Preferential Trade Agreements

How Much Do They Benefit Developing Economies?

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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).



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.


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