Welcome and Introduction

1
Preferences Do they matter and How they will be
affected by WTO negotiations? David
Laborde (CEPII) laborde_at_cepii.fr This
presentation is based on collective works with
L. Fontagné (CEPII) and S. Jean (CEPII) Expert
Group Meeting on Market Access Tunis, 22-23
November
2
Why preferences matter

• Agricultural markets are not only highly
  protected market access conditions are highly
  discriminatory
• Trade preferences as substitute for more
  ambitious development policies
• Tariff instruments combined with quotas allocated
  on a discriminatory and non transparent manner
• Differential access translates into sizeable
  rents
• Consequences for the WTO negotiations The
  erosion of preferences

3
Political economy issues

• Preferences being used as a development
  instrument, their benefits accrue by definition
  to the poorest countries
• Concern in rich countries regarding the risk of
  impoverishment of these economies
• The concept of preferences is currently under
  attack
• Major exporters of agricultural foods do not
  appreciate to not benefit from most of the
  preferential regimes.
• Preferences are the core stone of EU trade
  policy.
• Numerous institutions and economists think that
  preferences are a poverty trap. They add a
  distortion instead of removing one (Just a
  reminder the world is far to reach its first
  best equilibrium).
• Many papers aim to show that preferences are
• Inefficient / not use / dangerous
• BUT some independent works shows that the growth
  rate of countries that received the largest
  tariff reductions accelerated relative to the
  growth rate of countries that benefited less.
  (Romalis, 2003)
• A limited number of member countries can block
  the negotiation at the WTO

4
Overview of my presentation

• Step 1 account for the existence of PTAs when
  assessing multilateral trade liberalisation
• Step 2 account for the practice of PTAs
• Step 3 assess the impact of multilateral
  liberalization on preferential margins.

5
(Simplified) EU's trade policy in 2001
G.S.P
L.D.C.
East Timor
Afghanistan
C.F.D..
Myanmar
Yemen
A.C.P.
C.A.C.M.
Cambodia
Bangladesh
Honduras
Brunei
Tonga
Andorra
Nepal
Maldives
Panama
El Salvador
Australia
Lesotho
Cape Verde
Togo
Guatemala
Nicaragua
Bhutan
Samoa
New Zealand
Japan
Botswana
Costa Rica
Ethiopia
Ctrl. Afr. Rep.
Senegal
Laos
Sao Tome
Hong Kong
Korea, Rep.
Andean Group
Bolivia
Zambia
Tuvalu
Burkina Faso
Angola
Singapore
Ecuador
Colombia
Peru
Venezuela
Kiribati
Benin
Madagascar
Canada
U.S.
Sudan
Solomon Isl.
Eq. Guinea
Uganda
E.E.A.
Malawi
Mali
Vanuatu
Gambia
Comoros
Guinea-Bissau
Haiti
Norway
Burundi
Cuba
Somalia
Niger
Tanzania
W.T.O.
Rwanda
Macao
Liechtenstein
Guinea
Mauritania
Pakistan
Eritrea
Iceland
Chad
Liberia
Mozambique
Sierra Leone
Mexico
Paraguay
Djibouti
E.F.T.A.
Switzerland
South Africa
Zimbabwe
Kenya
St. Lucia
Suriname
Argentina
Seychelles
Dominica
Barbados
Congo
Bahrain
Qatar
Malaysia
Nauru
Dominican Rep.
Antigua
Bulgaria
Namibia
Thailand
Gabon
Hungary
Swaziland
Congo Dem.Rep.
Jamaica
Cook Isl.
U.A.E
Romania
Czech Rep.
Kyrgyzstan
Cameroon
Guyana
Trinidad
Palau
Mauritius
Poland
Albania
St. Vincent
Indonesia
Chile
Slovakia
Micronesia
Ghana
Grenada
Latvia
Tokelau
Uruguay
Estonia
Marshall Isl.
Ivory Coast
India
Nigeria
Kuwait
Slovenia
Brazil
Papua
Mongolia
Belize
Montserrat
Bermuda
St. Kitts
Niue
Yugoslavia
Israel
Morocco
Egypt
Sri Lanka
Bahamas
Fiji
Macedonia
Taiwan
Malta
Uzbekistan
Turkey
Philippines
Cyprus
Anguilla
Euromed
Tunisia
Belarus
Turkmenistan
Oman
Russia
Lithuania
Syria
Iran
Georgia
Algeria
Jordan
Palestinian auth.
Vietnam
Lebanon
Libya
Kazakhstan
Iraq
Greenland
Gibraltar
Ukraine
Aruba
Korea, Dem. Rep.
Bosnia Herzegovina
Tajikistan
Armenia
China
Moldova
Azerbaijan
Croatia
Saudi Arabia
Source authors' revision, based on Bouët et al.,
2002. Note An underlined country's name
signals a bilateral agreement with the EU.
6
Measuring preferences MAcMap_HS6

• Sources source files of TRAINS, country
  notifications to the WTO, AMAD, national sources,
  Comtrade, BACI-CEPII, many cross checking.
• See methodological note for details (Bouët et al.
  2004, www.cepii.fr/anglaisgraph/bdd/macmap.htm)
• Measures applied duties (incl. exhaustively PTAs)
  in 2001
• AV, specific, Tariff Rate Quotas
• 163 countries, 240 partners
• Aggregation procedure intended to reflect trade
  restrictiveness (not tariff receipts...)

