DP5153 Preference Erosion and Multilateral Trade Liberalization

Author(s): Joseph Francois, Bernard Hoekman, Miriam Manchin
Publication Date: July 2005
Keyword(s): development, Doha Round, GSP, preference erosion, trade, WTO
JEL(s): F13
Programme Areas: International Trade and Regional Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=5153

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 burden — estimated to be at least 4% on average — reducing 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.