This paper assesses the likely effects of reducing tariffs under the Doha Round on market access for developing countries. A key issue, especially among developing countries, is whether multilateral tariff reductions under the Doha Round will adversely affect their market access to developed countries.2 In large part, this concern stems from the fact that developing countries were given nonreciprocal preferential access to developed countries’ markets in the 1970s. These preferences entitle developing countries to export their products to developed countries at lower tariff rates than those applied to other World Trade Organization (WTO) members and, in some cases, at zero tariff rates. If tariff cuts were to be granted to all WTO members under the Doha Round, then the relative advantage of developing countries’ exports to developed countries would be reduced due to the erosion of these “preference margins” – the difference between the tariff rate for all WTO members and their own under their preferential access. However, offsetting these losses of preference erosion are the gains in market access due to tariff cuts on goods that do not receive preferences. The question is whether the gains outweigh the losses.
Using detailed trade, tariff and preference information for the United States and the European Union, the paper concludes that:
- Preferences granted to developing countries are not as generous as they appear. Some developing countries actually pay higher average tariffs than developed countries under current preference schemes. For example, the average tariffs imposed by the United States on non-African least developed countries’ (LDCs’) exports is 13.1 percent compared with only 1.2 percent imposed on developed countries’ exports. Similarly in the European Union, the average tariff on non-African LDCs is higher at 5.1 percent than on developed country exports at 2.9 percent.
- A simulated uniform cut in tariffs of 40 percent in the United States and the European Union combined leads to an increase in import demand of 2.1 percent averaged across all countries, although the gains are not uniform across countries or regions. Higher-than-average increases in import demand of 8.5 percent are for non-African LDCs’ exports, and a loss of one-tenth of a percent on average for African LDCs exports.
- If the United States and the European Union were to exclude sensitive products from tariff cuts, the gains in market access for all regional groupings would be smaller, on average, relative to the uniform cut.
- Simulations that assume a higher than 40 percent tariff cut in agriculture, using a tiered formula, together with a 40 percent cut in manufacturing, generate the largest gains for all groups of countries.
Preferences granted turn out to be less generous than they appear because a large proportion of products are not eligible for preferences and there are complex rules surrounding the process required to apply for the preference. For example, in the United States, the Generalized System of Preferences (GSP) scheme does not apply to all products, with approximately 50 percent of tariff lines completely excluded. Certain articles such as textiles, watches, footwear, handbags, luggage, steel, glass, and electronic equipment are ineligible for the scheme. The granting of duty-free access for eligible products is subject to “competitive needs limitations” which impose limits for each product and country. These limits are automatically exceeded if imports of a product from a country reach 50 percent of the value of total U.S. imports of that product or if these imports exceed a certain dollar value.3 Even when product coverage is more comprehensive, as in the European Union, restrictive rules of origin make it too costly for developing countries to utilize all of these preferences and, thus, exports are often subject to the higher most-favored-nation (MFN) rate. The European Union has product-specific rules of origin which may allow as little as 5 percent imported inputs and may specify processing requirements. For a product to receive preferences at an EU border, the European Union also requires a form to be stamped by an officially designated government authority (UNCTAD, 2003). In many cases, therefore, trade barriers remain high on developing countries’ exports.
Because a large share of developing countries’ exports do not actually enjoy preferences in practice, lowering tariffs under the multilateral system is likely to lead to a net increase in market access, as proxied by the change in import demand by the United States and European Union, for many developing countries. That is, the gains in market access from lower MFN tariffs offset the losses due to preference erosion for many developing countries.
II. Data Description and Research Strategy
The GSP is a set of trade preferences granted on a non-reciprocal basis by developed countries to developing countries. The system was negotiated over the 1964-1971 period with the first major scheme implemented by the EEC in July 1971, with Japan following suit in August 1971, and the United States in January 1976 (Baldwin and Murray, 1977). All GSP schemes involve tariff concessions to a range of developing country exports. Under the current U.S. scheme, for example, out of a total of 15,467 articles listed in U.S. tariff lines most developing countries may export 6,409 articles duty-free, where imports of the same article from most developed countries would attract a positive tariff (Ozden and Reinhardt, 2002). All countries that receive preferences from the United States or the European Union or both are labeled LDC or developing in Table 10 of the Appendix I.4 Note that there are many preferences in place other than the GSP, which are listed in Table 11 of Appendix I. Prominent examples include EU preferences for African, Caribbean and Pacific (ACP) countries and U.S. preferences for African countries under the African Growth and Opportunity Act (AGOA).
