICOM or the Pacific Island 
Countries Trade Agreement (PICTA). This could make it easier as well for larger companies or lead 
firms to organize production networks inside a region.  
8.17.  Different strategies were explored which small businesses could deploy to defend 
themselves against larger firms. While a certain strategy works better for the textile and garment 
sector, another is more effective in the area of food processing. A related area of research was how some small businesses realize that they cannot compete with larger entities in the textile and 
food sectors and how they decide to shift thei r business and become distributors of the same 
products they used to compete with. 
8.18.  Logistics and trade facilitation is a key determinant for participation in GVCs. Because of 
their smallness and remoteness, small economies face higher transport costs and have a lower 
maritime shipping connectivity compared to other countries. Air transport is, therefore, of 
particular importance to small economies, also because it is the main arrival mode for many tourists. Examples of customs reform and improvements in road connectivity for Central America WT/COMTD/SE/W/31 
 
- 61 - 
 
  illustrate how trade facilitation initiatives can reduce trade costs, increase trade and generate 
employment.  
8.19.  Some trade policy experiences and further ex amples of upgrading in value chains were also 
examined. Possibilities for more efficient production practices, better technology and moving into 
higher value–added activities such as marketing and design were discussed. Clearly, there is 
strength through numbers and there are benefits of clustering. Small companies in industrial 
clusters have better chances of achieving upgrades in value chains than those which are isolated.  
8.20.  There are several challenges faced by sma ll economies that point to an important role for 
WTO-related initiatives and policies, such as Aid for Trade and trade facilitation. Improvements in transport and ICT infrastructure, the upgrading of laboratories and testing facilities, training to improve the skills of workers, export promotion initiatives or matchmaking between suppliers and 
buyers typically require both private and public investment. The many case stories cited in the 
report serve as examples of Aid for Trade at wo rk and how targeted assistance can indeed help 
governments take advantage of the opportunities which value chains offer. 
8.21.  Monetary and time-related transport costs are key determinants for integration into GVCs. 
The implementation of the WTO Trade Facilitation Agreement (TFA) and the related support through the WTO TFA Facility can help small economies lower these costs and thereby contribute 
to GVC integration. 
8.22.  Industrial and government policies and the role that they play in supporting development 
are also very important. Policies for integrating into, moving up and realizing additional gains from value chains are key factors given the dynamic nature of GVCs. But small economies, if supported 
with the right policies, can benefit from value chains in goods and services trade and realize 
positive economic gains, no matter how small their size or how far away they are from their nearest customer. 
9  REFERENCES 
Akhter, S. and P. Pounder (2008), "Economic glob alization and Caribbean economies: Competitive 
developments, strategic response, and performance outcomes", The Global Studies Journal 1(4): 
69-77. 
 Allen, M. (2015), "Switzerland Remains Offshore Wealth Magnet", Swiss info: 2 February. 
http://www.swissinfo.ch/eng/in-good-hands _switzerland-remains-offshore-wealth 
magnet/41249794   
 
Ayyagari, M., A. Demirgüç-Kunt and V. Maksim ovic (2011), "Small vs. Young Firms Across The 
World – Contribution to Employ ment, Job Creation, and Growth" , Washington, DC: World Bank, 
World Development Bank Policy Research Working Paper 5631.  
Baldwin, R. (2011), "21st century regionalism: Filling the gap between 21st century trade and 
20th century trade rules", Centre for Economic  Policy Research, CEPR Policy Insight 56. 
 Baldwin, R.E. (2012), "Global Supply Chains: Wh y They Emerged, Why they Matter, and Where 
They are Going", London: Centre for Economic Policy research (CEPR), CEPR Discussion Paper 
No. 9103.  
Bamber, P., K. Fernandez-Stark, G. Gereffi and A. Guinn (2014), "Connecting Local Producers in 
Developing Countries to Regional and Global Value Chains – Update", Paris: OECD, Trade Policy Paper No.160. 
 
Bamber, P. and K. Fernandez-Stark (2014), "Inclusive value chain interventions in the high-value agrifood sector in Latin America", in Hernández, R. J. M. Martínez Piva and N. Mulder. (eds), Global 
value chains and world trade: Prospects and challenges for Latin America , Economic Commission 
for Latin America and the Caribbean, pp.137-162. 
 Bank for International Settlements (BIS) (2014), "Trade finance: developments and issues", 
Committee on the Global Financial System (CGFS) Papers No 50. 
 WT/COMTD/SE/W/31 
 
- 62 - 
 
  Beck, T. and A. Demiurgic-Kunt (2003), "Small and medium-size enterprises: Access to finance as 
a growth constraint", Journal of Banking and Finance 30(11): 2931-2943. 
 Beck, T., A. Demirgüç-Kunt and R. Levine (2005), "SMEs, Growth, and Poverty: Cross-Country 
Evidence", Journal of Economic Growth 10(3): 199-229. 
 Beverelli C., S. Neumüller and R. The (2015), "Export Diversification Effects of the WTO Trade 
Faciliation Agreement", FIW Working Paper 137. 
 Bjorndal, T., A. Child and A. Lem (2014), "Value  chain dynamics and the small-scale sector: policy 
recommendations for small-scale fisheries and aquaculture trade", Rome: Food and Agriculture 
Organization of the United Nations (FAO), Fisheries and Aquaculture Technical Paper 581.  
 Board of Investment of Sri Lanka (BOI of Sr i Lanka) (2015), "Key Sectors for Investment – 
Knowledge Services", BOI of Sri Lanka,  
http://www.investsrilanka.com/key_sector/kno wledge_services/knowledge_services_intro .  
 
