Policy Responses to Trade Preference Erosion

Options for Developing Countries

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It was hoped that trade preferences, offered to exports from developing countries by industrialised countries, would give greater economic benefits than has been the case. Now continuing multilateral tariff liberalisation threatens to further erode even those benefits that remain.

This study looks at how best developing countries should respond to this erosion of trade preferences, either through restructuring individual preference arrangements or by acting to offset the adverse effects of preference erosion.



Future Prospects and Policy Options

The literature reviewed in the previous chapters has shown the relative significance of various preference schemes for developing and least developed countries. For most developing countries and many LDCs, preference margins are quite small, so preference rents are negligible and the implications of preference erosion are small. In this context preference rents can be interpreted as the (additional) export value derived by beneficiaries, which depends on their ability to take advantage of the margins. Typically, a number of countries are offered the same preferences (this is especially true for LDCs) and it is the more competitive producers who are best able to benefit. This is true whether the margins are large or small, although the size of the potential rent is greater if margins are large and/or if few countries receive the full preference margin. In most cases, margins are relatively small and available to many countries, so the likely losses from preference erosion are not great, overall or for individual countries.


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