A key feature of this study is the use of data on preference schemes, with details of which preference schemes different products were exported to the U.S. and EU markets. This information is essential in assessing the size of preference erosion as many tariff lines are not eligible for preferences under the GSP, and in many cases countries do not apply for preferences they are entitled to and end up paying the MFN rate because of complex rules governing the use of preferences. Product coverage, defined as the ratio of imports that were eligible to enter under the GSP to total imports, was only 44 percent for LDC beneficiaries of the United States’ GSP scheme (dutiable imports in 2002 were $6.7 billion, of which $2.9 billion were covered by the GSP scheme).5 Within this low product coverage, preference utilization rates, defined as the ratio of imports that received preferences to total imports eligible for preferences, by LDC exporters to the United States are high, at 95.8 percent for the GSP (out of the $2.9 billion of imports eligible for GSP $2.8 billion received preferential treatment). (See UNCTAD, 2003).6 In the European Union, although product coverage is almost 100 percent, preference utilization rates are low. For LDC exporters to the European Union, preference utilization rates are on average 76 percent for ACP countries and 57 percent on average for non-ACP countries (UNCTAD, 2003). Sometimes preferences are not utilized because there are other more beneficial preference schemes that developing countries can apply for. The preference utilization rates for AGOA were over 80 percent in 2002, however there were sixteen countries that utilized less than 50 percent of the available AGOA preferences. (See Brenton and Ikezuki, 2004).7 Thus studies that assume 100 percent utilization rates are likely to over-estimate the costs of preference erosion.8
Preferences that are due to be phased in over the next few years are assumed to have already taken place. This avoids counting gains and losses to LDCs that will come from the European Union’s phased elimination of tariffs for sugar, rice and bananas under its Everything But Arms Program (EBA), the enhancement of the European Union’s GSP scheme for LDCs, and the phased elimination of EU tariffs on sugar, rice and banana imports from ACP countries. It is assumed that LDCs already have tariff-free access to the European Union for those exports. These tariffs will be reduced or eliminated regardless of how the Doha Round turns out. Since the focus of this paper is whether a multilateral tariff reduction resulting from a successful Doha Round itself would lead to preference erosion, these earlier commitments are taken as given.
The tariff cuts in the policy experiments are applied to the bound rates, rather than directly on MFN rates,9 as will be the case in the Doha Round. If a tariff is not currently bound it is assumed to be bound at the current MFN rate, and tariff cuts are then applied.10 If the new bound rate falls below the MFN rate then the MFN rate is also reduced.11 All tariff rates are at the most detailed product line available, which includes more than 10,000 different products – this is at the HS 10-digit level for the United States and HS 8-digit level for the European Union.12
The study focuses on the effects of tariff cuts by the United States and the European Union.13 Although this does not capture the total effects of trade liberalization under the Doha Round, it does incorporate a sizeable share.14 The shares of LDCs and other developing countries exports to the United States and the European Union markets combined are approximately 50 percent, as seen in Table 1. Individual country export shares to the European Union and United States are provided in Table 10, Appendix I.
