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The WTO was established in 1995 as the successor of the General Agreement on Tariffs and Trade (GATT) which was created in 1947. Much of the GATT agreements on trade were carried over into the WTO, though there have been changes and additions in rounds of negotiations since then. Let me list the purposes that the WTO sets itself and the main principles by which it guides itself. I expand on this basic description of the WTO in later sections where I discuss the organisation’s position on trade and development relating to developing countries in particular.

The declared objective of the World Trade Organization (WTO) is to help trade flow smoothly, freely, fairly and predictably. It claims to do this neutrally, administering trade agreements, acting as a forum for trade discussions and settling disputes, reviewing national trade policy issues through technical assistance and training programs and cooperating with other international organizations (Peet 2003: 158) (WTO website).

The preamble to the Marrakesh agreement establishing the WTO in 1995 states the premise under the members come together to negotiate rules for international trade includes the following: “…relations in the field of trade and economic endeavor should be conducted with a view to raising standards of living, ensuring full employment and a large and steadily growing volume of real income and effective demand, and expanding the production of and trade in goods and services, while allowing for the optimal use of the world’s resources in accordance with the objective of sustainable development, seeking both to protect and preserve the environment and to enhance the means for doing so in a manner consistent with their respective needs and concerns at different levels of economic development…” (Marrakesh Agreement). This sets the aims of the organization into the egalitarian context of this thesis.

Members of the WTO are party to various agreements that set rules for the conduct of international trade. Part of the reason why such a set of rules is needed is this. The rules provide individuals, businesses and governments around the world with some confidence that there will be no sudden changes to policy in terms of the conditions with which they must comply in international trade. The rules thus have to be transparent and predictable (WTO website). This fosters an environment conducive to greater international trade and is in keeping with one of the aims set out in the Preamble of the Marrakesh agreement establishing the WTO.

The Preamble of the Marrakesh Agreement establishing the WTO also lists the following aims for the organisation. One: a system of trade that allows optimal use of world resources. By promoting specialisation in areas of comparative advantage, countries’ resources are put to their most productive uses. Two: to ensure that developing countries, and especially the least developed among them, secure a share in the growth in international trade commensurate with the needs of their economic development. With open access to the richer and larger markets of the developed countries, the developing countries have greater scope to increases their export revenue and thus national income.

According to the Preamble, the organisation pursues these aims by the following means. One: a system of trade that allows for reciprocal and mutually advantageous benefit. The reciprocal benefit consists of a country opening itself up to imports in return for export access to the markets of others. The mutual advantage lies in consumers in two trading countries benefiting from greater competition and lower price as their economies specialise in the direction of comparative advantage. The owners of different factors of production in the trading countries also benefit in ways we expect from the Heckscher-Ohlin model.

Two: raising standards of living, ensuring full employment and a large and steadily growing volume of real income and effective demand. These are to be considered in relation to international trade. If a country can raise national income through greater export revenues, it can improve the standard of living of its inhabitants. Access to a greater variety of commodities than are produced nationally may also contribute to this. Employment can be generated by export industries and can be reduced by import barriers erected by trade partners.

Three: a substantial reduction of tariffs and other barriers to trade and elimination of discriminatory treatment in international trade relations. Removal of barriers to trade allow countries to access larger markets through exports

According to article III (5) of the Marrakesh Agreement establishing the WTO, the organization also aims for coherence in global economic policy-making with the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD), the latter being one of the branches of the World Bank.

The members of the WTO must adopt certain agreements. The two main principles of these agreements are these.

One, the Most Favoured Nation (MFN) principle stipulates that if a WTO member country grants a trade deal, such as lower customs duties, to one trading partner, it must automatically extend that deal to all other WTO member countries. Some exceptions are permitted, but only under strict conditions. The exceptions are as follows: a group of countries may implement a Free Trade Agreement (FTA) which applies only to goods traded within the group while discriminating against goods originating from outside the group; countries can allow developing countries special access to their markets; a country can initiate barriers against products which are traded unfairly from a specific country; with respect to services, countries can discriminate in limited circumstances (Article I of GATT 1947).

Two, the National Treatment policy stipulates that imported and locally-produced goods should be treated equally, at least after the foreign goods have entered the market. The same applies to foreign and domestic services, and to foreign and local trademarks, copyrights and patents (items of intellectual property). Since this policy only applies once the good, service or item of intellectual property has entered the domestic market, customs duties on imports are permitted even without an equivalent tax on the corresponding domestically produced item (Article III of GATT 1947).

