Preference Erosion and Multilateral Trade Liberalization
40 Pages Posted: 8 Aug 2006
Date Written: August 2005
Because of concern that OECD tariff reductions will translate into worsening export performance for the least developed countries, trade preferences have proven a stumbling block to developing country support for multilateral liberalization. We examine the actual scope for preference erosion, including an econometric assessment of the actual utilization, and also the scope for erosion estimated by modeling full elimination of OECD tariffs and hence full MFN liberalization-based preference erosion. Preferences are underutilized due to administrative burdenestimated to be at least 4 percent on averagereducing the magnitude of erosion costs significantly. For those products where preferences are used (are of value), the primary negative impact follows from erosion of EU preferences. This suggests the erosion problem is primarily bilateral rather than a WTO-based concern.
Keywords: preference erosion, GSP, WTO, Doha Round, trade and development
JEL Classification: F13
Suggested Citation: Suggested Citation