|Share to U.S.|
|Share to EU-15|
|Share to Other|
B. Research Strategy
Changes in market access likely to result from a successful conclusion of the Doha Round are proxied by simulated changes in import demand by the United States and the European Union. This requires some assumptions on demand and supply elasticities. The analysis assumes that the total share of expenditure on each product at the HS 10-digit level is constant. For example, the share of income spent on shoes is assumed constant.15 Within this shoe product group, each country will decide from where to purchase different varieties, where each country is assumed to produce a different variety. The elasticity of substitution across these different varieties is assumed to equal 6, thus if the relative price of shoes in one country increases by one percent, relative demand for its shoes will fall by 6 percent. These assumptions are based on estimates from Romalis (2005) and are consistent with other studies such as Hummels (2001). Simulations with alternative elasticity of substitution assumptions are also presented to show robustness of the results. Each country’s current share of EU and U.S. consumption is estimated from the detailed trade data and from the OECD’s STAN database. The full details of the estimation procedure are provided in the technical appendix.16
The relative change in a country’s competitiveness due to tariff cuts is explicitly modeled. When there are across-the-board tariff cuts developing countries face two main effects. First, where developing country goods currently enter tariff free, a reduction in bound tariffs must worsen the competitive position of those developing country exports because tariff reductions reduce the average tariff their competitors face in the U.S. and EU markets. Thus the demand for these developing countries’ exports falls. Second, where developing country goods enter U.S. and EU markets at the MFN rate, whether due to the absence of a preference or an inability to utilize a preference, a reduction in MFN tariffs improves the competitive position of those developing countries’ exports because it reduces the tariff imposed on goods where they have a comparative cost advantage. Their position also improves relative to U.S. and EU domestic producers, and relative to exporters to the United States and European Union that benefit from preferential trade agreements. The relative demand for developing country exports of these goods increases. The net effect depends on whether the losses in preference erosion from the first effect outweigh the gains from tariff cuts due to the second effect.
Throughout the analysis, the supply elasticity for developing countries is assumed to be infinite. This enables the focus to be on the change in demand from the European Union and the United States for developing countries’ products as a way to measure changes in market access.17,18 If, instead, a finite elasticity were assumed then trade volume responses would be smaller but there would be terms of trade effects from which some developing countries would benefit. The infinite elasticity of supply assumption delivers the maximum export revenue effect, both for revenue gains and losses, but is unlikely to cause a misidentification of winners and losers.
This infinite supply elasticity assumption differs from that made in Subramanian (2003), and Alexandraki and Lankes (2004) where a supply elasticity of one is assumed and no terms of trade effects are considered. Their assumptions deliberately bias the results in favor of overstating losses from preference erosion in order to minimize the risk of overlooking individual countries that might face losses. In addition, they also assume 100 percent utilization of preferences. Despite these assumptions, in simulations following a 40 percent cut in MFN rates Subramanian (2003) finds that losses from preference erosion for LDCs as a whole are very small and likely to be less than 2 percent of exports, and only two countries face losses greater than 10 percent of exports. Alexandraki and Lankes (2004) extend this analysis to middle-income developing countries and also find the overall impact to be small, between 0.5 and 1.2 percent of total exports, but it could be much higher for a subset of countries that are overwhelmingly export dependent on a few products, namely sugar, bananas, and to a lesser extent textiles.
In contrast, this study takes into account available tariff, trade and utilization information for all products in an attempt to assess the likely gains in market access for LDCs and developing countries. Hence, the model incorporates preference utilization rates, bound and applied rate information, as well as various different formula approaches that are being considered for the Doha Round such as exemptions of special products and tiered formulas in agriculture.
A. Current State of Play
There are many limitations to GSP programs that result in inferior access to developed markets for some developing countries.
First, despite preferences given to LDCs and developing countries, the average tariffs paid are sometimes higher on developing country exports. This is due to different commodity composition and different preference schemes. Table 2 shows that products that are exported by non-African LDCs face higher tariffs (13.1 percent) than products exported to the United States by other developing countries (1.8 percent), which are in turn higher than tariffs on products exported by developed countries (1.1 percent). The African LDCs enjoy the lowest average tariffs into the U.S. market at 0.1 percent. For each product, defined at the U.S. tariff-line level, the average tariff is calculated as the value of duties collected divided by the value of goods imported. Similarly, in the European Union,19 non-African LDCs face the highest average tariffs but these are much lower at 5.1 percent than those paid in the United States. This difference arises because LDCs enjoy lower tariffs due to the European Union’s EBA program and due to the European Union’s program for ACP countries.