Cattaneo, O. (2013), "Aid for Trade and Value Chains in Agrifood", OECD/WTO. 
 Cedefop (2012), "Skill Mi smatch: The Role of the Enterprise ", Cedefop Research Paper No. 21, 
Luxembourg: Publications Offi ce of the European Union. 
 
Cernat, L. and Z. Kutlina-Dimitrova (2014), "Think ing in a box: A ‘Mode 5’ Approach to Service 
Trade", Journal of World Trade , 48(6): 1109-1126. 
 
Dawar, N. and T. Frost (1999), "Competing with giants: survival strategies for local companies in emerging markets", Harvard Business Review 77(2): 119-129. 
 
Dedrick, Jason and Kenneth L. Kraemer (1998), Asia’s Computer Challenge: Threat or Opportunity 
for the United States and the World? , New York: Oxford University Press. 
 
Djankov, S., C. Freund and C.S. Pham (2010). “Trading on Time”, Review of Economics and 
Statistics , 92(1), 166-173  
 
Dunning, J. H. (1977), “Trade, Location of Economic  Activity and the MNE: A Search for an Eclectic 
Approach”, In Ohlin, B., P. Hesselborn and P. Wijkman, (eds). The International Allocation of 
Economic Activity . London: Macmillan, pp.13-40. 
 
Dunning, J. H. (2000), "The eclectic paradigm as an envelope for economic and business theories of MNE activity", International Business Review 9: 163-190. 
 
Escaith, Hubert (2013), International Supply Chains, Trade in Value-Added and Development: A 
Small Economy's Perspective, IDE-JETRO Conference "Global Value Chains: Quo Vadis?" http://www.ide.go.jp/Japanese/Event/Sympo /pdf/2013WTO_Report 1_Escaith_paper.pdf  
 
Evans, C.L. and J. Harrigan (2005). "Distance, Time, and Specialization: Lean Retailing in General Equilibrium", American Economic Review , 95(1): 292-313. 
 
Fernandez-Stark, K., S. Frederick and G. Gereffi (2011), The Apparel Global Value Chain: Economic Upgrading and Workforce Development. Duke University: Centre on Globalization, Governance and Competitiveness. 
 
Fernandez-Stark, K. and P. Bamper (2012), Assessment of Five High-Value Agricultural Inclusive 
Business Projects Sponsored by the Inter-American Development Bank in Latin America, Duke 
University: Centre on Globalization, Governance and Competitiveness,. 
 Frederick, S., J. Bair and G. Gereffi (2014), Nicaragua and the Apparel Value Chain in the 
Americas: Implications for Regional Trade and Employment , Duke University: Centre on 
Globalization, Governance and Competitiveness (CGGC).  Fukunishi, T., K. Goto and T. Yamagata (2013), "Aid for Trade and Value Chains in Textiles and 
Apparel", OECD/WTO/IDE-JETRO. WT/COMTD/SE/W/31 
 
- 63 - 
 
   
Gaulier, G. and S. Zignago (2010), "BACI: Intern ational Trade Database at the Product-level The 
1994-2007 Version", CEPII Working Paper 2010-23.  
Gereffi, G. (1994), "The Organization of Buyer-Driven Global Commodity Chains: How US Retailers 
Shape Overseas Production Networks", in Gereffi, G. and M. Korzeniewicz. (eds), Commodity 
Chains and Global Capitalism,  Westport, CT: Praeger, pp.95-122.  
 
Gereffi, G. (1999), "International trade and indust rial upgrading in the apparel commodity chain", 
Journal of International Economics , 48(1): 37-70. 
 
Gereffi, G., J. Humphrey, R. Kaplinsky and T.J. Sturgeon (2001), "Globalisation, Value Chains and 
Development", Institute for Development Studies, 32(3): 1-8. 
 
Gereffi, G., Humphrey J. and Sturgeon, T. (2005) , "The governance of global value chains", 
Review of International Political Economy 12(1):78-104. 
 
Gereffi, G. and S. Frederick (2010), "The Global Apparel Value Chain, Trade and the Crisis: 
Challenges and Opportunities for Developing Countries ", in Cattaneo, O., G. Gereffi and C. Staritz. 
(eds.). Global Value Chains in a Postcrisis World: A Development Perspective , Washington: World 
Bank Publications, pp.157-208. 
 
Gereffi, G., P. Bamber and K. Fernandez-Stark (2011a), "The Offshore Services Global Value Chain", International Journal of Technological Learning, Innovation and Development  4(1,2,3): 
206-234. 
 Gereffi, G., K. Fernandez-Stark and P. Psilos (2011b), Skills for upgrading: Workforce development 
and global value chains in developing countries , Duke University: Centre on Globalization, 
Governance & Competitiveness (CGGC).  Gordon, D. V. and S. Hussain (2012), "Big Fish in a Small Market: The Impact of Export Price on 
Ex.cessel Price of Tuna in the Maldives", University of Calgary/FAO. 
 Gudmundsson, E., F. Asche and M. Nielsen (2006),  "Revenue Distribution through the Seafood 
Value Chain", Rome: Food and Agriculture Organization for the United Nations (FAO), Fisheries 
Circular No.1019.  
Honeck, D. (2012 )," LDC Export Diversification, Employment Generation and the "Green 
Economy":  What roles for tourism linkages?", Geneva: WTO, Working Paper ERSD-2012-24. 
 Hummels, D. and G. Schaur (2010), "Hedging price volatility using fast transport", Journal of 
International Economics 82(1): 15-25. 
 Hummels, D. and G. Schaur (2013), "Time as a Trade Barrier", American Economic Review 
103(7): 2935-2959. 
 Humphrey, J. and H. Schmitz (2002), How does Insertion in GVCs Affect Upgrading in Industrial 
Clusters , Sussex: Institute of Development Studies. 
 International Finance Corporation (IFC) (2010), Scaling-Up SME Access to Financial Services in the 
Developing World,  Washington: IFC.  
 
