(a) to increase their export earnings;(b)to promote their industrialization;and(c)to accelerate their rates of econom-ic growth.
It is important to note that it is not only therichest countries that offer preferential marketaccess to poorer countries. Of the 13 develop-ment-based preferential programs currently reg-istered with UNCTAD, 4 of them—those fromBelarus, Estonia, Bulgaria, and Russia—arefrom non-OECD (Organisation for EconomicCo-operation and Development, a group of high-income countries) members (the other 9programs are those of Australia, Canada, theEuropean Union, Japan, New Zealand, Nor- way, Switzerland, Turkey, and the UnitedStates).
The so-called Group of 77 developingcountries also has an agreement among them-selves, called the Global System of Trade Pref-erences, to provide each other with preferentialaccess for a limited number of goods.
Many countries, including developing coun-tries, provide duty-free and quota-free access togoods from the very poorest countries. Part of the mandate of the current World Trade Or-ganization round of trade talks, formally calledthe Doha Development Agenda, is to extendduty-free and quota-free access to the 33 WTOmembers that the UN has designated “LeastDeveloped Countries” (there are 49 LDCs intotal). LDCs are those that (a) have an averageannual per-capita income under $750; (b) havelower levels of human development based onfactors relating to health, nutrition, and educa-tion; and (c) are “economically vulnerable”because of factors such as their small size, sus-ceptibility to natural disasters, and the volatility and/or instability of their export markets orproduction base.
Most of the countries providing preferentialmarket access to developing countries are alsomembers of the WTO, which holds as a found-ing principle the concept of nondiscrimination. To this end, Article I of the General Agreementon Tariffs and Trade (GATT), Article II of theGeneral Agreement on Trade in Services(GATS), and Article IV of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) embody the principle of most-favored-nation (MFN) treatment, which re-quires that WTO members treat imports fromall other WTO members equally, for exampleby applying equal tariffs. Market access condi-tions granted to one member must be extendedto all other members.Giving preferential treatment to certaincountries, including on development grounds,obviously violates that principle. The WTOtherefore allows its members to deviate fromMFN treatment in favor of developing countriesthrough a loophole known as the “enablingclause.”
Formally titled the agreement on“Differential and More Favorable Treatment,Reciprocity and Fuller Participation of Develop-ing Countries,” the enabling clause was adoptedas part of the Tokyo Round of multilateral tradenegotiations in 1979 and was originally intendedto last for 10 years. Paragraph 2(a) of the agree-ment, however, provided a legal basis for exten-sion beyond the initial 10-year period and it hasin fact served to make the enabling clause per-manent as part of the GATT 1994, which estab-lished the WTO. Other preferential trade dealsthat violate the MFN principle, for examplethose establishing a free-trade agreement or cus-toms union on a reciprocal basis, are allowedunder the conditions imposed by Article XXIV of the GATT.In an attempt to promote better integrationof developing countries into the world tradingsystem, the enabling clause also allowed devel-oping countries to enter into preferential agree-ments with each other under conditions lessstringent than those laid out in Article XXIV.For example, paragraph 2(c) of the enablingclause permits preferential arrangements amongdeveloping countries that do not cover “substan-tially all trade.” The exemption from MFN provided by theenabling clause also gave all countries grantingthese preferences significant leeway as to how they designed such schemes, specifying only that they should be “generalized, non-discrim-inatory and non-reciprocal” with respect to thebeneficiary countries. In other words, the gen-eralized system of preferences must be just
Unilateral preferenceprograms can becounterproductiveto achieving a moreliberal global traderegime and a more stable andpermanent path toeconomic growth.