|Exporter||Average Tariff Paid on U.S. Imports||Average Tariff Paid on EU|
|Other developing countries||1.82||2.37|
Second, on average, higher tariffs are paid on goods exported to the United States where LDCs and developing countries have comparative advantage than on goods that developed countries enjoy comparative advantage.20 Despite preferences, products that LDCs and other developing countries enjoy a comparative advantage are still highly taxed in the United States. Table 3 shows average tariffs paid on each region’s comparative advantage goods on world exports to the United States and European Union. It shows that average tariffs on LDCs’ comparative advantage goods exported to the United States are higher than average tariffs paid on developed countries’ comparative advantage goods (3.8 for non-African LDCs and 1.8 percent for African LDCs compared with only 1 percent for developed countries). However, this is not the case on goods exported to the European Union. The average tariff paid on African LDCs’ comparative advantage goods exported to the EU market is on average lower (at 1.1) than on non-African comparative advantage goods at 2.3 percent. Other developing country comparative advantage goods exported to the European Union attracted the highest average tariff of 2.9 percent.
|Comparative Advantage||Average Tariff Paid on U.S. Imports|
on Each Country’s Comparative
Advantage Products (Bij >1)
|Average Tariff Paid on EU Imports|
on Each Country’s Comparative
Advantage Products (Bij >1)
|Other developing countries||2.64||2.90|
Third, in goods where LDCs have comparative advantage, the average tariff paid by non-African LDCs is higher than other regional groupings. Table 4 presents average tariffs by country grouping for goods where the LDCs (both African and non-African) have comparative advantage, indicated by a Balassa index greater than one. Non-African LDCs, on average, pay higher average tariffs on these products in the United States and European Union. In contrast, African LDCs enjoy the lowest tariffs on their comparative advantage goods in both the U.S. and EU markets.
|Exporter||Average Tariff Paid on U.S.|
Imports on LDCs Comparative
Advantage Products (LDC Bij >1)
|Average Tariff Paid on EU Imports|
on LDCs Comparative Advantage
Products (LDC Bij >1)
|Other developing countries||3.96||2.35|
The higher average tariffs paid by non-African LDCs on their comparative advantage goods in the U.S. market is largely due to the fact that the GSP in the United States applies to less than 50 percent of imports.21 African LDCs pay lower tariffs partly due to special preferences such as AGOA, and partly due a higher proportion of lower-taxed minerals in their exports.
In sum, the data shows that:
- Tariffs averaged across all goods are higher on non-African LDCs’ goods exported to the United States and EU markets than on developed countries’ products.
- Tariffs averaged across each country’s comparative advantage goods are higher on LDCs and other developing country comparative advantage goods entering the U.S. market than developed country goods. However, this is not the case in the EU market.
- Non-African LDCs pay the highest average tariffs on LDC comparative advantage goods in both the U.S. and the EU markets, whereas African LDCs pay the lowest average tariffs on these exports.
B. Effects of U.S. and EU Tariff Reductions on All Goods
Three policy experiments are conducted to assess the change in import demand arising from the following tariff cuts:
(i) A uniform tariff reduction of 40 percent on bound rates.22
(ii) Exclusion of Special Products. Countries will negotiate on the number of tariff lines that will be allowed to be excluded from tariff cuts, and they will be able to choose which tariff lines to exclude. Since it is unclear which product lines will be chosen, an exclusion list of 3 percent of the highest tariff lines is assumed for this simulation.
(iii) A tiered formula for agriculture. The current proposal is for 5 bands for developed countries, with different tariff cuts to be applied to different levels of tariffs. Because the actual details have yet to be negotiated, the simulations here are based on the Harbinson proposal (WTO, 2003), with a 40 percent cut in tariffs under 20 percent, 50 percent cut in tariffs between 20 percent and 80 percent, and 60 percent cut for tariffs above 80 percent with a 100 percent cap.23 No tariff lines are excluded in this simulation.
The results show that gains in market access to the United States and European Union under a successful conclusion of the Doha Round are likely to more than offset any losses due to preference erosion for many LDCs and other developing countries.24Tables 5 to 7 summarize the change in market access (proxied by changes in import demand by the European Union and United States) for each region. Table 5 shows that:
- On average, all country groupings, except African LDCs, enjoy an increase in combined market access to the United States and European Union following a 40 percent cut in tariffs. African LDCs experience a small loss of 0.1 of a percent on average.
- Non-African LDCs enjoy the largest percentage increase in access to the combined U.S. and EU markets under all policy scenarios presented.