International Finance Corporation (IFC) (2011), International Finance Institutions and 
Development through the Private Sector,  Washington: IFC. 
 
International Finance Corporation (IFC) (2013), Closing the Credit Gap for Formal and Information 
Micro, Small and Medium Enterprises, Washington: IFC. 
 
Jansen, M. (2013), Aid for Trade and Value Chains in Tourism , OECD/UNWTO/WTO. 
 Kaplinsky, R. (2005), Globalization, Poverty and Inequality: between a rock and hard place , Wiley. 
 WT/COMTD/SE/W/31 
 
- 64 - 
 
  Kolstad, I. and E. Villanger. (2004), "Promoting  Investment in Small Caribbean States", Bergen: 
Chr. Michelsen Institute, CMI Working Paper WP 2004(9).  
 Kowalski P., J. L. Gonzalez, A. Ragoussis and C. Ugarte (2015), "Developing Countries' 
Participation in Global Value Chains – Implications for Trade-Related Policies", OECD Trade Policy 
Papers, forthcoming.  
Lanz, R. (2013), Aid for Trade and Value Chains in Information and Communication Technology , 
OECD/WTO.  Lanz, R. and A. Maurer. (2015), Services and Global Value Chains — Some evidence on 
Servicification of Manufacturing and Services Networks ", World Trade Organization (WTO) Working 
Paper ERSD-2015-04, Geneva: WTO.  
Lanz, R. and R. Piermartini (2015), Comparative advantage in supply chains, forthcoming. 
 Lejárraga, I. and P. Walkenhorst (2010), "On linkages and leakages: measuring the secondary 
effects of tourism", Applied Economics Letters  17(5): 417-421. 
 Maurer, A., J. Magdeleine and R. Lanz (2015), "Measuring Trade in Services in a World of Global Value Chains", in P. Sauvé and M. Roy (eds.),  Research Handbook on Trade in Services , 
Edward Elgar Publishing, forthcoming. 
 Mc Gregor, A. and K. Stice (2014), "Agricultura l Value Chain Guide for the Pacific Islands," 
Technical Centre for Agriculture and Rural Cooperation (CTA) and Koko Siga Pacific (KSP). 
 Nordas, H. K. and R. Piermartini (2004), "Infrast ructure and Trade", Geneva: WTO, Working Paper 
ERSD-2004-04. 
 Organization for Economic Cooperation and Development (OECD) (2010), "Globalization in Fisheries and Aquaculture: Opportunities and Challenges", Paris: OECD. 
 
Organization for Economic Cooperation an d Development (OECD) and the World Trade 
Organization (WTO) (2013), Aid for Trade at a Glance 2013: Connecting to Value Chains . Paris: 
OECD. http://www.oecd-ilibrary.org/sites/factbook-2010-
en/03/02/01/index.html?itemId=/content/chapter/factbook-2010-28-
en&_csp_=187ba492e2fc163a1352c03eca2653dc .  
 
Outsource (2013), "Sri Lanka as an Offshore Destination: Realising the Potential", Outsource, 21 
March, http://outsourcemagazine.co.uk/sri-lanka-as-an-offshore-destination-realising-the-
potential/.  
 
Read, R. (2007), "Foreign Direct Investment in Small Island Developing States, World Institute for Development Economics", Wider Research Paper 2007(28), Japan: UN University.  
 
Slasscom (2015), "Sri Lanka Advantage", Slasscom,
 http://www.slasscom.lk/sri-lanka-advantage .  
 
Stein P., T. Goland and R. Schiff (2010), Two Trillion and Counting: Assessing the Credit Gap for 
Micro, Small, and Medium-Sized Ente rprises in the Developing World, Washington: International 
Finance Corporation.  
 
Stiglitz, J. E. (1996), "Some lessons from the East Asian Miracle," The World Bank Research 
Observer 11(2): 151-177. 
 
Tewari. P. S., D. Skilling, P. Kumar and Z. Wu (2013), "Competitive Small and Medium 
Enterprises: a diagnostic to help design smart SME policy", Washington: World Bank Group, World 
Bank Group Report 82516. 
 
United Nations Conference on Trad e and Development (UNCTAD) (2012), Information Economy 
Report 2012: The Software Industry and Developing Countries, Geneva: UNCTAD. 
 WT/COMTD/SE/W/31 
 
- 65 - 
 
  United Nations Conference on Trad e and Development (UNCTAD) (2013a), World Investment 
Report 2013 – Global Value Chains: Investment and Trade for Development, Geneva: UNCTAD.   
 United Nations Conference on Trade and Development (UNCTAD) (2013b), The Development 
Impact of GVCs, Investment and Value-added trade in the Global Economy 2013 , Geneva: 
UNCTAD.  
United Nations Conference on Trade and Development (UNCTAD) (2014a), UNCTAD: 
TD/B/C.I/MEM.7/8, Small Island Developing States: Challenges in transport and trade logistics, 
Geneva: UNCTAD.    
United Nations Conference on Trade and Development (UNCTAD) (2014b), Review of Maritime 
Transport 2014 , Geneva: UNCTAD.   
 
United Nations Conference on Trade and Deve lopment (UNCTAD) (2014c), "Global Investment 
Trend Monitor", Geneva: UNCTAD, No.17.  
United Nations Conference on Trad e and Development (UNCTAD) (2014d), World Investment 
Report 2014 – Investing in the SDGs: An Action Plan,  Geneva: UNCTAD. 
 United Nations World Tourism Organization (UNWTO) (2013), Sustainable Tourism for 
Development Guidebook , Madrid: UNWTO. 
 Westlake, M.J. (2014), "Opportunities for Sustainable, Green and Inclusive Agricultural Value 
Chains in ACP Countries", CTA/FAO. 
 Westlake, M.J. (2014), "Developing Sustainable, Green and Inclusive Agricultural Value Chains in 
the Caribbean and the Pacific Islands", CTA/FAO. 
 World Trade Organization (WTO) (2009), Tourism Services, Background Note by the Secretariat, S/C/W/298, and Addendum S/C/W/298/Add.1. 
 
