Short Arms is a disadvantage mentioned on page 104 of 3e's GURPS Compendium 1.
It relates to the Longer or Shorter Arms rules found on page 54 of the compendium.
B53 of 4e still essentially has this at the same value, even though it actually penalizes someone much less now.
It doesn't reduce punches to C for creatures SM0 or below, since punches are already there now. Instead it notes a -1 to reach for weapons, and an inabilty to use swung weapons.