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Agricultural Trade Preferences and the Developing Countries
John Wainio, Shahla Shapouri, Michael Trueblood, and
Paul Gibson
Economic Research Report No. (ERR-6), May 2005
Preferential trade programs are an effort by high-income developed
countries to provide tariff concessions for low-income developing
countries, with the goal of increasing export earnings, promoting
industrialization, and stimulating economic growth in the less
developed countries. This is done by giving select developing
countries a tariff rate below those given to all other countries.
Today, the United States and the European Union (EU) are the
main preference-granting donors, with more than 100 designated
beneficiary countries and territories.1
What Is the Issue?
Preferential trade programs are an issue in the ongoing World
Trade Organization (WTO) Doha negotiations, when WTO members
discuss market access and negotiate the size of cuts to their
“most favored nation”(MFN) tariffs. Reducing MFN
tariffs also reduces the margins of preference developing countries
receive. These margins are measured by the degree to which preferential
tariffs are below the MFN tariff.
What Did the Study Find?
Agricultural Trade Preferences and the Developing Countries
notes that the two donors’ programs are similar, despite
differences in country and product coverage and in the level
of trade concessions provided. Both countries have included
more and more products over time, particularly from the world's
poorest countries. However, U.S. programs offer duty-free access
to all eligible products, while EU programs offer duty-free
access to some products and reduced tariffs to others. Import-sensitive
products are excluded altogether from the U.S. and EU programs,
or the quantities of such imports are effectively limited through
regulations. The volume of agricultural imports receiving preferential
tariff treatment under U.S. and EU nonreciprocal trade preference
programs in 2002 represented a relatively small share of total
U.S. and EU agricultural imports, at 6 percent ($3.1 billion)
and 18 percent (11.9 billion euros), respectively.2
Across all tariff lines, imports under U.S. programs accounted
for 19 percent of total U.S. agricultural imports from the preference
recipient countries, while 28 percent of EU agricultural imports
from program recipients came in under EU programs. Tariff lines
refer to the variety of products that fall under a particular
tariff rate. When calculated based only on products facing MFN
tariffs that are greater than zero, 50 percent of beneficiaries'
dutiable exports to the U.S. and 44 percent of recipients' dutiable
exports to the EU came in under nonreciprocal preferences. The
proportion based on dutiable trade is much higher because 62
percent of preference recipients’ exports to the U.S.
and 36 percent of preference recipients' exports to the EU entered
at MFN tariffs that already equal zero.
__________
1 Agricultural Trade Preferences and the Developing Countries
refers to the member nations of the EU as one country to simplify
language. There were 15 member countries in 2002, the year for
the most recent data, and 25 today.
2 All figures cited are based on ERS analysis of the most recent
2002 WTO data.
Overall, trade preference programs receive strong support from
developing countries. ERS analysts found that, based on the
size of the margins of preference provided and the levels of
trade occurring under these programs, the programs offer significant
benefits for a limited number of products and countries. There
are many products upon which trade preferences have no effect
(either because they are not eligible or because they are already
granted dutyfree entry on an MFN basis), others for which the
programs are extremely important (because they are eligible
and would otherwise be subject to relatively high tariffs),
and more still for which the programs are of modest or no significance
(because they are eligible but otherwise subject to relatively
low tariffs—less than 5 percent). Products excluded from
nonreciprocal tariff preference programs tend to be the ones
on which the tariff protection is the highest.
Based on the level of trade that takes place under nonreciprocal
preferential tariffs, the distribution of the gains under both
U.S. and EU programs is not uniform across recipients. Of the
171 countries eligible under EU programs only 132 actually shipped
agricultural products under preferences in 2002. Only 102 of
the 151 countries eligible under U.S. programs took advantage
of those programs. In 2002, the top 20 beneficiaries accounted
for 90 percent of total nonreciprocal U.S. agricultural imports
and 66 percent of total nonreciprocal EU agricultural imports.
Among the most important beneficiaries in both the U.S. and
EU markets were some of the world's largest agricultural traders,
including Brazil, Argentina, India, Indonesia, and Colombia.
Exports under preference programs accounted for a large share
of some beneficiary countries' total exports. More than 50 percent
of the total agricultural exports to the U.S. from 21 countries
and to the EU from 49 countries received tariff preferences
under these programs. Over 75 percent of the total agricultural
exports from Barbados, Jamaica, Mozambique, and Swaziland to
either the U.S. or the EU take place under these programs.
Many of the poorest developing countries do not appear to benefit
from incentives provided by preferential programs. Although
many of these countries have enjoyed preferential access to
U.S. and EU markets for decades, their share of trade has not
increased. For example, in 2002, of the 40 least developed countries
(LDCs) eligible for preferences under U.S. programs, only 20
exported under the programs. Their preferential exports equaled
$53 million, accounting for 1.7 percent of total U.S. imports
under preferential programs. For the EU, only 44 of the 48 LDCs
eligible for the programs actually participated and their exports
accounted for 13.5 percent of total imports under preferential
trade programs.
Both U.S. and EU preferential programs impose restrictions
on products and beneficiaries which limits program use somewhat.
Key restrictions include the non- eligibility of certain products,
many of which are of export interest to developing countries.
For other products, especially those subject to tariff-rate
quotas (TRQs), market access at preferential tariffs may be
constrained to limited amounts. Preferences may also be withdrawn
when countries become competitive in the production and export
of an item.
Administrative requirements for trade and supply constraints
within countries also contribute to low utilization rates of
preferential programs. Chief among the administrative requirements
are rules of origin that define the proportion of local content
required in any product for that product to qualify for preferential
access. Rules of origin can limit the ability of developing
countries to import raw materials from third countries and export
the processed final product to the U.S. and EU. For the lower
income countries, supply constraints also limit their participation
in preference programs.
How was the Study Conducted?
ERS economists analyzed detailed trade and tariff data for
the U.S. and the EU, to determine the extent to which these
programs have affected beneficiary countries’ exports.
The terms of preferential trade programs were covered, with
a special emphasis on how the programs operate. The analysis
covers differences in product and country eligibility and utilization
of preferences. For the U.S., comprehensive tariff and trade
data were used, while for the EU, preference margins were derived
from tariff data and other indicators were derived from secondary
sources (trade data directly related to preferences were not
readily available).
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