AGOA and Apparel: Who Captures the Tariff Rent in the Presence of Preferential Market Access?

Abstract

The United States grants preferential (tariff‐ and quota‐free) market access to a list of products from eligible countries in sub‐Saharan Africa through the African Growth and Opportunity Act (AGOA). We analyse the increase in prices received by apparel exporters who benefited from AGOA preferences. In the presence of competitive markets, export prices should increase as much as the tariff which was previously collected by the US government. We refer to this price increase as the ‘tariff preference rent’ since exporters receive this income as the rent for their preferential status. The results show that exporters receive only one‐third of this rent and smaller exporters receive less than larger and established ones. We then provide evidence that suggests this may be due to the degree of market power enjoyed by US importers when facing African exporters.

Préférences commerciales et règles d'origine : perspectives des Accords de Partenariat Économique pour l'Afrique de l'Ouest et centrale

“…• L'effet des préférences tarifaires sur leur utilisation est mesuré très précisé-ment mais est quantitativement faible, suggérant un pass-through limité (en conformité avec les résultats d 'Olarreaga et Ozden 2003) • L'effet des RDO sur l'utilisation des préférences est substantiel, en particulier pour les changements de position tarifaire à un niveau agrégé (changement de chapitre et de position).…”

From Trade Preferences to Trade Facilitation: Taking Stock of the Issues

“…5 _________________________ 4 When the donor country, like the EU, has more than one preference system, this of course gets more complicated since the relevant tariff with which to compare the preferential rate could also be that offered under a different preference system. 5 Olarreaga and Özden (2005) also report that for this particular trade, exporters on average receive one third of the tariff rent, with even lower shares for exporters in poor and small countries.…”

“…While the idea is that this rent should accrue to the exporters, if importers are not faced with much competition, they may have the chance to influence prices and capture parts of the rent -see Olarreaga and Özden (2005) for a discussion. These authors also test the hypothesis for apparel trade under the US African Growth and Opportunity Act (AGOA), and find that higher concentration among importers leads to lower rents to the exporters.…”

Market Access and Welfare under Free Trade Agreements: Textiles under NAFTA

“…Olarreaga and Ö zden (2005) looked at the effect the Africa Growth and Opportunity Act had on the unit values of U.S. apparel imports from Africa, and Ö zden and Sharma (2004) explore rent capture by apparel producers from the Caribbean Basin Initiative. Their research shows that preferences translate into higher border prices for preferred exporters and that pass-through of the tariff reductions is also substantial (between a third and a half).…”