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A large number of non-reciprocal preferential access schemes have been put in place by OECD countries, in addition to an ever-expanding set of reciprocal bilateral and regional trade liberalization arrangements. These include the EU Everything but Arms (EBA) initiative, and special arrangements for developing countries such as the Cotonou convention between the EU and the ACP countries. This paper tackles the debate between middle-income countries that feel they are confronting discrimination in the OECD markets; and Least Developed Countries and non-LDC ACP countries that worry that general, most-favoured nation (MFN)-based liberalization of trade and removal of trade-distorting policies in agriculture by OECD countries will erode the value of current preferential access regimes.

The paper argues that that a non-discriminatory trade regime and MFN based liberalization by WTO members is a global public good. It makes the points that:

• in quantifying the magnitude of potential preference erosion what matters is to assess the loss of benefits stemming from the removal of an explicit development-motivated policy that has been put in place by OECD countries
• from a development perspective identifying actions that would generate benefits to developing countries is critical, as is determining what the rest of the world (especially richer countries) can do to assist governments in poor countries to implement such measures
• assistance for preference erosion should be considered as part of a broader response by OECD countries to calls to make the trading system more supportive of economic development
• the focus should be on identifying actions and policy measures that will improve the ability of developing countries to use trade for development

The paper makes the following policy suggestions:

• donor countries should agree to directly compensate developing countries for preference erosion incurred as a result of MFN trade reforms – for example, income support programmes could be implemented for farmers and producers of specific goods that have benefited from high rates of protection
• trade capacity can be pursued through a shift to more (and more effective) development assistance that targets domestic supply constraints as well as measures to reduce the costs of entering foreign market
• a commitment could be sought through which preference giving countries/trading blocs (the EU in particular) accept to transfer the assessed value of current preference programs in the form of financial aid

The paper concludes that, rather than seek to create a stand-alone fund to compensate for erosion of preferences (whether inside or outside the WTO) it is more efficient and effective to integrate funding to offset preference erosion into the broader “aid for trade” effort. This would entail the adoption of policies that the c adoption of policies that deal with specific government and market failures preventing a supply response from emerging.

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