7
Methodology (1) Calculating AVE at the HS-6
level

• Use of HS-6 level trade data Comtrade
  harmonisation (BACI database, see www.cepii.fr)
• When HS-6 product includes several TL simple
  average
• Specific tariffs
• ? structural specificities of exports (//
  quality, different sub-products, niches, etc.) ?
  convert using UV of the exporters reference
  group (RG)
• use weighted median, instead of average (for the
  sake of robustness)

8
Methodology (2) Aggregation

• Reflect trade restrictiveness
• Across products and exporters weighting scheme
  based on imports of the RG the importer belongs
  to, instead of the importer himself
• Across importers weighting scheme accounts for
  the size of the importer, and of the share of the
  product in imports of the RG the importer belongs
  to

9
Average protection in selected countries, by
partner (AVE, )

• Source MacMap_HS6

10
MFN vs. Applied rates
Preferential margins

• Source MacMap_HS6

11
Average protection faced, by exporter (AVE, ) -
Agriculture, 2001

• Source MacMap_HS6

12
Under-utilisation of preferencesRecent pieces
of evidence

• benefiting from preferences involves costs
  (documentation etc.) and constraints (RoOs,
  etc.) their utilisation is imperfect
• Brenton (2003) extremely poor utilisation of EBA
  by LDC-ACP countries in 2001, poor utilisation by
  non-ACP LDCs (approx. half)
• Inama (2003) similar results for 2002 (ut n
  rate of EBA 2.6)
• Both points to overly restrictive RoOs, and to
  the weak interest of EBA to ACP LDCs
• Gallezot (2003) high utilisation of preferences
  (not only EBA) by ACP in agricultural products
  (more than 80)

13
Illustration
Source MAcMap_HS6
14
Do "preferred" countries use the preferential
regimes they are entitled to?

• Uncertain because of RoOs, technical
  administrative requirements, etc.
• What matters is average protection faced in
  practice
• 3 AVEs computed (Candau et al., 2004, based on EU
  customs declaration)
• MFN
• "Best" (i.e., lowest) preferential duty
  applicable
• "Requested" average duty levied in practice

15
The problem of competing preferences

• Numerous partners are eligible to several
  preference regimes
• For LDCs, GSP (EBA) is more favourable than other
  preferences, although associated with more
  restrictive requirements
• For non-LDCs, regional agreements are more
  favourable than GSP
• Utilisation rate only makes sense for the most
  favourable regime
• In addition, worth measuring the utilisation of
  at least one preference

16
How far the preferences are used?
Source Candau et al., 2004
17
African countries utilisation rate
Source Candau et al., 2004
18
MFN, requested and best preferential duty in the
EU, Raw ag, 2001 (AVE, )
Source Candau et al., 2004
19
MFN, requested and best preferential duty in the
EU, Food, 2001 (AVE, )
Source Candau et al., 2004
20
The "mechanics" of erosion

• The cuts are applied to bound duties
• A new (lower) cap is set for tariffs
• For a given line, the higher the initial tariff,
  the deeper the cut
• Preferential tariffs are not necessarily cut down
• Preferences are proportionately more eroded than
  tariffs are cut

21
Erosion illustrated (1)initial state
22
Erosion illustrated (2)50 cut in the bound rate
23
Erosion in practice(GTAP sector)
Source MAcMap
24
Impact of Agricultural liberalization on the
maximum preferential margins given by EU
25
Impact of Harbinsons proposal on average
protection faced, by exporter
(Source Bouët et al., 2004, based on MacMaps_HS6)
26
Impacts on agricultural exports ( changes in
volume)
(Source Bouët et al., 2004, based on MacMaps_HS6)
27
Concluding remarks (I)

• Preferences matter, not necessarily on average,
  but for some specific (and poor) countries
• Imperfect utilisation does not change
  significantly the broad picture
• Multilateral liberalisation should entail more
  than proportionate erosion
• Limited amount, well-identified vulnerable
  countries (Caribbean, SSA, Mediterranean, LDCs) ?
  the problem can be addressed
• Possible remedies tailor-made adaptation of SDT
  product-specific adaptation of formula
  adjustment packages offering new opportunities
  (cotton, mode 4...)

28
Concluding remarks (2)

• For African countries negotiators The
  consequences of the Doha round will depend of the
  future of Cotonou agreements.
• For African countries policymakers Internal
  policies should be aimed to fight against
  preferential and tariff quota rents capture by a
  few number of agents.