In working to reduce trade barriers, the WTO can allow countries to introduce changes slowly and usually gives developing countries longer to comply.

The agreements of the WTO apply to three main areas of trade: goods, services and intellectual property. The General Agreement on Tariffs and Trade (GATT) governs trade in goods. The core of this is the GATT agreement of 1947. The WTO is a successor to the GATT arrangement as it evolved over the decades until the 1995 replacement of GATT by WTO. The General Agreement on Trade in Services (GATS) governs trade in services. The Agreement on Trade-Related Aspects of Intellectual Property Rights (Agreement on TRIPs) governs intellectual property.

As can be expected with such wide ranging aims, they sometimes require conflicting policies. In such cases, the relative importance of the conflicting aims or means to these aims must be judged and some compromise must be reached. The provisions for Special and Differential Treatment are an instance of this.

Preferential treatment of developing countries

The WTO (and GATT before it) recognises the particularly vulnerable position of developing countries and especially of the poorest among these, such as the least developed countries. With this vulnerability in mind, the organization allows some differential treatment of developing countries that does not apply to developed countries. The Special and Differential Treatment (SDT) provisions of the WTO give developing countries special rights and allow developed countries to treat developing countries more favourably than they would other WTO members. Let me briefly outline the evolution of SDT (Hoekman and Kostecki 2001: Table 12.1).

GATT 1947 Article XVIII acknowledged the special status of countries ‘which can only support a low standard of living and are in early stages of development’ by allowing them to apply some trade restrictions in order to raise standards of living. For example, it mentioned infant industry protection as an additional facility granted to these poor and developing countries (GATT 1947: Article XVIII.2a).

In 1964, the United Nations established the UNCTAD (UN Conference on Trade and Development).

In 1965, a Part IV on ‘Trade and Development’ was added to the GATT agreement. The principles and objectives of this part include the following. It recognizes that export earnings can play a vital part in development and that joint action is essential to the development of developing countries. It notes that the parties to the GATT agreement may enable the less developed members to use special measures to promote their trade and development. It describes paths which may benefit the poorer countries, such as rapid and sustained expansion of exports and diversification of their economies away from an excessive dependence on the primary sector. It notes that the developed countries party to the agreement do not expect reciprocity for commitments to reduce barriers to imports from the developing countries.

However, while Part IV pronounces on various issues of interest to developing countries and describes policies which would benefit them, it does not legally oblige the developed countries to implement the described policies for the benefit of the poorer countries. It contains no legally binding obligations other than to consult.

The Generalized System of Preferences (GSP) scheme was put into motion by the UNCTAD in 1968. It calls on developed countries to grant tariff preferences to developing countries on a non-reciprocal basis. The preferences are granted unilaterally and voluntarily. There is no legal obligation that the preferences be granted, and there are no binding specifications on the areas in which the preferences should be granted.

In 1971, the GATT grants an authorization for the GSP preferences. The waiver is made permanent by the 1979 decision of the GATT known as the Enabling Clause[1]. The Clause enables contracting parties to accord differential treatment to developing countries as a departure from the MFN principle since it allows that the favourable treatment granted to a group of developing countries need not be extended to other contracting parties. This consolidated the concept of non-reciprocity, where trade concessions made by country X to country Y (say, lowering of tariffs on imports from Y) need not be reciprocated by similar concessions from Y.

Early years of GATT and the sidelining of developing countries

One attempt at making up for the particularly vulnerable situation of the developing countries was to exempt them from some of the obligations GATT placed on developed country members. This occurred in the early years of the GATT agreement, precursor to the existing WTO arrangement.

In the first twenty years of the GATT, developing countries were given few obligations, but at the same time, they had only a weak voice in negotiations and little power with which to assert their interests.

Article XVIII of the GATT rules allowed poor developing countries to take protective measures against imports. Developing countries could thus be members of GATT, and yet still evade some of the obligations placed on the developed countries. These rules allowed the developing countries greater freedom in determining their developmental policy. However, this advantage came with a cost. The exemptions allowed the developing countries to introduce trade protections at their own discretion. This rendered doubtful any concessions made by a developing country: it could effectively rescind the concession at its discretion. Accordingly, these countries had even less bargaining power to shape negotiations in their interests (Stiglitz and Charlton 2005: 43).

