Quantifying the Value of Preferences and Potential Erosion Losses

The multilateral trade system rests on the principle of non-discrimination. The most-favored-nation (MFN) clause embodied in Article I of the General Agreement on Tariffs and Trade (GATT) was the defining principle for a system that emerged in the post-World War II era largely in reaction to the folly of protectionism and managed trade that contributed to the global economic depression of the 1930s. From its origins, however, the GATT allowed for exemptions from the MFN rule in the case of reciprocal preferential trade agreements. It also permits granting unilateral (non-reciprocal) preferences to developing countries. Unilateral preferences granted by OECD countries create an inevitable tension between “more preferred ” developing countries – typically beneficiaries from pre-existing colonial regimes – and other developing countries with respect to the effects of MFN liberalization by preference-granting countries. Concerns about preference erosion have become one of the key points of debate in the negotiations surrounding the Doha Development Agenda. Similar concerns have arisen in the past. In the 1970s, for example, the impact of Tokyo Round-related liberalization on the benefits derived b