- The gains in market access for all country groupings are reduced if exclusion of the highest tariff lines were allowed.
- The largest gains for all countries occur with a tiered formula in agriculture (which results in an average tariff reduction of 50 percent in the case of EU tariffs, and 47 percent in the case of U.S. tariffs).
|No Exclusions||Exclusion of Highest 3|
Percent Tariff Lines
|Tiered Formula in|
|Exporter||Change in Import demand by:|
|No Exclusions||Exclusion of Highest|
3 Percent Tariff Lines
|Tiered formula in|
|Exporter||Change in Import demand by:|
|No Exclusions||Exclusion of Highest|
3 percent Tariff Lines
|Tiered Formula in|
|Exporter||Change in Import demand by:|
A closer examination reveals that some countries experience net losses in market access under all policy experiments. For example, Haiti experiences large losses due to losses in clothing exports. See Table 12, Appendix I, for individual country results. Sub-Saharan African countries experience a loss in the U.S. market due to losses in mineral exports, mainly crude petroleum.25 Some countries experience net gains under all policy experiments, with non-African LDCs gains driven by South Asian and other LDC countries, which experience large gains in clothing exports. Within the developing country grouping, presented in Table 7, Mexico experiences net losses mainly because of its free trade agreement with the United States; further tariff cuts by the United States for other countries will reduce its relative advantage. China and South Asian countries gain from further tariff cuts because they derive relatively little benefit from existing preferences.
Changing the value of the elasticity of substitution between varieties does not change the overall message. Changes in market access under alternative demand elasticity, by region, are presented in Table 8. The higher the demand elasticity, the larger the gains in market access. The change in import demand by the European Union and United States increases from 1.1 percent, when the elasticity of substitution is assumed to equal -3.5, to 4.6 percent when the elasticity of substitution is assumed to be -11. The effect of changing the elasticity of substitution is to proportionally alter the gains and losses, but in most cases it is the same countries that experience gains or losses.
|Exporter||Change in import demand by:|
Whether a country loses market access following trade liberalization critically depends on how much of its exports currently benefit from existing preferences. The higher the current preference margin, the higher the loss from preference erosion, hence the less likely that the gains will outweigh the losses. Figure 1 plots the predicted change in U.S. market access following a 40 percent cut in tariffs with the tiered formula applied to agriculture for each country against the current average “preference margin”, defined as the difference between the average tariff rates actually paid on those countries exports to the United States and the MFN tariff rate applicable to those exports. The exporting country tends to lose market access from general tariff cuts whenever this average preference margin is 5 percent or above.
Figure 1.Average Preference Margin and Predicted Change in U.S. Market Access
An alternative way to calculate average preference margins is to take account of preferences relative to the domestic U.S. market. This gives an indication of the preferences that developing countries receive relative to all their competitors, which includes U.S. domestic producers. When domestic production is taken into account, it becomes clear that effective preferences are actually quite small and only a small number of countries enjoy positive preference margins. As can be seen from Figure 2, average preferences measures that take account of domestic production imply negative preference margins for many countries. Figure 2 clearly shows that countries with positive preference margins stand to lose market access from across the board tariff cuts as a result of preference erosion. In contrast, countries with negative preference margins gain because as tariffs fall the price of U.S. imports relative to domestic production also falls, making developing country exports more competitive.
