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GTAP Resource #2015

"The potential for preference erosion on the EU market"
by Curran, Louise, Lars Nilsson and Gaspar Frontini

Since the launch of the Doha Development Agenda (DDA) in 2001 there has been growing concern about the impact of multilateral liberalisation on vulnerable developing countries. Specifically, there is concern that those countries which currently benefit from preferential access to large industrialised markets will lose out as most favoured nation (MFN) tariffs are reduced. This reduction will naturally erode the margin of preferences which is accorded to developing countries in these markets, making it more difficult for them to compete and potentially reducing their exports or profit margins or both.
There has been quite extensive research on this issue using several different approaches, including computable general equilibrium modelling using the GTAP database. The World Bank, OECD, IMF and WTO have all produced papers on the topic. The results have indicated that although developing countries as a whole have more to gain than to lose from multilateral liberalisation, some countries remain vulnerable to preference erosion. Most studies conclude that those dependent on the EU market are most vulnerable, as it is there that preferences are widest and deepest.
This research looks at the potential for preference erosion on the EU market. It uses a new Eurostat database based on actual utilisation rates of preferences (previously unavailable) which should be the most reliable way to estimate the value of preferences. The analysis shows firstly that EU preferences are well used in the vast majority of sectors. Looking at the potential for preference erosion, however, we find that, although certain countries are vulnerable to the reduction of the EU’s MFN tariffs, they are not as numerous as might be expected and the vulnerability is overwhelmingly concentrated in a few key products. As this research was not undertaken in a general equilibrium context the positive aspects of multilateral liberalisation are not taken into account and the results overstate the vulnerability. Even so, it seems that fears of preference erosion in the EU market may be exaggerated.

Resource Details (Export Citation) GTAP Keywords
Category: 2006 Conference Paper
Status: Published
By/In: Presented at the 9th Annual Conference on Global Economic Analysis, Addis Ababa, Ethiopia
Date: 2006
Created: Frontini, G. (4/29/2006)
Updated: Curran, L. (6/20/2006)
Visits: 2,786
No keywords have been specified.

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