World Trade Organization (WTO) (2012), World Trade Report: Trade and Public Policies: A closer 
look at non-tariff measures in the 21
st century, Geneva: WTO. 
 
World Trade Organization (WTO) (2013), World Trade Report: Factors shaping the future of world 
trade, Geneva: WTO. 
 
World Trade Organization (WTO) (2014), World Trade Report: Trade and Development: Recent 
Trends and the Role of the WTO, Geneva: WTO. 
 
 WT/COMTD/SE/W/31 
 
- 66 - 
 
  ANNEX  
TABLES 
Annex Table 1. Cocoa exports of sm all economies by processing stage 
  Total (primary+processed)  Primary Processed 
  US$ 
(mill.) Share  
in 
grouping 
exports 
(%) Share 
in WLD 
product 
exports 
(%) RCA Growth 
p.a. 
(03-
13; %) US$ 
(mill.) Primary 
share 
(%) RCA US$ 
(mill.) Processed 
share 
(%) RCA 
ATG 0.0 0.0 0.0 0.0 -3.5 0.0 0.0 0.0 0.0 100.0 0.0 
BLZ 0.3 0.0 0.0 0.2 30.1 0.3 99.6 0.7 0.0 0.4 0.0 
BRB 0.2 0.0 0.0 0.2 5.2 0.0 0.0 0.0 0.2 100.0 0.2 
BRN 0.5 0.0 0.0 0.0 68.6 0.0 0.0 0.0 0.5 100.0 0.0 
CUB 2.3 0.1 0.0 0.4 0.8 0.4 19.3 0.3 1.8 80.7 0.4 
DMA 0.1 0.2 0.0 0.9 -13.0 0.0 5.2 0.2 0.1 94.8 1.2 
DOM 197.1 2.7 0.4 10.4 8.6 186.0 94.4 41.0 11.1 5.6 0.8 
ECU 577.3 2.2 1.2 8.3 11.8 475.6 82.4 28.7 101.7 17.6 1.9 
FJI 0.2 0.0 0.0 0.1 7.3 0.0 19.6 0.1 0.2 80.4 0.1 
GRD 2.1 5.0 0.0 19.1 -2.7 1.6 79.9 63.6 0.4 20.1 5.0 
GTM 9.7 0.1 0.0 0.3 8.8 0.0 0.4 0.0 9.6 99.6 0.4 
GUY 0.3 0.0 0.0 0.1 0.0 0.3 99.6 0.2 0.0 0.4 0.0 
HND 10.9 0.1 0.0 0.5 12.4 0.5 4.9 0.1 10.3 95.1 0.6 
JAM 4.1 0.2 0.0 0.9 7.9 1.9 46.6 1.7 2.2 53.4 0.6 
LCA 0.1 0.2 0.0 0.7 15.9 0.1 100.0 2.8 0.0 0.0 0.0 
LKA 6.8 0.1 0.0 0.3 18.8 0.1 1.4 0.0 6.7 98.6 0.3 
MDV 0.0 0.0 0.0 0.0 -17.8 0.0 0.0 0.0 0.0 100.0 0.0 
MUS 0.2 0.0 0.0 0.0 12.1 0.0 0.0 0.0 0.2 100.0 0.0 
NIC 8.2 0.1 0.0 0.5 36.7 8.1 99.3 2.0 0.1 0.7 0.0 
PAN 6.2 0.1 0.0 0.3 12.2 2.2 35.6 0.5 4.0 64.4 0.3 
PNG 123.9 1.9 0.3 7.3 6.4 123.9 100.0 30.6 0.0 0.0 0.0 
PRY 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 100.0 0.0 
SLV 7.4 0.1 0.0 0.5 6.1 0.0 0.6 0.0 7.4 99.4 0.7 
SUR 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 100.0 0.0 
SYC 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 100.0 0.0 
TON 0.0 0.0 0.0 0.2 -31.0 0.0 100.0 0.6 0.0 0.0 0.0 
TTO 9.6 0.1 0.0 0.2 9.7 2.5 25.5 0.2 7.2 74.5 0.2 
VUT 4.8 1.4 0.0 5.3 4.2 4.7 99.6 22.0 0.0 0.4 0.0 
WSM 0.0 0.0 0.0 0.1 -1.8 0.0 0.0 0.0 0.0 100.0 0.1 
Source: CEPII BACI database. 
Note: The BEC classification is used to distinguish between primary (BEC 111, 112, 21) and processed 
(BEC 121, 122, 22) cocoa (HS chapter 18). 
 