Developing countries benefited from liberalization of industrialized countries because of the MFN principle. However, the fact that they could evade many obligations to reduce trade restrictions meant that they only had a peripheral role in negotiations. This resulted in developing countries having little influence on the way that the industrialized countries liberalised. Those with a greater role in negotiations set the agenda according to their interests. They chose to discuss sectors of the economy that were of greatest concern to them, and where they had the most to gain. Liberalization in trade of goods of interest to developed countries occurred swiftly. Yet, liberalization in trade of goods of interest to the developing countries – especially labour-intensive goods – lagged behind and the developing countries ultimately suffered. Had the developing countries had greater influence in setting the agenda for negotiations, they would likely have focused on areas in which they could benefit most from reductions across the world – areas such as agriculture or labour intensive production and manufacturing.

Many developed countries were fine with the peripheral role of developing countries and with the resulting focus of negotiations. The small markets of the poor developing countries were not particularly attractive to these developed countries. Thus, the latter did not mind too much that the developing countries did not make as many concessions in removing their trade barriers. Moreover, the developed countries were glad at the peripheral role of the developing countries as it meant that they were spared the pain of removing their own trade barriers to products in which developing countries have a comparative advantage. The developed countries mostly sought to liberalize trade in those goods that were traded intensively between developed countries as these countries had the most attractive markets (Stiglitz and Charlton 2005: 93, 44).

The result was a system where the trade policies of the developed countries could be said to be discriminatory against the developing countries, even though the MFN was not generally violated. The most serious barriers to trade were erected in goods where developing countries typically had a comparative advantage (for example, agriculture and various labour-intensive goods), as these countries had little say in setting the agenda of trade negotiations and little credibility to offer in exchange for concessions they might extract from the developed (Johnson 1967: 79).

In 2004, there were once again suggestions (from the EU trade commissioner) that the developing countries might have a “Round for Free”[2]. That is, they might have a round of trade negotiations without having to make many concessions. They could thus benefit from the reductions in MFN rates that occurred, without themselves conceding reductions.

This would be undesirable for the same reasons as the undesirability of the sidelining of the developing countries in the early years of the GATT. Whatever other effects the so called Round for Free might have, it would also reduce the developing countries’ power to influence agenda setting and the direction of trade liberalization. An alternative would be if the developing countries were involved in designing the very core of new WTO policy, so they could participate in agenda setting and steer the design in the direction of their interests. This alternative is preferable to the strategy under discussion which simply exempts developing countries from policies which have been drawn up without their interests in mind (Keck and Low 2006: 180).

Moreover, allowing minimal liberalization by poor countries affects not only their developed country trade partners, but also their fellow developing country trade partners. The volume of trade between developing countries, or South-South trade, is growing much faster than that of world trade. Developing countries often face higher tariff barriers in other developing country markets than in developed country ones. There is potentially much to be gained for developing countries if their developing country trade partners lower trade barriers to them (Stiglitz and Charlton 2005: 94).

For these reasons, the peculiar needs of developing countries cannot adequately be met through a ‘Round for Free’-type exemption (and resulting exclusion from negotiation) of developing countries from obligations imposed on other countries.

Current Special and Differential Treatment (SDT)

Developing countries currently have a greater role in negotiations relative to the sidelining in the early GATT years. The following are the main types of current SDT measures:

· provisions aimed at increasing trade opportunities through market access (for example, there are exemptions from the MFN principle so that developed countries are enabled to allow greater market access to exports of developing countries);

· provisions requiring WTO members to safeguard the interests of developing countries (these are not legally binding obligations on developed countries, but rather clauses to the effect that ‘developed countries will endeavour to be considerate of poor country interest. Here is an example. “The developed contracting parties shall to the fullest extent possible … give effect to the following provisions: (a) accord high priority to the reduction and elimination of barriers to products currently or potentially of particular export interest to less-developed contracting parties…” (GATT 1947: Article XXXVII.1));

· provisions allowing flexibility to developing countries in rules and disciplines governing trade measures (this can occur in the form of allowing them some choice in whether to implement agreements requiring regulatory or administrative reform);

· provisions allowing longer transitional periods to developing countries; and

· provisions for technical assistance.

