The GATT/WTO’s Special and Differential Treatment of Developing Countries

By Ben Zissimos (University of Exeter Business School)

Special and differential treatment (SDT) is effectively a set of exemptions from MFN extended to developing country members of the General Agreement on Tariffs and Trade (GATT)/World Trade Organization (WTO).[1]  (MFN (most favored nation) treatment is the principle that any terms agreed between two parties to a trade agreement will automatically be extended to all others, and is a central pillar of the GATT/WTO).  SDT has two components: an access component, whereby developing countries are granted access to developed country markets, and a ‘right to protect’ component, whereby they do not have to reciprocate market access concessions that the developed countries make.  The intellectual underpinnings of SDT were: (i) that under the Gold Standard poor countries would tend to suffer from balance of payments problems that could be remedied through protection; (ii) the Prebisch-Singer thesis that developing countries would face secular decline in their terms of trade, which could be remedied by preferential access to developed country markets; and (iii) by the logic of infant industry protection, whereby fledgling industries need an initial period of protection to grow in a secure domestic market, before eventually competing abroad.  Ironically, there was no SDT during the 1950s-60s when the research community was broadly sympathetic to the idea that development can benefit from protectionism.  SDT measures were formally adopted mainly in the Tokyo Round that took place in the 1970s, right around the time that the research community was beginning to argue that development should be supported by outward-looking trade regimes to enhance economic efficiency.[2]

As a result of this history, there is an awkward mismatch between what mainstream economics would prescribe, an outward oriented development strategy, and the protectionism that is allowed for under SDT.  According to one mainstream view, a trade agreement enables countries to escape from a terms-of-trade driven prisoner’s dilemma, whereby they have a collective incentive to liberalize trade to maximize efficiency globally but an individual incentive to adopt protection in order to improve their terms of trade.  Accordingly, the benefits to a trade agreement are based on the exchange of balanced concessions.  So developing countries are currently hurt by high protection of agriculture in developed countries because, under SDT, developing countries have not come to the table offering balanced concessions of their own.  Under this view, developing countries should eschew SDT.  A second view holds that the purpose of a trade agreement is to enable governments to tie their hands against protectionist interests in their own countries.  In line with this view, many developing countries have cited commitment to openness against protectionist interests at home as the main reason why they wanted to become members of the WTO.  Here again, the aim would seem to be to eschew the kinds of protectionist measures allowed by SDT.  So a basic recommendation from mainstream economic research would be that while trade agreements under the WTO have a role to play in economic development, SDT may in fact be inimical to the development process.[3]

Several recent papers have called into question key elements of the arguments on which the above basic recommendation rests.  For example, a key implication of the terms-of-trade motivation for a trade agreement is that, if developing countries do not make any concessions of their own while developed countries do, the terms of trade will adjust to ensure that trade flows will not change at all for developing countries.  Consequently they cannot gain from any market access concessions that developed countries make.  Yet careful econometric research has found evidence (though not yet fully conclusive) that developing country exports have increased significantly for trade agreements involving SDT.  However, it is not yet clear what the basis is for this increase.  Has the surge in exports facilitated scale gains that could underpin an export-led growth strategy?  Or has it only allowed exporters to collect rents as the terms of trade adjust?[4]  A different line of research suggests that under the commitment-based motivation for a trade agreement, liberalization by a developing country must be delayed relative to a developed country if it is to be incentive compatible.  This would provide motivation for the use of SDT measures as support for phased liberalization by developing countries, akin to how they were used in the Uruguay Round, rather than using them as the basis for an outright exemption from liberalization.[5]  There appears to be a significant opportunity both to further our understanding of the effects of SDT in past trade agreements and to assess the role that it should play (if any) in future development strategies.


Bagwell, K., C.P. Bown, and R.W. Staiger, (2016); “Is the WTO passé?” Journal of Economic Literature 54 (4): 1125-1231. [Working paper version]

Bagwell, K., and R.W. Staiger, (2014) “Can the Doha Round be a Development Round? Setting a Place at the Table.” Published in R.C. Feenstra and A.M. Taylor (eds.), Globalization in an Age of Crisis: Multilateral Economic Cooperation in the Twenty-First Century, NBER, University of Chicago Press, 2014, 91-124. [Working paper version]

Conconi, P., and C. Perroni, (2012); “Conditional versus Unconditional Trade Concessions for Developing Countries.” Canadian Journal of Economics 45, 613-631. [Working paper version]

Conconi, P., and C. Perroni, (2015); “Special and Differential Treatment of Developing Countries in the WTO.” World Trade Review 14, 67-86. [Working paper version]

Gil-Pareja, S., R. Llorca-Vivero, and J.A. Martínez-Serrano (2014); “Do Nonreciprocal Preferential Trade Agreements Increase Beneficiaries’ Exports?” Journal of Development Economics 107, 291-304.

Little, I.M.D., T. Scitovsky, and M. Scott, (1970); Industry and Trade in some Developing Countries: A Comparative Study, London: Oxford University Press, for the Organization of Economic Cooperation and Development.

Ornelas, E., (2016); “Special and Differential Treatment for Developing Countries.” Chapter 7 in K. Bagwell & R. W. Staiger (eds.), Handbook of Commercial Policy, Elsevier/North Holland, Volume 1B:  369-432. [Working paper version]

Whalley, J., (1999); “Special and Differential Treatment in the Millennium Round.” World Economy, 22(8): 1065-1093. [Working paper version]

[1] This piece summarizes background research for a book that I am editing, titled The WTO and Economic Development.

[2] Whalley (1999) provides an excellent historical discussion of the origins of SDT, together with details of each of the relevant GATT Articles in which it is codified and when each was introduced.  He also provides a detailed discussion of the intellectual underpinnings. Little, Scitovsky and Scott (1970) were particularly influential in turning the tide toward outward oriented development strategies.

[3] See Bagwell, Bown and Staiger (2016) for a comprehensive review of the literature on the purpose of trade agreements under the GATT/WTO.  Bagwell and Staiger (2014) argue that, by the terms-of-trade motive, developing countries cannot benefit (nor loose) from multilateral trade agreements if they fail to make concessions under SDT because the volume of their trade does not change.

[4] See Gil-Pareja, Llorca-Vivero and Martinez-Serrano (2014) and the references therein for details.  See Ornelas (2016) for an excellent overview of the theoretical and econometric literature on SDT.

[5] See Conconi and Perroni (2012, 2015) for specific details, as well as the discussion by Ornelas (2016).