  
 WT/COMTD/SE/W/31 
 
- 67 - 
 
  Annex Table 2. Coffee exports of sm all economies by processing stage 
  Total (primary+processed)  Primary Processed 
  US$ 
(mill.) Share in 
grouping 
exports 
(%) Share 
in WLD 
product 
exports 
(%) RCA Growth 
p.a. 
(03-
13; %) US$ 
(mill.) Primary 
share 
(%) RCA US$ 
(mill.) Processed 
share 
(%) RCA 
BLZ 0.1 0.0 0.0 0.1 21.8 0.1 50.5 0.1 0.1 49.5 0.2 
BRB 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 100.0 0.0 
BRN 0.2 0.0 0.0 0.0 19.5 0.1 67.4 0.0 0.1 32.6 0.0 
CPV 0.2 0.1 0.0 0.8 17.8 0.2 95.5 1.2 0.0 4.5 0.1 
CUB 5.2 0.2 0.0 1.3 -4.5 4.0 76.3 1.5 1.2 23.7 1.1 
DMA 0.1 0.1 0.0 0.7 -18.0 0.1 100.0 1.0 0.0 0.0 0.0 
DOM 19.7 0.3 0.1 1.7 1.9 9.6 48.9 1.2 10.1 51.1 2.9 
ECU 31.7 0.1 0.1 0.8 8.5 30.1 95.2 1.0 1.5 4.8 0.1 
FJI 0.1 0.0 0.0 0.0 -7.9 0.0 0.0 0.0 0.1 100.0 0.1 
GTM 804.2 7.2 2.8 45.3 8.7 801.4 99.7 64.6 2.8 0.3 0.5 
HND 865.1 10.8 3.1 67.8 15.5 858.0 99.2 96.3 7.0 0.8 1.8 
JAM 22.0 1.3 0.1 7.9 -4.6 19.7 89.7 10.1 2.3 10.3 2.7 
LCA 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 100.0 0.1 
LKA 0.5 0.0 0.0 0.0 -3.9 0.4 72.9 0.0 0.1 27.1 0.0 
MUS 0.1 0.0 0.0 0.0 23.2 0.0 11.2 0.0 0.1 88.8 0.1 
NIC 369.9 5.8 1.3 36.1 15.1 366.6 99.1 51.3 3.3 0.9 1.1 
PAN 19.6 0.3 0.1 1.8 2.1 15.5 78.7 2.0 4.2 21.3 1.3 
PNG 147.0 2.3 0.5 14.3 3.4 146.7 99.8 20.4 0.2 0.2 0.1 
PRY 0.1 0.0 0.0 0.0 -2.0 0.1 85.2 0.0 0.0 14.8 0.0 
SLV 237.2 4.2 0.8 26.3 8.2 236.7 99.8 37.5 0.5 0.2 0.2 
SUR 0.0 0.0 0.0 0.0 -9.9 0.0 0.0 0.0 0.0 100.0 0.0 
TON 0.7 5.2 0.0 32.4 0.0 0.1 10.0 4.6 0.6 90.0 96.7 
TTO 0.1 0.0 0.0 0.0 1.8 0.0 19.2 0.0 0.1 80.8 0.0 
VUT 0.1 0.0 0.0 0.2 53.5 0.1 66.7 0.2 0.0 33.3 0.2 
WSM 0.0 0.0 0.0 0.1 0.0 0.0 0.0 0.0 0.0 100.0 0.3 
Source: CEPII BACI database. 
Note: The BEC classification is used to distinguish between primary (BEC 111, 112, 21) and processed 
(BEC 121, 122, 22) coffee (HS chapter 09). See footnote 11 for a definition of RCA. 
 
 
 
 
  
 
  
 WT/COMTD/SE/W/31 
 
- 68 - 
 
  Annex Table 3. Fruits and nuts exports of  small economies by processing stage 
 Total (primary+processed)  Primary Processed 
 US$ 
(mill.) Share in 
grouping 
exports 
(%) Share 
in WLD 
product 
exports 
(%) RCA Growth 
p.a. 
(03-
13; %) US$ 
(mill.) Primary 
share 
(%) RCA US$ 
(mill.) Processed 
share 
(%) RCA 
ATG 0.4 0.2 0.0 0.2 -5.4 0.2 48.2 0.1 0.2 51.8 0.5 
BLZ 132.4 23.0 0.1 30.4 6.9 72.2 54.5 22.1 60.2 45.5 55.3 
BRB 3.8 0.8 0.0 1.0 63.3 0.4 10.2 0.1 3.4 89.8 3.6 
BRN 4.5 0.0 0.0 0.1 76.1 0.1 3.1 0.0 4.4 96.9 0.2 
CPV 0.0 0.0 0.0 0.0 -2.3 0.0 95.1 0.0 0.0 4.9 0.0 
CUB 25.7 1.1 0.0 1.4 -9.6 0.6 2.2 0.0 25.1 97.8 5.5 
DMA 2.9 4.9 0.0 6.4 -8.7 2.8 94.5 8.1 0.2 5.5 1.4 
DOM 506.0 7.0 0.4 9.2 12.8 484.9 95.8 11.8 21.1 4.2 1.5 
ECU 3,305.5 12.5 2.5 16.5 8.0 3,065.1 92.7 20.4 240.4 7.3 4.8 
FJI 9.6 0.9 0.0 1.2 5.3 1.1 11.2 0.2 8.5 88.8 4.2 
GRD 0.5 1.2 0.0 1.5 4.0 0.5 98.0 2.0 0.0 2.0 0.1 
GTM 1,238.0 11.1 0.9 14.7 13.4 1,141.0 92.2 18.0 97.0 7.8 4.6 
GUY 5.7 0.3 0.0 0.4 5.8 3.3 58.2 0.3 2.4 41.8 0.7 
HND 499.6 6.2 0.4 8.3 5.3 470.7 94.2 10.4 28.9 5.8 1.9 
JAM 30.9 1.8 0.0 2.3 -1.6 14.6 47.4 1.5 16.2 52.6 4.9 
KNA 0.0 0.0 0.0 0.0 -17.4 0.0 100.0 0.0 0.0 0.0 0.0 
LCA 11.8 30.2 0.0 39.9 -6.0 10.6 90.3 48.1 1.1 9.7 15.5 
LKA 151.4 1.5 0.1 1.9 10.0 119.4 78.9 2.0 32.0 21.1 1.6 
MDV 0.0 0.0 0.0 0.0 -24.4 0.0 100.0 0.0 0.0 0.0 0.0 
MUS 10.2 0.4 0.0 0.5 15.3 9.1 89.8 0.6 1.0 10.2 0.2 
NIC 47.5 0.7 0.0 1.0 9.2 42.0 88.6 1.2 5.4 11.4 0.4 
PAN 322.4 4.7 0.2 6.2 -1.4 316.5 98.2 8.1 5.9 1.8 0.5 
PNG 0.0 0.0 0.0 0.0 -16.7 0.0 100.0 0.0 0.0 0.0 0.0 
PRY 19.6 0.3 0.0 0.3 16.9 8.1 41.4 0.2 11.5 58.6 0.8 
SLV 89.8 1.6 0.1 2.1 18.5 5.1 5.7 0.2 84.7 94.3 7.9 
SUR 69.1 6.7 0.1 8.8 62.9 68.8 99.5 11.7 0.4 0.5 0.2 
SYC 0.8 0.1 0.0 0.2 22.6 0.8 99.2 0.2 0.0 0.8 0.0 
TON 1.2 9.3 0.0 12.2 7.2 1.1 95.5 15.6 0.1 4.5 2.2 
TTO 14.2 0.1 0.0 0.1 33.5 0.3 2.1 0.0 13.9 97.9 0.4 
VCT 1.4 2.9 0.0 3.9 -20.5 1.4 100.0 5.1 0.0 0.0 0.0 
VUT 0.3 0.1 0.0 0.1 32.3 0.2 68.0 0.1 0.1 32.0 0.1 
WSM 2.8 4.5 0.0 5.9 8.5 0.7 26.6 2.1 2.1 73.4 17.5 
Source: CEPII BACI database. 
Note: The BEC classification is used to distinguish between primary (BEC 111, 112, 21) and processed 
(BEC 121, 122, 22) fruits and nuts (HS chapter 08 and HS headings 2006, 2007, 2008 and 2009). See footnote 11 for a definition of RCA. 
 
