Handbook on Trade and Development
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Handbook on Trade and Development

Edited by Oliver Morrissey, Ricardo Lopez and Kishor Sharma

This Handbook comprehensively explores the complex relationships between trade and economic performance in developing countries. Insightful chapters cover issues such as trade, growth and poverty reduction; trade costs, facilitation and preferences; sub-Saharan Africa’s reliance on trade in primary commodities, informal cross-border trade, agglomeration and firm exporting; imported technology, exchange rates and the impact of firm exporting; the increasing importance of China in world trade and links between FDI and trade. This Handbook provides an essential overview of trade issues facing developing countries.
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Chapter 5: Trade preferences: schemes and effects

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.

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