This issue paper aims to help developing countries better understand the practical policy implications of the typical MSME-related provisions in RTAs, as well as the role of the WTO in facilitating the participation of MSMEs in global trade. The research findings are derived from an analysis of trends of MSME-related provisions in RTAs, highlighting those that can be of relevance to the MSME Joint Statement Initiative (JSI) discussion among various WTO Members. The paper aims to serve as an explanatory guide for governments and other stakeholders to advance their interests in the JSI context and to better integrate MSMEs into the multilateral trading system.
It is hard to deny the importance of micro, small, and medium-sized enterprises (MSMEs) and their contribution to economic activity, job creation, new technologies, and economic dynamism around the world. MSMEs represent 95% of companies globally, accounting for 60% of total employment and 50% of total value added (International Trade Centre [ITC], 2016). In developing countries, MSMEs can create societal benefits that go well beyond job creation and other economic gains, such as by enabling women to take part in these smaller firms or lead them, though recent research shows that these companies still have a long way to go when it comes to boosting domestic GDP levels. One study found that developing country MSMEs make up just over one-third of domestic GDP, while the share in advanced economies is considerably higher at approximately half of domestic GDP (Trade Dialogues, 2019). Moreover, their share of manufacturing exports is barely half that of their large company counterparts, according to the World Bank Enterprise Survey (WTO, 2016).
Some factors that hinder MSME participation in international trade include the following:
lack of skills; limited access to information about international markets; non-tariff barriers (NTBs); cost of compliance of trade procedures, including onerous regulations and border procedures; poor access to the necessary finance; and lack of transparency in administrative procedures. While some of these obstacles are also faced by bigger companies, their impact on MSMEs is significantly higher because trade-related fixed costs weigh more heavily on MSMEs due to their smaller size than on their larger competitors (ITC, 2016). Such constraints tend to be experienced most intensively by women-owned MSMEs as a result of gender-based discriminatory forces in the domestic economy.
Some policy responses to foster MSME participation in international trade and to address these challenges have involved the inclusion of MSME-related provisions in regional trade agreements, often in the context of chapters on small and medium-sized enterprises (SMEs) or side documents.
In the WTO context, limited attention had been paid until recently to the specific MSME perspective. This has changed over the past few years, especially since the adoption of the MSME Joint Ministerial Statement by a group of WTO Members during the Eleventh Ministerial Conference in Buenos Aires, Argentina, in 2017. Signatories of this document agreed to establish an Informal Working Group on MSMEs and to develop a work program for consideration at the next ministerial.1
Trade Agreements and the World Trade Organization
While these initiatives show a growing discussion by governments in support of MSME participation in international trade, this participation remains limited, and thus the next line of action needs to address ways to make such developments operational, especially in terms of helping developing countries benefit from them.