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Xavier Cirera and Edgar Cooke

Trade preferences are tariff concessions granting market access to preferential partners. This chapter reviews unilateral or non-reciprocal preferences, preferences granted to developing countries that do not require reciprocity from preference-recipient countries. They are based on one principle of the multilateral trading system, the notion of special and differential treatment, which allows countries, among other things, to discriminate in favour of developing countries in order to provide enhanced market access. The objective, therefore, is to increase exports and enable countries to develop more efficient industries, via exploiting new relative comparative advantages improved by preferential margins, and potentially leading to increases in productivity, competitiveness, diversification and attraction of investment. Three main issues have dominated the debate around trade preferences: evaluating the impact of different schemes on exports and on the price rent that the preference margin creates; assessing constraints that limit the potential benefits from these schemes; and addressing political economy effects of preferences on trade policy, in particular whether they promote or restrain multilateral liberalization. This chapter summarizes these three strands of the literature, synthesizing the main debates and methodological challenges. It describes existing non-reciprocal preferential schemes, reviews the existing theoretical frameworks and evidence on the impact of trade preferences; describes the main key elements that affect the effectiveness of trade preferences; including supply constraints, the size and coverage of the preference margin, preference erosion, preference use and costs of compliance; and reviews the impact of these preferences on the multilateral trading system.