Some examples of SDT from WTO agreements are footnoted below[3].

The types of SDT that I will mostly focus on are efforts to increase market access for developing countries and provisions requiring developed countries to safeguard developing country interests. This is not to mark these provisions as more important than other SDT provisions, many of which are very valuable. The focus simply reflects my chosen circumscription of the discussion. Greater market access for developing economies is encouraged via differential obligations on removing subsidies or tariffs and via exemptions from the MFN principle. In some cases developing country governments are allowed to maintain domestic support for certain producers even though developed country governments are enjoined to reduce these[4].

Exemption from the MFN principle enables developed countries to lower tariffs on imports from developing countries without also offering the same reduction to like imports from other countries.

The idea is that even if a developed country is unwilling to lower its trade restrictions on imports of some product across the board, it may be willing to lower those restrictions on imports of that product from developing countries. The preference margin is the difference between the tariffs set on imports from the selected developing countries and that set for other countries (which can be referred to as the MFN rate). The longer term aim is the reduction of MFN tariff rates towards zero (as per para 3(b) of the Enabling Clause). The preferential treatment is intended as temporary and lasts as long as MFN rates are above zero.

Reasons for Special and Differential Treatment of developing countries and especially of Least Developed Countries (LDCs)

Let me list four different sorts of reasons presented in support of special and differential treatment or SDT (Page and Kleen 2005: 6-8).

First, consider the original justification, which was informed by Prebisch 1950 and Singer 1950, and which lies at the foundation of the United Nations Conference on Trade and Development (UNCTAD) and in the adoption of Part IV of GATT. The justification is that developing countries are different in ways that policies best for developed countries are not necessarily best for the developing. These latter countries need to transform the structure of their economies rather than merely expanding the existing structure. The sort of structural transformation involves, for example, promoting particular sectors of the economy in order to develop fluency in more technology-intensive industries. This can require planning and intervention by the government, as well as some temporary loss in efficiency while the intervention in the market bears fruit. Further, developing economies often differ in sectoral composition and in the size and competitiveness of firms. As a result, the argument goes; policies may have different effects to what would be expected in developed countries. There may be lower gains from trade than would be expected for a developed country. Or there may be lower efficiency cost of subsidies (the loss in efficiency caused by the introduction of a subsidy). The idea that developing countries need to intervene more than developed countries need to is the basic argument behind SDT designed to allow developing countries to follow different policies.

Two, trade liberalization can require costly economic and institutional adjustments. For example, developing countries often need to expand production in an export sector or need to enter new foreign markets and there can be substantial costs to making these economic adjustments. To help developing countries make these adjustments and to make the costs more bearable, rules can be modified or transitional rules can be implemented. Ensuring that countries are subject to lower tariffs in a transitional period can make the cost more bearable. The idea is that this will put them on par with (rather than give them an advantage over) domestic producers in the importing developed countries. Even if they do have an advantage over the import competing firms in the developed country, the exporting developing country firms are often too small to make much of a difference to the competitors.

Other substantial costs can be in terms of development of the requisite infrastructure of laws, regulations and policies. Developing countries will probably need to make the biggest changes to comply with the so-called ‘Singapore Issues’. The Singapore Issues refer to a group of topics discussed during the 1996 WTO Ministerial Conference at Singapore. The topics include investment protection, competition policy, transparency in government procurement, and trade facilitation. There are heavy costs attached to the creation and enforcement of new competition policy, investment regulations, and trade and customs procedures. Generally, developing countries have the furthest to go to meet these regulation and procedural standards, and often face a shortage of the requisite legal, administrative, bureaucratic and other expertise to design and implement the changes.

Three, many believe that developed countries have benefited disproportionately from past GATT rounds as well as from present WTO arrangements, and that they do so at the expense of developing countries. SDT is seen as a way of redressing the balance. There is evidence that developing countries, particularly the LDCs, had few economic gains and suffered some losses from the Uruguay Agreement (the round of negotiations ending in 1994) of the WTO (see, for example, Page and Davenport 1994). This is due in part to some distortions in the existing WTO system. For example, there is greater protection in sectors like agriculture and textiles – where developing countries have the comparative advantage – than there is in sectors where the developed countries have the comparative advantage. Even some of those who think greater and freer trade is beneficial to all, might think that such existing distortions need to be offset by preferential treatment for developing countries. These measures can be supported either as a second best economic solution or as a confidence-building measure to include the developing countries despite perceptions of an unfair distribution of advantages from previous rounds of negotiations. Supporters of this view can retain free trade as the ultimate objective, whilst acknowledging that if the protectionism of developed countries prevents us from getting there in the immediate future, then we can at least encourage lower trade restrictions for those most in need of the benefits of trade and those too small to raise protectionist fears (namely, developing countries, especially LDCs and small countries).