Figure 2.Change in Market Access and Average Preference Margin in the United States
Once changes in market access to the EU market are also included, Figure 3 shows some more pronounced market access gains, as well as large projected losses for some countries. Malawi, Zambia, Barbados, Guyana and Swaziland show substantial market access gains in agricultural products such as sugar, tobacco and rice once the EU market is included, whereas the simulations indicate either no gains or in some cases losses in market access to the United States. Gains in one market may offset losses in another. Argentina, Fiji, Mauritius and New Zealand are also projected to win substantial gains in access to EU markets, again driven by agricultural products such as corn, beef, sugar, lamb, fruit and dairy products. The simulations show that two small countries, Dominica and St Lucia, experience large losses in combined market access to the United States and European Union. Both these countries enjoy exceptionally high preference margins due to preferential arrangements for their banana exports to the European Union. Banana exports from Dominica to the European Union were US$7.6m in 2003, equal to 37 percent of its total exports to the European Union and 32 percent of its total exports to the EU and U.S. markets - 99 percent of Dominica’s banana exports to the European Union enter under preferential arrangements. These banana exports are reduced to US$2.6 million following tariff cuts of 40 percent in the European Union. Even more extreme is St. Lucia, which exported bananas worth US$23.7 million dollars to the European Union in 2003, equal to 89 percent of its aggregate exports to the European Union and 58 percent of its combined exports to the European Union and United States, with 100 percent of its banana exports to the European Union entering under preferential arrangements. A 40 percent MFN tariff cut reduces its banana exports to the European Union to just $8.1 million. In sum, those countries with the highest average preference margins in the United States and the European Union stand to lose the most market access through preference erosion, while those with low or moderate average preference margins are likely to gain market access.
Figure 3.Change in Market Access and Average Preference Margin in the United States and European Union
The breakdown of results by product groupings in Table 9 shows that the largest gains are likely to be in agriculture in the EU market and textiles in the U.S. market. The increase in market access to the EU market in agriculture for all countries is 13.05 percent; and the increase in the U.S. market in textiles and clothing is 8.6 percent. However, these are not uniformly distributed. African LDCs lose 9.6 percent in market access to the U.S. market in textile and clothing and 1.8 percent in the EU market, yet they experience a gain of 1.8 percent in agriculture in the combined U.S. and EU markets. The smallest gains for all countries are in minerals and other manufacturing categories. Exclusion of the highest 3 percent tariff lines reduces the magnitude of the gains, however, the relative rankings of the product groupings remains unchanged. A tiered formula in agriculture inflates the gains for all country groupings.
|No exclusions||Exclusion of highest|
3 percent tariff lines
|Tiered formula in|
|Exporter||Change in Import demand by|
|Textile and clothing|
The following conclusions emerge from the analysis:
- Some developing countries have inferior market access to developed countries: average tariffs on non-African LDCs’ exports to the United States are higher than those on developed countries (13.1 percent compared with 1.2 percent).
- Reducing MFN tariffs under the Doha Round will lead to improved market access for many developing countries to the U.S. and EU markets that will more than offset losses due to preference erosion. The small numbers of developing countries that are likely to lose market access as a result of multilateral tariff cuts are the ones that receive very large benefits under existing preference schemes.
- In order to maximize these net gains in market access, countries should minimize excluded tariff lines and opt for a tiered formula with higher-than-average tariff cuts in agriculture.
It is useful to point out that the Trade Integration Mechanism (TIM), approved by the Executive Board of the International Monetary Fund in April 2004, is now available to help those developing countries that may face temporary balance of payments shortfalls due to the erosion of tariff preferences or other shocks that may emanate from the process of multilateral trade liberalization.
The detailed steps involved in calculating the change in market access and average preference margins are as follows.
(1) Change in Market Access
Step 1: Calculate total U.S. imports for each product i in the base period 0 (year 2003).
Denote total imports in the base period M0i=ΣjM0ijp, where Mijp is U.S. imports of product i from country j that enters under tariff program p. This calculation is performed at the tariff-line level (10-digit level).
Step 2: Estimate total U.S. consumption for each product i.
Denote total consumption in the base period C0i=M0i/m:ci, where m:ci is the estimated ratio of imports to consumption calculated from the OECD’s STAN database of domestic production, imports and exports. The STAN database includes data for approximately 30 primary and secondary industries and is concorded to each tariff line.
Step 3: Calculate the new tariff rates t1ijp using existing tariff rates t0ijp as the base rates.
The new tariff rates will include a 40 percent tariff cut as the benchmark. In the second set of simulations 3 percent of the highest tariff rates will be excluded; and in the third set of simulations a tiered formula will be applied to agriculture with no other exclusions.
Step 4: Estimate new U.S. imports of each product i from each country j under each import program p.
The utility function is assumed to be Cobb-Douglas, which implies an elasticity of substitution of one between different goods at the HS 10-digit level. Hence, a fixed proportion of income is spent on each good.
