‘The particular vulnerabilities of small states should be recognized as justifying special consideration to deal with the issues that are crucial to transformation of their economies including length of transition periods, as the global process of trade liberalization and removal of special protective regimes, continues.’ Commonwealth Task Force Study on Small and Vulnerable Economies 2000

The countries within the Americas posses fundamental differences in levels of development and size of their economies; from the heavily industrialized economy of the US, through to the large middle- income developing countries of South, to the small underdeveloped economies of the Eastern Caribbean. The Guiding Principles of the FTAA suggest in theory that these vast disparities will be recognized and taken into consideration in the negotiating process.

However, within the current negotiations recommendations relating to the provision of Special and Differential treatment (S&D) for small and vulnerable economies are still bracketed and viewed as extremely contentious within the ongoing negotiations. This suggests that the implementation of the stated key principle in respect of ‘special attention been given to the needs of smaller economies’ is in danger of not being achieved.

The Commonwealth World Bank Task Force study on Smaller Economies notes, that factors such as remoteness and isolation, income volatility, openness, limited diversification, susceptibility to natural disasters and environmental change, poverty, limited access to external capital and limited institutional capacity, make it near impossible for small and vulnerable economies to compete effectively in the international trading system. The Caribbean (NGO) Reference Group on External Relations (CRG) believes that the FTAA negotiations should adopt the definition from the study in order to properly classify countries, which would be designated as small and vulnerable and applicable for Special & Differential (S&D) treatment.

In this context, nnegotiators must very soon arrive at the conclusion that S&D privileges for small economies are not ‘gifts’ to be grudgingly bestowed but necessities to be provided to ensure the survival of these countries. If all of the countries in the FTAA both large and small are to benefit equally, the process must provide functional and meaningful concessions. A completely reciprocal agreement among unequal partners is unrealistic and untenable.

In particular countries within the CARICOM will face numerous challenges as they try to come to grips with the fast paced and comprehensive nature of trade liberalisation. These challenges including, the dismantling of traditional preferential and non -reciprocal agreements for products of critical importance to the region, limited resource capacity and an underdeveloped indigenous private sector, will only be exacerbated by a system which does not recognise their particular vulnerabilities as small open economies. Allowances must therefore be made to deal with the difficulties and cost associated with adjustment both in the social and economic sphere.

Additionally, within the FTAA negotiations themselves, the CRG is aware that CARICOM negotiators are finding it hard to keep up with the pace of the negotiations. Even though negotiating as a group and sharing resources, CARICOM countries still do not have adequate financial and human resources to cover all of the activities of the various negotiating groups. This difficulty will increase as the FTAA negotiations accelerate to meet the stated deadline for completion and the number of meetings increases. This indicates that specific technical and other assistance is needed to ensure that these states can participate effectively within the negotiations

It is also noted that small states tend to be more dependent than large states on taxes on imports for their fiscal revenues. The high volume of external trade provides a conveniently broad tax base. Reduction of average import tariffs as part of an overall trade liberalization can therefore lead to a fall in tax revenues that is not always easy to offset in the short term. In this context, smaller economies within the FTAA will need to have special & differential treatment as it relates to tariff elimination and reduction, in the form of exemptions and phased and flexible approaches. Accordingly, we are recommending that such S&D treatment be classified as follows.

• Non -sensitive- Industries that have the potential to be competitive, tariff reduction would be introduced at a decelerated pace to give these industries time to adjust to increased competition
   

• Sensitive. Industries that are underdeveloped but have the potential to be significant money earners, and employ or are a source of employment for a significant amount of persons. Tariff reduction would be introduced over a period of fifteen years for compliance with the option of requesting an extension. Tariff reduction would be phased in over a period of time
   

• Very-sensitive. The very sensitive industries, which are central to the economy with respect to employment and contribution to GDP, would receive an exemption from further tariff reduction, particularly in circumstances where substantial liberalization has already been undertaken.

• In respect to tariff elimination the FTAA should allow small and vulnerable economies to implement a flexible approach involving exemptions and phased approaches, in order to protect industries as classified in this paper.

1. Non -sensitive- Industries that have the potential to be competitive, tariff reduction would be introduced at a decelerated pace to give these industries time to adjust to increased competition

2. Sensitive. Industries that are underdeveloped but have the potential to be significant money earners, and employ or are a source of employment for a significant amount of persons. Tariff reduction would be introduced over a period of fifteen years for compliance with the option of requesting an extension. Tariff reduction would be phased in over a period of time

3. Very-sensitive. The very sensitive industries, which are central to the economy with respect to employment and contribution to GDP, would receive an exemption from further tariff reduction, particularly in circumstances where substantial liberalization has already been undertaken.

• Smaller economies should be allowed to negotiate exemptions for National Treatment for certain entities. Additionally, performance requirements restrictions should be maintained for investors in small economies for up to a period of ten years after the Agreement comes into force

• In relation to non-tariff barriers the FTAA Agreements should enforce further commitments for developed countries above those agreed to in WTO Agreements. These commitments for reduction of non- tariff barriers for developed countries should be based on ‘front- end loading’ so that the bulk of these reductions occur within the first five years of the agreement.

• In relation to rules of origins the FTAA should allow several producers from smaller economies to bring together their processing activities for purposes of determining origin. Additionally, consideration should be given to including ‘de mininis’ provisions so that if the value of non-originating materials is less than a certain percentage the good will nonetheless be considered as originating in favour of the smaller economies.

• The FTAA Agreements should contain binding agreements for the provisions of financial and technical assistance including technology and research transfers

• The FTAA agreement should make provisions for guarantees and support mechanisms for any country that finds itself in a worse economic position as a direct result of the liberalization of trade. Such guarantees should allow countries to increase tariffs and implement government protection measures for period of time.

• A Hemispheric fund should be established through regional institutions like the IDB, OAS and UNECLAC to provide technical and financial assistance to regional negotiators to ensure their effective participation in the negotiations. This Hemispheric fund should also support the efforts of small economies to restructure and reorient particular industries in order to increase their competitiveness.

• The definition to be used to classify countries as small economies should be taken from the Commonwealth World Bank Task Force Study on Small and Vulnerable Economies (2000)
   

• Special & Differential treatment should be ingrained with the FTAA agreement as a de facto right and accorded to a group of countries or groups of countries that meet the criteria as defined above.
   

• All countries within the FTAA designated as Highly Indebted Poorer Countries (HIPC) under the existing IMF/World Bank rating system and other severely indebted countries should be granted full non-reciprocal arrangements for a specific length of time not less than 15 years
   

• The FTAA negotiations should apply a positive list- bottom up approach across the board.