Preferential Trade Agreements

Preferential Trade Agreements

How Much Do They Benefit Developing Economies? You do not have access to this content

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Peter S. Liapis
11 July 2007
9789264033696 (PDF) ;9789264033689(print)

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This report aims to answer two major questions: (1) How beneficial are the trade preferences provided to developing countries; and (2) what are the implications of possible erosion of these benefits under multilateral trade liberalisation? The report focuses on trade preferences provided by the so-called Quad countries (Canada, the European Union, Japan and the United States) because they have some of the world’s highest tariffs on agricultural commodities. Findings from this study suggest that although preferential margins will be eroded with multilateral liberalisation, this may be a problem only for certain countries and within specific sectors, and that factors not related to preferential trade schemes may be limiting the exports of the least-developed countries (LDC).

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  • Executive summary
    The present analysis is part of the OECD’s ongoing effort to examine the implications of non-reciprocal tariff preferences provided by developed countries to developing and least developed countries in agricultural trade. The first part of this two-part report focuses on calculating the preference margins for selected non-reciprocal preference arrangements at the detailed tariff-line level provided by each Quad country (Canada, European Union, Japan, and the United States) and how these margins will change under alternative MFN tariff reduction formulas. Part II combines the preference margin information from Part I with trade data, again at the tariff-line level, to assess the value of the apparent preferential receipts provided by the Quad to the countries eligible to the various non-reciprocal agreements. The report identifies the countries that garner the largest gains and the agricultural commodities that generate the largest benefits, while also identifying countries that are more reliant on preferential market access and that may be more vulnerable to preference erosion.
  • PART I. - Preferential margins in the agricultural sector of quad countries for selected non-reciprocal agreements
    Tariff preferences are provided as a means to foster development through trade, but these have come under increasing scrutiny in recent years. Part I focuses on the size of the preference margins in agricultural trade and the possible implications of any erosion of these margins that could occur under multilateral liberalisation. Each of the Quad countries (Canada, the European Union, Japan, and the United States) implements their own preferential schemes for different groups of developing countries, with the nature of these schemes being variable across the Quad countries. In the preference regimes of all Quad countries, the Generalized System of Preferences (GSP) program has the largest number of eligible countries, but the preferential margins here are less generous and the product coverage is less inclusive than those for other programs. The group of Least Developed Countries (LDCs) benefit from duty-free access, giving them the largest preferential margins and the broadest commodity coverage. Preference margins will fall when there are Most Favoured Nation (MFN) tariff reductions as may occur under multilateral liberalisation. As more products are declared sensitive, and thus exempted from reductions applied to all other products, the fall in the average MFN bound tariffs will be lower and the remaining preference margins higher.
  • PART II - The value of agricultural preferential access
    The value of agricultural preferential accessThe preference margins calculated in Part I, along with the import data, are used to calculate the value of the preferences provided by each Quad country (Canada, European Union, Japan, and the United States). Preferential access to Quad agricultural markets generated, on average, an additional USD 1.4 billion a year from 2001 to 2003 to countries with preferential access, compared to almost USD 90 billion of dutiable agricultural produce imported each year. The value of preference margins (VPM) is generated primarily by exploiting the European Union’s non-reciprocal preferential schemes, with the United States a distant second. The scheme with the largest preferential receipts is the European Union’s scheme for Africa, Caribbean, and Pacific countries (ACP), which have an average VPM of USD 766 million. Preferential receipts provided by the Quad countries are concentrated in a few developing countries and for a few commodities. The top five ACP recipients obtained 35% of the ACP VPM, while exports of sugar and bananas by the ACP countries accounted for 73% of their preferential receipts. Least Developed Countries (LDC) do not capture a significant amount of preferential receipts. Indeed, none of the top 30 countries in terms of VPM is an LDC. Although the VPM is relatively small compared to dutiable trade and only a handful of countries receive the bulk of the proceeds, a number of countries are reliant on preference schemes as their exports tend to be concentrated on a few commodities that benefit from substantial preference margins. For 37 countries, the VPM is more than 0.5% of their agricultural value added, while for 11 it is more than 10%.
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