Preference Erosion and Multilateral Trade Liberalization |
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Authors: | Francois, Joseph Hoekman, Bernard Manchin, Miriam |
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Affiliation: | Joseph Francois is professor of Economics in the Department of Economics at Erasmus University Rotterdam, fellow at the Tinbergen Institute, and research fellow at the Centre for Economic Policy Research; his email address is francois{at}few.eur.nl. |
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Abstract: | Because of concern that tariff reductions in Organisation forEconomic Co-operation and Development (OECD) countries willtranslate into worsening export performance for the least developedcountries, the erosion of trade preferences may become a stumblingblock for multilateral trade liberalization. An econometricanalysis of actual preference use shows that preferences areunderused because of administrative burdensestimatedto be equivalent to an average of 4 percent of the value ofgoods traded. To quantify the maximum scope for preference erosion,the compliance cost estimates are used in a model-based assessmentof the impact of full elimination of OECD tariffs. Taking intoaccount administrative costs eliminates erosion costs in theaggregate and greatly reduces the losses for countries mostaffected by preference erosion. |
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