 
 
 
  WT/COMTD/SE/W/31 
 
- 69 - 
 
  Annex Table 4. Crustacean and mollusc export s of small economies by processing stage 
 Total (primary+processed)  Primary Processed 
 US$ 
(mill.) Share in 
grouping 
exports 
(%) Share 
in WLD 
product 
exports 
(%) RCA Growth 
p.a. 
(03-
13; %) US$ 
(mill.) Primary 
share 
(%) RCA US$ 
(mill.) Processed 
share 
(%) RCA 
ATG 0.3 0.1 0.0 0.6 -8.0 0.3 100.0 0.8 0.0 0.0 0.0 
BLZ 54.1 9.4 0.1 38.7 0.2 54.1 100.0 50.1 0.0 0.0 0.0 
BRB 0.0 0.0 0.0 0.0 7.1 0.0 0.0 0.0 0.0 100.0 0.0 
BRN 3.1 0.0 0.0 0.1 17.4 3.0 96.1 0.1 0.1 3.9 0.0 
CPV 1.3 1.0 0.0 4.0 16.2 1.3 100.0 5.2 0.0 0.0 0.0 
CUB 48.8 2.0 0.1 8.2 -3.9 48.4 99.2 10.6 0.4 0.8 0.3 
DOM 5.6 0.1 0.0 0.3 7.4 5.6 100.0 0.4 0.0 0.0 0.0 
ECU 1,826.1 6.9 4.2 28.5 19.1 1,795.1 98.3 36.2 31.0 1.7 2.1 
FJI 6.5 0.6 0.0 2.5 2.4 6.0 92.6 3.0 0.5 7.4 0.8 
GRD 0.1 0.2 0.0 0.9 -13.2 0.0 49.7 0.6 0.0 50.3 2.1 
GTM 80.9 0.7 0.2 3.0 14.5 75.1 92.9 3.6 5.8 7.1 0.9 
GUY 63.0 3.6 0.1 14.7 4.5 62.8 99.8 18.9 0.1 0.2 0.1 
HND 268.7 3.4 0.6 13.8 6.1 237.3 88.3 15.8 31.4 11.7 7.1 
JAM 18.5 1.1 0.0 4.3 9.1 18.4 99.6 5.6 0.1 0.4 0.1 
KNA 0.1 0.1 0.0 0.4 31.3 0.1 100.0 0.5 0.0 0.0 0.0 
LKA 68.7 0.7 0.2 2.7 1.2 64.6 94.1 3.3 4.0 5.9 0.7 
MDV 1.0 0.5 0.0 2.0 -11.6 1.0 99.3 2.6 0.0 0.7 0.1 
MUS 2.1 0.1 0.0 0.3 0.3 2.0 96.9 0.4 0.1 3.1 0.0 
NIC 243.2 3.8 0.6 15.6 12.6 240.3 98.8 19.9 2.9 1.2 0.8 
PAN 87.2 1.3 0.2 5.2 2.3 87.1 99.9 6.7 0.1 0.1 0.0 
PNG 8.3 0.1 0.0 0.5 -7.6 8.3 99.6 0.7 0.0 0.4 0.0 
SLV 1.1 0.0 0.0 0.1 -24.8 1.0 88.0 0.1 0.1 12.0 0.0 
SUR 25.8 2.5 0.1 10.3 -4.0 25.7 99.7 13.2 0.1 0.3 0.2 
SYC 2.2 0.4 0.0 1.5 -16.3 2.1 98.2 1.9 0.0 1.8 0.1 
TON 0.6 4.9 0.0 20.4 22.1 0.6 100.0 26.4 0.0 0.0 0.0 
TTO 0.0 0.0 0.0 0.0 -8.3 0.0 100.0 0.0 0.0 0.0 0.0 
VCT 0.4 0.8 0.0 3.3 0.0 0.4 96.0 4.1 0.0 4.0 0.6 
VUT 2.0 0.6 0.0 2.3 34.6 2.0 100.0 3.0 0.0 0.0 0.0 
WSM 0.1 0.1 0.0 0.4 0.0 0.1 97.9 0.5 0.0 2.1 0.0 
Source: CEPII BACI database. 
Note: The BEC classification is used to distinguish between primary (BEC 112) and processed (BEC 121 
and 122) crustacean and mollusc products (HS chapte rs 03 and 16). Ornamental fish, corals and fish 
fats and oils are not included as they are not cate gorized as food. See footnote 11 for a definition of 
RCA. 
 
