This week we continue the discussion on Special and Differential Treatment (SDT) focusing on what is called its ‘hard-form,’ which is the provision of non-reciprocal preferential market access for the exports of developing countries into developed countries. These preference arrangements are not universally binding contractual relations among all states but are only available to those beneficiaries designated by the country or countries granting the preferential access to their domestic markets. It would be convenient for readers to begin today’s article with an identification of the major preferential arrangements currently in force. After that I will continue to draw attention to the negative empirical assessments of preference systems paying attention to those operating in favour of the region.

Existing preference arrangements

As indicated in a previous article, the four successive Lome Conventions between the European Union and the Africa-Caribbean-Pacific group of countries (1975-2000) best typify the well-intentioned generosity of the preferential system that was in operation prior to the establishment of the WTO in 1995. These Conventions constituted the world’s largest and longest continuing trade and aid cooperation framework agreement between developed and developing countries. These were replaced with the Cotonou Agreement, which is a transitional arrangement expected to lead to the abandonment of the traditional preferential framework that existed under the Lome Conventions. The schedule is for this new framework to come into force by 2008 and to be compatible with the rules and regulations of the WTO.

There is also the Generalised System of Preferences (GSP), which UNCTAD spearheaded as far back as 1968. In the context of the then Cold War, UNCTAD had called on the developed countries to grant preferential access to their markets for the exports of developing countries on a ‘voluntary’ basis. Putting this into effect required appropriate changes to the GATT framework then in operation as it clearly violated the most-favoured-nation principle on which GATT was founded. By 1971-72 a number of Western European countries and Japan had put in place their GSP arrangements and the United States followed suit in 1976. Since the GSP arrangements were put in place the developed countries, to narrow the scope of the original concessions when their domestic industries came under threat, have introduced several exceptions. In particular these exceptions have been directed against products of special importance to developing countries, for example textiles. Indeed the US Tariff and Trade ACT of 1984 went so far as to authorise the President to deny GSP privileges to the then newly - industralising economies of Asia - the ‘Asian Tigers’ as they were then known.

Paradoxically, at about the same time in 1984 the USA passed the Caribbean Basin Economic Recovery Act (CBERA), commonly known as the Caribbean Basin Initiative (CBI). This was subsequently modified in 1990. Under this act preferential access was offered to 24 Caribbean countries for certain exports to the USA. More recently in 2000, the Caribbean Basin Trade Partnership Act (CBTPA) was passed offering NAFTA- type treatment for some of the products excluded under the CBI arrangements.

Special preferences (duty and quota-free entry to the USA) have been granted to sub- Saharan African countries for most products through the African Growth and Opportunity Act (2000).

The most recent example of a major preference arrangement is the Everything But Arms (EBA) Agreement by the EU (2001), which grants duty free access to European markets for all exports from the least developed countries, except military equipment.

Found wanting

At a conference held earlier this year, Perez (2003) reported on work he was doing to assess the effects and implications for the small open developing economies of CARICOM and Central America of the system of preferences available to them in the USA and the EU. For his study Perez categorised the exports of CARICOM and Central America into three (3) major groups namely, 1) natural resource based; 2) resource-based manufactures; and, 3) manufactures, not resource based. He then evaluated the performance of each category both inside and outside of access to preferential markets in the USA and EU.

Thus he found that between 1985 and 1999 the evidence supported the picture I have already draw attention to, where preferences exert a negative influence on export dynamism. He found that preferences had in general frozen the regional pattern of export specialization in non dynamic areas of international demand. For the region as a whole, by and large export specialization is still (with a few exceptions) based on natural resources and low labour costs, which the system of preferences has encouraged. In addition he also found that preferences available to the region were significantly under-utilised. I have already indicated that CARICOM’s exports of bananas to the EU prior to the change in its import regime (2001) were less than half the available quota. He showed that Central America exports of textiles to the USA utilised only two -thirds of the available quota. Between 1985 and 2000 CARICOM failed to maintain its overall

market share in NAFTA and the EU, despite the availability of preferences. And, strikingly, in markets where the region did not enjoy preferences it managed to increase its market share!

This pattern was replicated at the larger level in total EU-ACP trade under the successive Lome conventions. Thus between 1976 and 1998 the ACP countries’ share of the EU market fell from 6.7 to 3 per cent, despite the supposed advantage of their preferential market access. To make matters worse, over this period about 60 per cent of the ACP’s exports were concentrated in only 10 traditional products.

Revelations such as these have led to the view that where preferences work, they do so to the detriment of other developing countries that have been denied preferential access. And, where they do not work, perversely the benefits may be going to the countries giving the preferences, rather than the countries receiving them.

In light of such outcomes it is not surprising that opposition to SDT is so strong. As I have indicated, however, revealing as these empirical assessments are, they do not constitute a sufficient case for the rejection of SDT. Next week we shall see why.