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). The study also finds that the Generalised System of Preferences provides less-generous preferential margins and is more limited in product coverage than other programmes. What provides the biggest preferential margins and widest product coverage? For the LDC, the answer is duty-free access. Finally, it is observed that problems due to preference erosion can be mitigated when a significant share of agricultural imports enters each Quad country with a Most Favoured Nation rate of 0%, and when developing countries participate in a fair share of this trade. Currently, the value of preferential access is provided mostly by the EU and concentrated on a few developing countries and commodities, primarily bananas and sugar. For those few countries that still rely on preferences, benefit erosion can entail considerable adjustments.