 
 WT/COMTD/SE/W/31 
 
- 70 - 
 
  Annex Table 5. Fish exports of sm all economies by processing stage 
 Total (primary+processed) Primary Processed 
 US$ 
(mill.) Share in 
grouping 
exports 
(%) Share in 
WLD 
product 
exports 
(%) RCA Growth 
p.a. (03-
13; %) US$ 
(mill.) Pri-
mary 
share 
(%) RCA US$ 
(mill.) Pro-
cessed 
share 
(%) RCA
ATG 0.9 0.4 0.0 0.9 3.4 0.0 0.3 0.0 0.9 99.7 1.1
BLZ 48.7 8.5 0.1 17.6 21.6 0.1 0.3 0.2 48.5 99.7 22.8
BRB 2.4 0.5 0.0 1.0 7.6 1.1 47.2 2.0 1.3 52.8 0.7
BRN 2.5 0.0 0.0 0.0 45.1 0.6 25.7 0.1 1.9 74.3 0.0
CPV 62.4 45.6 0.1 94.9 87.9 0.2 0.3 1.1 62.3 99.7 123.2
CUB 0.2 0.0 0.0 0.0 -24.9 0.2 100.0 0.1 0.0 0.0 0.0
DMA 0.0 0.0 0.0 0.0 -45.0 0.0 0.0 0.0 0.0 100.0 0.0
DOM 6.4 0.1 0.0 0.2 32.7 4.6 72.2 0.6 1.8 27.8 0.1
ECU 1,720.6 6.5 2.0 13.6 12.4 74.7 4.3 2.5 1,645.9 95.7 16.9
FJI 205.2 19.2 0.2 40.1 7.2 28.1 13.7 23.7 177.1 86.3 45.0
GRD 7.3 17.7 0.0 36.9 2.3 7.3 99.6 158.6 0.0 0.4 0.2
GTM 94.5 0.8 0.1 1.8 19.7 6.5 6.9 0.5 87.9 93.1 2.1
GUY 50.2 2.8 0.1 5.9 19.0 19.3 38.5 9.8 30.9 61.5 4.7
HND 83.8 1.0 0.1 2.2 11.9 6.4 7.6 0.7 77.4 92.4 2.6
JAM 1.7 0.1 0.0 0.2 1.5 0.0 2.3 0.0 1.7 97.7 0.3
KNA 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 100.0 0.0
LKA 230.9 2.2 0.3 4.6 10.9 65.4 28.3 5.7 165.5 71.7 4.3
MDV 187.9 91.3 0.2 190.1 9.0 48.8 26.0 213.0 139.1 74.0 183.2
MUS 520.0 18.3 0.6 38.2 16.4 5.4 1.0 1.7 514.6 99.0 49.2
NIC 37.5 0.6 0.0 1.2 11.4 19.8 52.8 2.8 17.7 47.2 0.7
PAN 176.2 2.5 0.2 5.3 -4.8 87.6 49.7 11.4 88.6 50.3 3.5
PNG 276.8 4.3 0.3 8.9 7.9 5.9 2.1 0.8 270.9 97.9 11.4
PRY 0.0 0.0 0.0 0.0 -29.5 0.0 0.0 0.0 0.0 100.0 0.0
SLV 136.1 2.4 0.2 5.0 17.7 6.3 4.6 1.0 129.8 95.4 6.2
SUR 68.2 6.6 0.1 13.7 16.8 18.5 27.2 16.1 49.6 72.8 13.0
SYC 493.4 82.6 0.6 172.0 4.5 1.7 0.3 2.5 491.7 99.7 223.1
Source: CEPII BACI database. 
Note: The BEC classification is used to distinguish between primary (BEC 112) and processed (BEC 121 
and 122) fish (HS chapters 03 and 16). Ornamental  fish, corals and fish fats and oils are not 
included as they are not categorized as food . See footnote 11 for a definition of RCA. 
 
 
  
 
  
