Preference erosion
Many agricultural tariffs are very high in the EU (roughly 100% for beef and dairy products, and more than 200% for sugar, for example). However, many developing countries can export under preferential regimes , with lower or zero tariffs. The preferences are uneven across countries, but the Least Developed Countries, as well as African and Caribbean countries, benefit from very large preferences. These preferences are a significant source of income, since the beneficiary countries can sell their products in the EU at a much higher price than the world one.
If tariffs are further reduced in the Doha Development Round, the value of preferences will also be reduced. For example, the average tariff faced by US exports of beverages and tobacco to the EU is presently 23.5%, while the one faced by African exports is 2.2%. One suggested structure of tariff reductions in the Doha Round would mean little change for Africa, while the tariffs faced by US exports would fall to 7.7%. The preference margin for Africa would be only 6.7% instead of 21.3%. As result, African countries could be squeezed out the EU market by more efficient producers such as the US or Argentina.
The erosion of preferences, whether due to multilateral tariff reductions or unilateral reform of the Common Agricultural Policy (e.g. reform of the sugar sector),will result in significant losses for Least Developed and for African and Caribbean countries. Preference erosion is not a good reason to stop the trend towards multilateral liberalization, but how to offset the adverse effects for the affected countries needs specific consideration, including possible compensation. Some studies suggest that ACP countries could lose more than 2 billion dollars from preference erosion, and that the benefits of the Everything But Arms agreement for poorest countries could become close to zero. Other studies are less pessimistic, suggesting that the aggregate losses will be small and only noteworthy for a small number of countries.
Resources:
Topp, V. Are trade preferences helpful in advancing economic development? Working Paper 03-5, Asia Pacific School of Economics and Government, The Australian National University.
A sceptical look at trade preferences which argues that the longer-term interests of developing countries are best served by comprehensive global trade liberalisation.
Topp Are trade preferences helpful.pdf (353.84 kB)
Stevens, C. and Kennan, J., Comparative Study of G8 Preferential Access Schemes
Stevens Kennan G8 Prefs Final Report2004.doc (2.77 MB)
Alexandraki, K., "Preference erosion: cause for alarm?", Finance and Development, March 2005
Examines which middle-income developing countries are most vulnerable to preference erosion.
Alexandraki preference erosion.pdf (116.60 kB)
