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Preferential Trade Agreements

How Much Do They Benefit Developing Economies?

image of Preferential Trade Agreements

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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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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