Over the past few weeks I have presented a number of disturbing pieces of evidence from recent studies covering a variety of countries and regions, which argued that preferences have not produced sufficient benefits to justify their acceptance as an operating principle in the global trading system. In our region, Esteban Perez of the United Nations Economic Commission for Latin America and the Caribbean (UNECLAC), whose work I have already cited has contributed much to the literature on the empirical assessment of Caribbean and Central American preferences and their performance. Because preferences are seen as the quintessential expression of special and differential treatment (SDT), such studies have done much to weaken the case for making SDT a central feature of the WTO framework. Today I shall argue that the case against preferences may not be as strong as it seems at first blush, for two sets of reasons. One set is contextual and related to the present global environment in which the WTO itself remains an unsettled institution. And the other has to do with methodological concerns as to what exactly the case against preferences has proven.
Global environment
At the contextual level the most important consideration is the noticeable shift of the Bush administration towards more bilateral and regional approaches to trade negotiations. This shift undermines the case against preferences for two reasons. One is that the USA has traditionally been less sceptical about preferences than the European Union. The other is that the US shift to bilateral/regional approaches mirrors a broader shift in its international relations towards working with 'coalitions of the willing' as was evident in the Iraq invasion. Here compromise is always open to the 'willing.' As US Trade Representa-tive Zoellick graphically puts it, the US is prepared after Doha to work with the "can-do" countries as against the "won't-do" countries, which populate the WTO. It is significant therefore that some of the US preferential arrangements have come into existence since the formation of the WTO. This signals to my mind that the US administration may well be willing to offer preferences as an incentive to enter bilateral and regional arrangements with it.
Another important contextual consideration is that the global economy is passing through what may be a protracted period of weakness. If this holds, then inducements for countries to enter into trade deals may be more necessary than would otherwise be the case. For the first time since 1982, global trade actually declined in 2001. In the 1990s, it grew at a rate of 7 per cent per annum, and for last year and this it has grown at less than one-third this rate - 2 per cent per annum. Global capital flows have shown similar signs of significant weakening. For most of the 1990s, it rose consistently, peaking in 2000 and declining rapidly thereafter. Thus foreign direct investment (FDI), which is of major importance to the developing countries, fell by 50 per cent in 2001 and a further 25 per cent in 2002. Its concentration among a few countries also remains very high, as at the most recent count 77 per cent of FDI flows go to the 10 largest recipient countries.
Our region, like other developing regions has felt the impact of these reverses, as growth rates have stalled and trade has lost the buoyancy of earlier years. Perhaps the ultimate expression of these global economic reverses has been the very collapse of the WTO Ministerial at Cancun itself that we are considering.
Paralleling these global economic events has been the deteriorating political and security environment since 9/11. This has had profound and far-reaching direct effects on the global trading system, while its indirect effect of putting trade and development issues on the backburner of global priorities, has been no less profound in its adverse consequences.
Method
The formidable assault on the effectiveness of preferences both in the past and as they operate today is overstated if it is separated from three very important methodological considerations, which should be taken into account in evaluating its claims. One is the 'counterfactual.' That is, the case against preferences is not made until we simultaneously evaluate the situation that would have existed without them. Without a comparative examination of the performance of countries with preferences and those without preferences in the context of an unprecedented liberalisation of global trade that has occurred since the formation of the WTO, the case against preferences is not fully made.
Second, even if preferences did not work in the past, one cannot condemn the beneficiaries of preferences to a situation in which they never learn the lessons of the better use of preference opportunities. This is particularly important, as the very research and empirical information cited in this series, which have condemned preferences, will, as they become more widely known, give countries an opportunity to benefit from them and respond appropriately.
Finally, many of the problems preferences previously faced, and indeed, still face, exist for liberalised trade. Examples of these include, the issue of timing and sequencing preferences and the concern that the 'automacity' of preference benefits may act as a disincentive and so on. These situations operate in relation to the 'automatic' non-discretionary trade liberalisation principles of the WTO regime. Further, the claim that preferences applied to a group of countries is a one-size-fits-all approach to trade policy, can similarly be directed to the universal, automatic, non-discretionary, trade liberalisation regime of the WTO.
Conclusion
As one observer notes although SDT is treated as 'out-of-fashion' or an 'obsolete concept' in many quarters, it nevertheless remains "a stubborn concept that continues to focus on trade negotiations" (Tortura, 2003). Paradoxically, therefore, the treatment of SDT is now among the most timely issues confronting the WTO. The reasons for this are basically three-fold. First, there has been a surprisingly strong co-ordinated effort by all developing countries to place SDT high on the WTO and global agenda. Second, the global system shows not only wide, but widening inequalities between countries. For every major measurable economic indicator the empirical data reveal the gaps between rich and poor have been widening: income, wealth, technology, R&D, productivity, capacity, access to financing, human resources, and trade. This constitutes a permanent condition, impelling poor countries to act. Third, the self-interest of the rich countries, and for that matter the benefit of the entire international community, cannot be secured on the basis of the continued systemic marginalisation of some regions and countries. The poor countries are strong enough to halt and/or prevent negotiations if they perceive they are not addressing their concerns. The stance they have taken on non-negotiation of the Singapore issues at Cancun without substantial progress elsewhere reveals this. Where they lack capacity, is in securing direct positive negotiating outcomes based on their own initiatives.