The Utilisation of Trade Preferences for Developing Countries in the Agri‐food Sector

Abstract

Both the European Union and the United States grant non-reciprocal preferences to developing countries under the Generalised System of Preferences as well as under several regional schemes. The benefits of these preferences have recently been questioned. Several authors have pointed out the under-utilisation of these preferences due to the constraints attached. There have been claims that rules of origin requirements and administrative costs, as well as uncertainty on eventual eligibility, have deterred exporters from using preferential regimes. We calculate various indicators of the utilisation of preferences in the agricultural, food and fisheries sector. We conclude that only a very small proportion of the imports eligible for these preferences is actually exported outside a preferential regime. The rate of utilisation is therefore high. However, the flow of imports from the poorest countries remains very limited in spite of rather generous tariff preferences, which leads to questions over the overall impact of the preferential agreements. In addition, preferential regimes overlap, and in such cases some regimes are systematically preferred to others. We use econometric estimates of the (latent) cost of using a given preference to explain why particular regimes are used. We focus on possible explanations, such as the cumulation rules (that restrict the use of materials originating from other countries), fixed administrative costs and differences in the preferential margin. Copyright 2007 Blackwell Publishing Ltd.

New Evidence on Preference Utilization

“…Francois et al (2006) and Manchin (2006) estimate a threshold margin that is required for exporters to use preferences in the case of ACP-(non-LDC) exporters to the EU. Their often-quoted result is 4-4.5%, which falls squarely in the range of cost estimates obtained by other researchers of between 2-6% (see Bureau et al (2007) for an overview). It is common to these studies that costs are expressed as tariff margin equivalents, i.e.…”

“…Manchin (2006), for example, given the political discussions surrounding Economic Partnership Agreements (EPAs), has focused on preferential access of non-LDC ACP countries to the EU. Others are interested in specific sectors, such as Agostino et al (2010), Bureau et al (2007) or OECD (2005), who examine agricultural/food products. Conducting their analysis at the HS-6 level, several studies, such as Agostino et al (2010), also use a relatively high product aggregation.…”

“…Utilization rates are generally rather high (82% on average) and higher for products with high preferential margins. Bureau et al (2007) use a probit model using detailed 2002 data at exporter-product level for agricultural products in the EU and US. Their results show a positive relationship between the probability of using preferences and preferential margins as well as export values, with overall utilization rates well above 80%.…”

“…OECD (2005) and Bureau et al (2007) explain utilization decisions at the level of annual import flows (HS-8 level) using probit estimations. This data is likely to hide widely varying transaction sizes and leads to the conclusion that preferences are not used in small transactions, where the absolute amount of duties saved is low.…”

Multinational Firm’s Production Decisions under Overlapping Free Trade Agreements: Rule of Origin Requirements and Environmental Regulation

“…In Figure 2, we observe a ceiling of the feasible area for Type I of the Spaghetti Bowl Effect for Country 2. The ceiling is formed by the condition c + βe 2 = c + t 2 , which is located below Equation (9). This condition is imposed to identify and exclude the trivial case in our analysis.…”