Aid through Trade: An Effective Option?

am grateful to Jagdish Bhagwati for numerous discussions that shaped my thinking on the subject matter of this paper and to two anonymous reviewers for excellent comments on an earlier version of the paper. What trade policy initiatives can the rich countries such as the United States take to assist the poor countries in improving their growth prospects and achieving faster alleviation of poverty? This question has been a subject of research and debate among policy analysts in the area of trade and development for more than four decades. During the Kennedy Round of trade negotiations, developing countries successfully lobbied for the addition of Part IV titled " Trade and Development " to the General Agreement on Tariffs and Trade (GATT). Under Article XXXVII of this part, they got developed country signatories to commit to " accord high priority to the reduction and elimination of barriers to products currently or potentially of particular export interest to less developed contracting parties " and to " refrain from introducing, or increasing the incidence of, customs duties or non-tariff barriers on products currently or potentially of particular export interest " to them. Development (UNCTAD), founded in 1964, developing countries successfully pushed for the adoption of the Enabling Clause by the GATT Contracting Parties. The clause was initially adopted for 10 years but renewed later in 1979 for an indefinite period. It gave legal status to the Generalized System of Preferences (GSP) and the exchange of South-South trade preferences. The GSP provision gave legal status to one-way trade preference by developed to developing countries while the provision on South-South preferences freed developing countries from GATT Article XXIV requirements while exchanging trade preferences among themselves. Subsequently, encouraged by the 1973 success of the Organization of Petroleum Exporting Countries (OPEC) in increasing oil prices, developing countries called for far reaching changes in the rules of the North-South engagement under the rubric of the New Special Session of the U.N. General Assembly adopted a manifesto entitled "Declaration and Program of Action of the New International Order." Among the measures proposed under NIEO were the indexation of developing country export prices to developed country manufactures exports, raising official development assistance to 0.7 percent of developed country GNP, linking the creation of the IMF Special Drawing Rights to development aid, lowering tariffs on manufactures exported by developing to developed countries, development of an international food program and a negotiated …