Preferential trade agreements have long been regarded as a factor limiting the development of multilateral trade. Now, on the contrary, they are being criticised for their shortcomings. A recent debate about the utilisation rate of trade preferences suggests that the preferential arrangements of the United States and the European Union are under-used.

Non-discrimination is one of the fundamental principles of the General Agreement on Tariffs and Trade (GATT), signed by the 148 countries that are members of the World Trade Organisation (WTO). The Most Favoured Nation (MFN) clause of the 1947 Agreement prohibits the existence of preferential trade insofar as “any advantage, favour, privilege or immunity granted by any contracting party to any product originating in or destined for any other country shall be accorded immediately and unconditionally to the like product originating in or destined for the territories of all other contracting parties” (Article I).

The EU unilaterally grants a large number of tariff preferences to less developed and developing countries. However, a study of utilisation rates confirm that some non-reciprocal schemes are underutilised because imports qualifying for preferential treatment often take advantage of more favourable quotas or tariff suspensions for certain products under other programmes. Consequently, utilisation rates are generally high when account is taken of all the schemes for which countries are eligible. Ultimately, the problem raised by dual eligibility for preferential treatment is that of harmonisation of the various systems or dilution of the objectives pursued by each.

The study shows that the utilisation rate for US non-reciprocal preferences is high. Developing countries make considerable use of preference schemes for their exports to the US. Cases where relatively little use is made of certain schemes in proportion to eligible imports are generally because the product can enter the US duty-free under a competing scheme. When eligible goods are exported under Most-Favoured Nation rules it is partly due to compliance costs and rules of origin. These costs can exceed the preference margin and result in goods being imported under Most-Favoured Nation rules, which are much less administratively complex. Constraints imposed by rules of origin or inspection and certification procedures may be dissuasive...