Four, some reject the basic premise of GATT, which is that all countries can gain from trade, and argue that some types of countries need different policies. The view is that some countries need permanent special treatment because of peculiar features such as their size or geography. The view holds that many of the poorest countries, or countries that gain least from trade, are not just less developed, but are unable to follow the same path as other developing countries. Such countries may be too small to diversify away from dependence on one or two export commodities, making them more vulnerable to world price changes in that single commodity. They may also have greater import dependence, as their economy may not be of sufficient size to produce a great diversity of products. Regarding matters of geography, many small economies happen to face greater costs due to greater distance from large markets and from suppliers and many happen to be particularly vulnerable to natural disasters. They still have a comparative advantage in some products, but the absolute disadvantage means they can never secure a high income (Winters and Martins 2004: 348).

All this means that these small countries in free trade would possibly find that they cannot establish a commanding position in any export. They have relatively high costs due to inability to match the economies of scale of larger economies and the cost of importing inputs from distant regions as well as high transport costs in shipping their goods to large markets, which are also distant. Their unusually high reliance on imports for many essentials may make inhabitants particularly vulnerable to fluctuations in world prices and in export revenue (with which to pay for imports) in the absence of interventions to stabilise the effects of these on the economy.

Criticisms of existing arrangements for SDT

Both debate internal to the WTO and academic literature external to it contain various criticisms of existing SDT measures. The criticisms are used to different ends by different authors, and there are many proposals for improving the system: for example, fine-tuning the SDT provisions; changing the sorts of industries in which SDT provisions have had most impact; reducing the role of some sorts of SDT in trade negotiations; and alternative systems of preferential or progressive trade regulations. I will use the criticisms as basis for a particular alternative, namely, the Market Access Proposal discussed below. For the time being, let me list some of the criticisms in the literature. For ease of presentation, I group the criticisms under three loose sub-headings: costs imposed by the SDT scheme on developing countries; bias against the areas of greatest interest to developing countries; and unnecessarily moving trade further from efficient specialisation.

Costs imposed by the SDT scheme on developing countries

Rules of origin are regulations determining a product’s country of origin. An importing country can sometimes impose different tariffs or duties on imports from different countries, perhaps because of differential treatment of particular groups of developing countries or because of bilateral trade agreements. Determination of country of origin affects the tariff or duty that is imposed. There are currently many bilateral trade agreements and preferential treatment arrangements. Rules for determining country of origin and tariff rates vary from country to country. Often products contain components or inputs from many different countries. All of this combines to make determination of country of origin a complex matter which imposes transaction costs on exporters. The cost lies in researching and assessing the likely duties one must pay to export to a given country and in keeping up with the countries of origin of all components. This is particularly costly for small corporations and traders, and for developing countries (Sutherland et al 2005: 22).

Policy makers and advisors have finite resources and must make trade offs. Keeping up with the complex negotiations on SDT at the WTO and on GSP with particular developed countries can require a lot of resources. Yet, greater of preferential market access in international trade is only one aspect of poverty alleviation and accordingly, there is an opportunity cost to this use of resources. For, there are other critical areas in poverty alleviation such as macro-economic policy, basic health provision, infrastructure provision, education, effective governance and property rights. There is the danger that the Doha Development Agenda of the WTO (part of the most recent round of WTO talks) and, more generally, negotiations regarding preferential market access through GSP and SDT, can absorb all trade-policy making resources and much bureaucratic and analytical capacity in many developing countries, at the expense of other development areas (Winters 2002: 1-2). If preferential treatment is desired, an arrangement which avoided the complexity of the existing arrangements would be preferable insofar as it would free up more scarce resources for other urgent needs in developing countries.

