Trade Preferences for Developing Countries
Developed countries’ trade preferences for developing countries have been one of the largest issues in North-South trade for the last half century. Generally speaking, if a country offers trade preferences to another country, this simply refers to the fact that the latter country faces less restrictive trade barriers than the donor country’s other trade partners. The term has, however, mostly come to specifically refer to when developed countries offer lower trade barriers to developing countries than to other developed trade partners, usually without being offered more beneficial market access in return.
In a multilateral context, the breakthrough for trade preferences was the first United Nations Conference on Trade and Development (UNCTAD) in 1964, which recommended that non-reciprocal trade preferences be granted to all developing countries by the developed countries. This recommendation was followed up at the second conference in 1968 by a resolution that spoke of creating a “generalized, non-reciprocal, non-discriminatory system of preferences in favour of the developing countries, including special measures in favour of the least advanced among the developing countries” (UNCTAD 2008). Since a system where trade preferences are granted to developing countries but not to developed countries normally would violate the Most-Favoured-Nation (MFN) obligation of GATT’s Article I, a ten-year waiver was granted in 1971, which allowed such a system – referred to as a Generalized System of Preferences (GSP) – to become operational. In 1979, the waiver was replaced by the “Enabling Clause”, which provides a legal basis for granting trade preferences in favour of developing countries, and also allows for special treatment of the least developed countries (see e.g. Grossman and Sykes 2005 and Bartels 2003).