The economics of special and differential trade regimes

Abstract

We examine the theoretical rationale for the granting of temporary Special and Differential (S&D) treatment to developing countries, both in its protection and market-access components under the WTO agreements. S&D rules constitute the centerpiece 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