Regional Integration and Development in Small States

Small states should pursue unilateral and multilateral trade liberalization, and members of the African, Caribbean, and Pacific (ACP) group should expand reciprocal agreements with the European Union (Cotonou Agreement) to the entire OECD. They should also intensify South-South regional cooperation in the area of regional public goods.Schiff examines the impact of various trade policies for small developing states in the face of changing international trends including globalization, the proliferation of regional integration agreements, the changing relationship between African, Caribbean, and Pacific (ACP) countries and the European Union, the erosion of ACP preferences in the EU market, the Everything-But-Arms Initiative (a 2001 EU initiative providing 49 developing countries free access to EU markets), and the negotiations on the Free Trade Agreement of the Americas. The author concludes that:- The participants in South-South regional integration agreements should further reduce their external trade barriers.- The trade component of the Cotonou Agreement between the ACP countries and the European Union is likely to harm those countries. The ACP countries should liberalize their trade regimes to reduce the size of transfers to the European Union.- Small states should sign free trade agreements with the rest of the OECD and pursue multilateral liberalization.- Small states and other developing countries should intensify South-South regional cooperation in the area of regional public goods.- The EU and other OECD countries should provide country-specific technical assistance for behind the border reforms in small states - something specified in the Cotonou Agreement for ACP countries - as well as assistance in implementing their commitments under World Trade Organization agreements.This paper - a product of Trade, Development Research Group - is part of a larger effort in the group to examine regional integration issues. The author may be contacted at mschiff@worldbank.org