DP4508 The Economics of Special and Differential Trade Regimes

Author(s): Paola Conconi, Carlo Perroni
Publication Date: July 2004
Keyword(s): international agreements, policy commitment, trade and development
JEL(s): D72, D78, F13
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=4508

We examine the theoretical rationale for the simultaneous granting of temporary Special and Differential (S&D) treatment to developing countries - both in ite protection and market-access components - under the WTO agreements. S&D rules constitute the centrepiece of the WTO?s strategy for integrating developing countries into the trading system, but have been criticized?both on theoretical and empirical grounds?as being ineffective. We show that seemingly non-reciprocal, limited-duration S&D treatment can be rationalized as a transitional equilibrium feature of a self-enforcing international agreement between a large developed and a small developing country, where the two sides have a joint interest in helping the developing country to overcome a policy commitment problem.