Although there is no commonly agreed definition of a micro firm, the majority of countries define them as firms with up to 10 employees. Micro firms and SMEs account for more than 95% of all enterprises in OECD countries. It is a very important topic as it is one of the United Nations’ Sustainable Development Goals to reduce poverty in developing counties through MSMEs.
In the nineteenth and twentieth century, scale was often the reason for success in international trade because of high transportation costs, communication and border costs. In recent years however, there have been big changes due to international trade global communication networks and diminishing advantages of scale. Drastic lower trade costs have led to different circumstances. MSMEs companies benefit more from market liberalization and policy coordination including non-traffic measures than larger firms. In addition, rapid innovation and organizational flexibility present an advantage for small companies in the fast-changing markets.
For MSMEs to prosper, it is important that trade barriers across countries are reduced. Improved transportation, telecommunication links and breakthroughs in information technologies are also adapted rapidly in their frameworks which allow them the easier entrance into international markets. Therefore, developments in information technologies allow easier entrance and ultimately lead to bigger international competition.
Some of the least developed countries and the developing countries have proposed special treatment for SMEs within the international trade framework, but up until now, no concrete measures have been taken. Special treatment for SMEs like national funds or eased technical assistance could promote the entrance of MSMEs in the international framework even further. However, it has been debated and mentioned that MSMEs in developing countries do not have equal opportunities even though they provide for most of the jobs in these countries. The 2016 edition of the World Trade Report already shows that this problem has been spotted and proposes that this topic might be up for discussion in following years (World Trade Organization, 2016).
Implementing special and differential treatment for such enterprises, has also been seen as an implementation of further market barriers, and therefore contrary to WTO goals. However sister organizations which are supported or even supervised by the WTO like the Aid for Trade initiative with its EIF (Enhanced Integrated Framework) (which works together with the World Bank and the IMF), and the International Trade Centre, have managed to start projects of aid to MSMEs through private funding. Such projects could be developed or even further integrated into the WTO framework.
The committee on Trade and Development shall discuss possible inclusions of clauses of special and differential treatment for MSMEs, either into the existing agreements (modifying and amending existent agreements of the WTO like the GATT, GATS, GPA, etc.) or in the form of a completely separated and new agreement (which not necessarily has to have the participation of all WTO members. Such agreement should include if necessary clauses on the definition of MSMEs, creation of working groups or investigation groups or the creation of projects which encourage the participation of these companies in the international trade framework. This shall be done without violating any existing rules (except if they are amended) and taking into consideration basic principles like non-discrimination. Furthermore, the rules shall not contradict those which are discussed in the other committees.
At last, other questions that can be discussed are: How can MSMEs be better integrated into the international trade law rulemaking to take their needs better into account? Should special and differential treatment apply for all or only for MSMEs in LDCs or with other pre-requisites for example? Does the implementation of such rules require further investigation and research?
Download full PDF file: The WTO and Small and Medium Enterprises
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