In our increasinglyglobalised world, smalless is an economic disadvantage, especially fordeveloping countries. Although globalisation and free trade presentopportunities for overcoming restrictions associated with small market size, thedistribution of benefits and costs of integration into the world economy is notalways equitable, nor is it risk-free.

Countries in the regionqualifying as "small" (under 10 million inhabitants at the beginningof the 1990s) include all the Caribbean except Cuba, the Central AmericanIsthmus, Bolivia, Paraguay and Uruguay. Some of these nations, particularlysmall island developing states (SIDS), have populations below 300,000, whichrequire special attention. On the positive side, these small countries have moreto gain from globalisation than larger countries do, since access to globalmarkets allows them to overcome the limitations of their local ones. But theysuffer major disadvantages relating to economies of scale, less diversificationand small economic area.

The economiccharacteristics of small economies generate special risks. In particular, theirlevel of openness, together with a rigid or highly concentrated export structuremakes domestic income highly vulnerable to external shocks. As a group, smallLatin American and Caribbean economies are much more open than their largerneighbours. The sum of their imports and exports of goods and services isequivalent to 85% of GDP, while in larger economies the proportion is 30%.Moreover, exports from the region's small countries are highly concentrated in anarrow range of products and markets, so they are heavily exposed to externalprice fluctuations and tend to suffer from higher income volatility than largerstates.

In free trade agreements,small countries find it more difficult than larger ones to defend theirinterests at international forums, and they have problems using multilateraldispute settlement mechanisms established by the World Trade Organisation. Theyhave a more limited capacity to comply with international commitments onenvironmental and property issues, as required by global integration.

Furthermore, in LatinAmerica and particularly the Caribbean, smaller economies often have limitedland and natural resources, and they are especially exposed to natural hazards,among them hurricanes, earthquakes, volcanic activity and overtaxed eco-systems.These disasters can easily affect nearly 100% of national territory and damagesfrom a single event can exceed total annual government revenues. In addition,many SIDS in particular must also overcome difficulties associated withgeographic and economic remoteness.

Helping small countriesovercome these problems and successfully integrate into the global economy,which is a fundamental aim of free trade and globalisation, requires consistentdomestic and international attention. Some small countries should considerabandoning bilateral agreements in favour of multilateral approaches that betterallow them to protect their common interests and use their scarce financial andhuman resources more wisely. They need to form public and private alliances ontrade matters and general development programmes, adopt flexible, prudentmacroeconomic policies, and take action to establish or strengthen institutionsin charge of disaster preparedness.

At the internationallevel, special treatment should be granted to small economies in multilateraltrade agreements, involving longer transition periods to meet new policydemands, more flexibility in setting thresholds or defining legal andinstitutional obligations, more manoeuvring room for active production policies,broader safeguards, and the provision of technical assistance during thenegotiation process and afterwards. The imposition of strict symmetry incommitments and trade reciprocity between countries of very differentdevelopment levels may cause initiatives in this area to fail, ultimatelyaffecting trade and development of small and large countries alike.