Trade Preferences for the Least Developed Countries: Opportunities Not Panaceas

One of the main aims of trade is to enable consumers to choose from a wider variety of goods at lower prices and firms to grow and create more jobs by becoming more productive and accessing larger markets. However, these opportunities are often elusive for the least developed countries (LDCs). There are many reasons for these patterns, but rich-country policies that discriminate against exports from poor countries also play a key role. To promote LDC trade, World Trade Organization (WTO) members agreed in Hong Kong in 2005 to provide duty-free, quota-free (DFQF) market access to those countries. Substantial progress has been made since then, but key gaps remain. Most notably, the United States (US) provides nearly complete duty-free access for a number of LDCs in Africa, but it is the only developed country refusing to implement the initiative for all LDCs. The large emerging markets are also doing less than they might, given their role in the global economy. The paper suggests that the US should implement a DFQF program for all LDCs that covers as close to 100 percent of products as possible, and more than the minimum 97 percent it promised in Hong Kong. All preference programs for LDCs should make the rules of origin simple to use and flexible in meeting the needs of LDCs, including by incorporating cumulation zones that extend beyond narrow regional groupings to as much of the developing world as possible. Aid for trade initiatives should experiment with models that pay for development outcomes, rather than measuring results by the number of inputs delivered.