The utilization rate is the ratio between imports covered by a GSP scheme that actually receive preferences and imports covered by a GSP scheme. There are many reasons why, even though a product is covered by the GSP scheme of a country, its developing world trade partners do not export that product to it in large quantities. For example, there may be high compliance costs, restrictive rules of origin and a lack of understanding of technicalities. The low level of industrialization and diversification in many developing countries may mean that they are unable to initiate or expand production of many of the commodities covered by a GSP scheme (Page and Kleen 2005: 14-5). It may also be because of ongoing uncertainty about tariffs in the future. To function as an incentive to traders in developing countries, preferences must be predictable and stable enough to allow traders to rely on them in planning exports and increases in production. For various such reasons, the utilization rates for developing countries are generally quite low, especially for LDCs (UNCTAD 1999: para 56-7).

Bias against the areas of greatest interest to developing countries

There is a lower preference margin on agricultural goods than on industrial goods. (Recall that the preference margin is the difference between the tariffs set on imports from the preferred developing countries and the MFN rate (the tariffs set for other, non-preferred, countries)). It is generally granted that the poorer developing countries depend more substantially on agriculture and the primary sector more broadly. The comparative advantage of developing countries generally lies in the primary sector. The fact that preference margins in this area are nonetheless lower, may reflect the fact that grantor and not grantee interests determine the preferences (UNCTAD 1999: para 53).

The Enabling Clause does not place formal obligations on developed countries[5]. The exemptions from MFN, for example, are entirely voluntary on the part of the grantor developed countries. The grantors are not obliged to give tariff preferences at all, and in cases where they do choose to provide tariffs, they decide unilaterally which products and countries will be covered.

Once preferences are granted, they are not binding on the grantor countries and can be altered to exclude certain products, or even withdrawn entirely at the grantor’s discretion. Without binding obligations, preference providers face pressure from their own import-competing domestic lobbies to minimise the scope of their preferential schemes. The result is that interests in the preference grantor country, rather than the interests of the grantee country, determine the products covered and the types of preference offered.

In the case of the EU’s GSP (Generalized System of Preferences), once the scheme led to successful exports, the EU began setting annual quotas that considerably restricted the advantage that the exporting countries could extract from the preferences. Or again, in 1992 US withdrew $60 million worth of pharmaceutical imports from their preference scheme because the US Trade Representative determined that India had weak patent protection that adversely affected US companies (Sutherland et al. 2005: 25).

Unnecessarily moving trade further from efficient specialisation

I have mentioned that differential treatment in terms of tariff rates creates a ‘preference margin’: the difference between the rate imposed on all other countries (the MFN rate) and the rate imposed on the preferred country. The margin allows the preferred country a competitive edge over other exporters. The preferred country develops an interest in stalling negotiations to reduce MFN rates, because such a reduction would narrow the preference margin and thus its competitive edge (Sutherland et al 2005: 23). Since some developing countries face the MFN rate while others face the preferred rate, the latter countries’ stalling of negotiations to reduce MFN rates hurts the former developing countries[6].

Insofar as the preferences apply to one group of developing countries and not to other developing countries, they often simply divert trade from some poor countries to others, at the whim of the country granting them. That is, while a country may have been importing from developing country X before preferences, after preferences, it finds it cheaper to import from developing country Y. In terms of efficiency, trade diversion can switch demand away from an efficient (but not-preferred) producer to a less efficient (but preferred) producer.

The EU’s ‘Everything But Arms’ (EBA) agreement granted duty free and quota free access for all LDC (Least Developed Countries) exports except for arms and for three sensitive agricultural products. To put this preference into context however, note that the LDCs produce almost nothing that is directly competitive with EU production. The countries produce such small amounts that the removal of duties on their exports will rarely reduce prices sufficiently in the EU to expand demand from EU consumers. Instead, the EBA diverts EU purchases from other countries to LDCs. Generally the countries which compete most closely with the LDCs are countries whose incomes fall just outside the ‘least developed’ limit. These countries, very nearly as poor as the LDCs, see their demand diverted to LDCs (Winters 2002: 25).

This does not benefit the developing world as a whole, but only shifts the same amount of export revenue from one needy country to another. Moreover, since the choice of preference recipient is up to the grantor country, this leaves some potential for political favouritism and punishment in extending or withdrawing preferences to developing countries (Stiglitz and Charlton 2005: 100).

A preferable system would institute a rule-based and principled mechanism for differentiating between rich and poor, and strong and vulnerable economies. Many possible systems can be designed with this aim in mind. I will investigate one proposal in the literature.