The development interface between the multilateral trading system and regional trade agreements

Market Access and Preference Erosion  

November 2007

Ralf PetersTrade Negotiations and Commercial Diplomacy Branch

Division on International TradeUNCTAD, Geneva

United Nations Conference on Trade and DevelopmentUnited Nations Conference on Trade and Development

MFN Market Access Conditions Determines the Level of RTA

Preferences

0

2

4

6

8

10

12

Duty rates 10 0

WTO applied RTAs

Preference margin

Market Access: Current Tariffs

Bound Applied

Developed countries 38 34

Developed countries 4 3Developing countries 20 13

25Agriculture

Non-Agriculture

Developing countries 61

Source: UNCTAD TRAINS and UNCTAD calculations based on WTO CTS

Specific Issues:• Tariff escalation• Tariff peaks

Initial tariff peaks

8.2

9.9

0.4

3.5

0.4 0.7

0

2

4

6

8

10

12

Bound Applied

%DevelopedDevelopingLDC

Source: WITS/TRAINS

Peaks:Tariffs above three

times national average

Percentage of Items with Peaks in all NAMA Tariff Universe

Developed countries have loweraverage tariffs but more peaks

=> Harmonizing approach

Market Access: Tariff Escalation

Source: UNCTAD TRAINS, AMAD, WTO

Description Tariffs (%)

Cotton, not carded or combed and waste 1

Cotton, carded or combed 5Cotton, yarn and sewing thread 8Knitted or crocheted fabrics 14Knitted or crocheted articles of apparel and clothing 11

Ad valorem equivalent

tariff rates (%)Live bovine animals 61Bovine meat 138Tobacco leaves 14Cigars 38Cacao beans 0Cacao powder 8

Product

EU most favoured nation,

out-of-quota bound tariff rates

United States bound and applied

MFN tariff rates on cotton products

Degree of processing

EU Market- ACP exports

Value of preferences for ACP countries (year 2002)

0

1000000

2000000

3000000

4000000

5000000

6000000

7000000

8000000

US

D (

00

0)

Total import received

Total value of pref

1/3 in Agriculture

NAMA: Swiss Formula

Coefficient: 8.5

Initial tariff Final tariff Reduction

4 2.7 32 %

10 4.6 54 %

26 6.4 75 %

Coefficient: 21

Initial tariff Final tariff Reduction

4 3.4 16 %

35 13.1 63 %

261 19.4 93 %

0

01

*

tc

tct

Proposal for developing countries

Proposal for developed countries

Proposed sectors:

– Bicycles– Chemicals– Electronics/electrical

equipment– Fish– Footwear– Forest products– Gems and jewellery– Pharmaceutical and

medical equipment

Sectorals

– Raw materials– Sporting– Apparel– Auto/auto parts– Footwear– Textiles

Zero for Zero Or Zero for x

Market Access: Agriculture

• Tiered Formula – Linear cuts in 4 bands– Higher tariffs reduced by a higher percentage

• Order of magnitude proposed– Developed countries: 48 % – 73 %– Developing countries: 32 % - 49 %– SVEs: average cut of 24 %

Market Access: LDCs Exports

Specific interests of LDCs

LDCsExports 2

Preferential schemes

MFN tariffs

Mostly MFN3

1 Developedcountries

Developingcountries

24%

38%

38%

Source: UNCTAD data from 2001/2002

Ambitious reductions

neg.

pos.

pos.

New rent

Preference Erosion: Example EU Sugar

World price 200 Euro

Initial price 630 Euro

New price 400 Euro

Initial exportNew export

Initial rent Reductionof preferencemargin

Preference Erosion: LDCs (1’000 US$)

UNCTAD calculationSum

Rent Erosion

Rent Erosion

EU formula

US formula

Afghanistan 0 0 0Angola 7 3 5Bangladesh 1'034 336 649Benin 91 29 56Bhutan 0 0 0Burkina Faso 2'359 1'412 2'200Burundi 9 3 5Cambodia 703 398 654Cape Verde 2 1 2Central African Republic 6 2 4Chad 1 0 0Comoros 531 166 326Congo, Democratic Republic of the 100 32 63Djibouti 0 0 0Equatorial Guinea 4 1 3Eritrea 4 1 3Ethiopia 4'802 2'871 4'475Gambia 670 210 412Guinea 49 15 30Guinea-Bissau 1 0 1Haiti 125 42 80Kiribati 7 3 5Lao People's Democratic Republic105 38 74Lesotho 0 0 0Liberia 128 95 121

Country Initial Rent1'000 US$

Rent Erosion

Rent Erosion

EU formula

US formula

Madagascar 5'456 1'997 3'694Malawi 22'212 11'834 18'414Maldives 0 0 0Mali 83 28 53Mauritania 41 12 25Mozambique 5'866 3'333 5'264Myanmar 0 0 0Nepal 11 4 7Niger 6 1 2Rwanda 107 74 98Samoa 4 1 2Sao Tome and Principe 10 3 6Senegal 3'500 1'095 2'150Sierra Leone 11 4 7Solomon Islands 0 0 0Somalia 7 2 5Sudan 5'983 3'321 5'393Togo 419 138 273Uganda 2'508 794 1'518Tanzania, United Republic of 9'360 4'959 7'960Vanuatu 108 34 64Yemen 1 0 0Zambia 3'563 1'732 2'878

Sum 69'989 35'021 56'980

Country Initial Rent1'000 US$

Sugar, Tobacco, Fats+Oils, Coffee, Vegatables

Welfare

-1000

0

1000

2000

3000

4000

5000

6000

7000

$m

EUUSA JP

NCAN

ANZHIA

ODDCHN

IND

BRAM

EXRSA SEA

CAC AP SC

MENA

SSAROW

SSA benefits $289m in spite of preference erosion

Global gains $28b

Source: David Vanzetti, Australian National University