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Future of Preferential Trade Programs Concerns
Shahla
Shapouri
John Wainio
Both the United States and the European Union (EU) began providing
trade preferences to developing countries in the early 1970s. These
trade preferences, which reduce tariffs for designated products
from eligible countries, are “nonreciprocal,” meaning
that they are granted unilaterally with beneficiaries not required
to reciprocate with lower tariffs for donor country exports. The
purpose of these programs is to foster economic development, particularly
in the poorest countries, through increased trade. Ongoing trade
negotiations, however, are creating uncertainty about the future
of these programs.
Preferential trade programs have helped developing countries gain
access to U.S. and EU markets. In 2002, 102 countries exported agricultural
goods to the U.S. and 132 countries to the EU under these programs.
The top beneficiaries from U.S. programs were Costa Rica, the Dominican
Republic, Colombia, and Guatemala. The top beneficiaries from EU
programs were the Ivory Coast, Argentina, China, and India. Both
the U.S. and the EU import large quantities of fresh and processed
fruits and vegetables,
sugar, tobacco
and tobacco products, and cut
flowers under these programs. The EU also imports large amounts
of fish, shellfish, fats, and oils under these preferences. Even
with this access, the value of agricultural imports under these
programs is a relatively small share of total U.S. and EU agricultural
imports, at 6 percent ($3.1 billion) and 18 percent ($11.2 billion)
in 2002, respectively.
Still, developing countries strongly support these programs and
have expressed concern about their future in light of the ongoing
Doha negotiations, begun in 2001 under the auspices of the World
Trade Organization (WTO). The value of these programs for beneficiary
countries is high: in 2003, 50 percent of their total dutiable exports
to the U.S. and 44 percent of their dutiable exports to the EU were
exported under nonreciprocal preferences.
Much of the negotiations will center on reductions in most-favored-nation
(MFN) tariffs. With lower MFN tariffs, the margins of preference—the
differences between preferential and MFN tariffs—decrease.
Thus, the advantage that beneficiaries now enjoy for products receiving
preferential treatment could be lost. However, many products of
interest to developing country exporters are currently either excluded
from trade preference programs or their access is constrained to
limited quota amounts. In these cases, multilateral trade agreements
may afford developing countries the opportunity to broaden their
export mix to developed countries if they include deep cuts in MFN
tariffs for goods that are not eligible for preferential treatment.
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This article is drawn from...
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Agricultural
Trade Preferences and Developing
Countries, by John Wainio, Shahla Shapouri, Michael Trueblood,
and Paul Gibson, ERR-6, USDA, Economic Research Service, May 2005.
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