  WT/COMTD/SE/W/31
 
- 71 - Annex Table 6. Services exports of small ec onomies in selected services products, 2011 
  Total Travel Computer and information Other business 
 US$ mill. Growth 
p.a. 
(%) US$ mill. % of 
TotalRCA Growth 
p.a. 
(%) US$ 
mill. % of 
TotalRCA Growth 
p.a. 
(%) US$ 
mill. % of 
TotalRCA Growth 
p.a. 
(%) 
  2011 05-11 2011 05-11 2011 05-11 2011 05-11 
Central & South America 14,795.8 9.8 6,213.6 42.0 1.7 10.3 51.4 0.4 0.1 11. 8 487.1 3.3 0.1 -5.2 
Panama 7,175.3 14.4 1,925.6 26.8 1.1 16.3 25.1 0.3 0.1 13.6 158.9 2.2 0.1 -7.6 
Guatemala 2,151.6 9.9 1,350.2 62.8 2.5 9.3 6.6 0.3 0.1 -5.8 125.5 5.8 0.2 10.0 
Ecuador 1,483.9 7.9 843.4 56.8 2.3 9.6 0.0 0.0 0.0 - 0.0 0.0 0.0 - 
El Salvador 1,015.5 1.7 414.8 40.8 1.7 2.3 1.1 0.1 0.0 - 24.9 2.4 0.1 2.7 
Honduras 990.2 6.4 636.7 64.3 2.6 5.4 9.4 0.9 0.2 105.7 24.0 2.4 0.1 10.0 
Paraguay 602.4 -0.2 261.3 43.4 1.8 22.5 0.4 0.1 0.0 0.0 2.7 0.4 0.0 -50.5 
Nicaragua 576.7 13.4 378.1 65.6 2.7 10.6 0.5 0.1 0.0 - 9.7 1.7 0.1 - 
Belize 311.0 1.5 247.6 79.6 3.2 2.5 - - - - 20.6 6.6 0.3 -6.2 
Guyana 297.6 12.4 95.0 31.9 1.3 18.1 8.3 2.8 0.5 10.2 38.9 13.1 0.5 5.0 
Suriname 191.5 0.8 60.9 31.8 1.3 5.3 0.6 0.3 0.1 - 82.0 42.8 1.6 3.4 
Caribbean 21,390.8 4.9 10,776.8 50.4 2.0 2.1 66.4 0.7 0.1 3.8 314.4 3.4 0.1 10.8 
Cuba 10,816.7 7.3 2,282.7 21.1 0.9 -0.3 - - - - - - - - 
Dominican Republic 5,313.3 5.4 4,436.1 83.5 3.4 3.9 27.9 0.5 0.1 10.4 132.8 2.5 0.1 19.9 
Jamaica 2,587.4 2.0 2,012.5 77.8 3.1 4.5 38.5 1.5 0.3 1.9 51.8 2.0 0.1 32.4 
Barbados 1,249.8 -2.2 997.7 79.8 3.2 -1.2 - - - - - - - - 
Antigua and Barbuda 469.4 0.6 311.8 66.4 2.7 0.1 0.0 0.0 0.0 - 23.0 4.9 0.2 -7.4 
Saint Lucia 378.3 -2.3 320.6 84.7 3.4 -2.9 0.0 0.0 0.0 -100.0 28.3 7.5 0.3 21.6 
Grenada 156.4 5.3 116.8 74.7 3.0 8.5 0.0 0.0 0.0 - 12.4 7.9 0.3 5.3 
Saint Kitts and Nevis 141.6 -1.9 94.1 66.5 2.7 -4.1 0.0 0.0 0.0 - 24.0 16.9 0.6 4.7 
Dominica 140.5 8.7 112.8 80.3 3.2 12.0 0.0 0.0 0.0 - 14.9 10.6 0.4 0.7 
St. Vincent & the Grenadines 137.4 -2.1 91.7 66.7 2.7 -2.1 0.0 0.0 0.0 - 27.3 19.9 0.8 -1.1 
Africa 4,267.6 11.6 2,143.8 50.2 2.0 10.4 62.9 1.7 0. 3 24.5 908.1 21.3 0.8 22.2 
Mauritius 3,237.0 12.4 1,484.5 45.9 1.9 9.3 62.7 1.9 0.3 24.4 875.7 27.1 1.0 22.0 
Cabo Verde 560.2 14.1 368.3 65.7 2.7 20.2 0.2 0.0 0.0 50.9 2.9 0.5 0.0 1.3 
Seychelles, Rep. of 470.4 5.2 291.0 61.9 2.5 7.2 - - - - 29.5 6.3 0.2 33.7 
Asia 8,327.5 13.7 3,815.6 53.6 2.2 18.4 358.1 7.4 1. 3 26.8 747.5 14.6 0.6 8.8 
Sri Lanka 3,061.9 12.4 830.3 27.1 1.1 11.6 355.0 11.6 2.0 27.5 265.8 8.7 0.3 6.0 
Maldives 1,999.2 35.9 1,867.9 93.4 3.8 36.7 - - - - - - - - 
Brunei Darussalam 1,209.0 11.9 - - - - - - - - - - - - 
Fiji 1,066.6 4.2 724.3 67.9 2.7 6.9 2.1 0.2 0.0 -3.4 39.4 3.7 0.1 10.7  
  WT/COMTD/SE/W/31
 
- 72 -   Total Travel Computer and information Other business 
 US$ mill. Growth 
p.a. 
(%) US$ mill. % of 
TotalRCA Growth 
p.a. 
(%) US$ 
mill. % of 
TotalRCA Growth 
p.a. 
(%) US$ 
mill. % of 
TotalRCA Growth 
p.a. 
(%) 
  2011 05-11 2011 05-11 2011 05-11 2011 05-11 
Papua New Guinea 491.2 9.3 5.0 1.0 0.0 5.4 0.3 0.1 0.0 -15.5 412.6 84.0 3.2 11.4 
Vanuatu 281.4 13.1 225.9 80.3 3.2 17.6 0.2 0.1 0.0 - 6.5 2.3 0.1 0.9 
Samoa 171.1 7.2 134.1 78.4 3.2 9.3 0.6 0.4 0.1 19.4 16.2 9.5 0.4 -0.1 
Tonga 47.2 8.3 28.1 59.5 2.4 11.2 0.1 0.2 0.0 67.6 7.0 14.9 0.6 18.4 
Small economies 48,781.8 8.1 22,949.7 48.2 2.0 6.7 538.8 1.7 0.3 19.8 2,457.2 7.3 0.3 7.8 
Source: WTO Trade in Services Database. 
Note: "-" indicates that data are missing or that growth rates could not be calculated. The indicator RCA (revealed comparative  advantage) measures the export 
specialization of a country relative to the world. It is calculat ed as the ratio of the share of a product in a country's servi ces exports divided by the share of the 
product in world services exports. An RCA measure larger than one indicates that the country has a revealed comparative advanta ge in a particular product. 
The number of countries included in regional aggregates correspon ds to the number of countries having data in both 2005 and 201 1 and is as follows. 
 
 
__________