Within these 10-digit categories, countries produce different varieties. U.S. consumers allocate their demands across products i. The import quantity demanded for country j goods under program p is given by maximizing the utility function subject to the budget constraint
where p0ijp is the free-on-board price, t0ijp is the tariff rate, P is the price index of all substitute varieties and Coi is the expenditure on product i in period 0. Multiplying both sides by p gives the value of imports in period 0, M0ijp. Analogously, the total quantity of imports demanded from each country can be written as follows:
after substituting in for the price index and incorporating price changes from period 0 to period 1 that arise from changes in tariffs. Note that C0i − M0i is expenditure on domestically produced goods. The elasticity of substitution between different “varieties”, σ, is assumed to be 6. A “variety” is defined as the interaction of country j product and import program p.
Step 5: Calculate the change in “market access.”
The change in market access is defined as the change in U.S. demand for imports from each country as ΔMAj=100*(ΣipM1ijp/ΣipM0ijp - 1).
It is assumed that the export elasticity is infinite, thus the exporting country does not change its export prices exclusive of tariffs.
Step 6: Repeat the process for EU imports, with some modifications. These modifications were necessary because the EU data on preference utilization, though detailed, is not as comprehensive as the U.S. data.
(i) Information on total imports in the base period, M0ij for the EU is available, but not the imports under different preference programs, M0ijp. Detailed EU preference utilization data were obtained from the European Union, indicating by 8-digit product and by exporting country the value of imports that were covered by a tariff preference and the value that actually entered under a preference. The exact preference scheme was not provided, only whether the applicable tariff under that preference was zero or positive. It is always assumed that trade entering under a preference always enters under the most favorable scheme. Thus M0ijp is estimated from M0ij using this utilization data.
(ii) The analysis assumes that the tariff reductions for sugar, bananas and rice for LDCs under the European Union’s “Everything But Arms” program has already been implemented to avoid counting these changes as gains or losses in market access arising from the Doha Round. This requires a prior adjustment of import values for sugar, bananas and rice in the base period using a formula equivalent to equation (2) above in Step 4.
(2) Average Preference Margin and Average Preference Margin Including Domestic Production
The “Average Preference Margin” enjoyed by country j in the U.S. (EU) is simply a weighted average difference between the tariffs paid on U.S. (EU) imports from country j and the MFN tariff applicable to such imports, where the weights are given by country j’s trade with the U.S. (EU):
where t0iMFN is the MFN tariff applicable to product i and all other variables are defined in the Change in Market Access section above.
The “Average Preference Margin Including Domestic Production” enjoyed by country j takes account of preferential access enjoyed by other producers and the zero tariff paid on U.S. output sold in the U.S. and EU output sold in the EU:
where t0i_AVERAGE is tariff revenue collected on U.S. (EU) imports of product i divided by U.S. (EU) consumption of product i:
|Share to U.S.|
|Share to EU-15|
|Central African Republic||65.7||0.34||0.05||91.13||0.07|
|Congo, Dem. Rep. of||1,026.30||17.86||0.01||76.76||0.06|
|Sao Tome and Principe||6.6||2.90||2.59||93.93||0.72|
|Afghanistan, Islamic Republic of||211.3||29.69||0.10||11.87||2.00|
|Lao People’s Democratic|
|Yemen, Republic of||3,779.30||1.91||0.08||2.05||1.51|
|Other developing countries|
|Antigua and Barbuda||412.6||3.27||0.34||92.20||0.35|
|Bosnia and Herzegovina||1,244.90||1.01||1.80||64.89||5.34|
|British Indian Ocean Ter.||4.1||31.61||5.79||11.28||0.91|
|British Virgin Islands||384||9.53||1.55||38.98||0.07|
|Cocos (Keeling) Islands||2.2||12.80||2.42||3.11||1.63|
|Congo, Rep. of||2,708.20||16.88||0.02||9.74||0.40|
|French Southern and Antarctic*||8.2||0.84||1.05||49.23||5.31|
|Iran, Islamic Republic of*||33,800.00||0.41||0.62||14.85||0.35|
|Korea, Dem. People’s Republic of||942.8||0.01||80.60||6.63||4.16|
|Macedonia, former Yugoslav|
|Micronesia, Federated States of*||85.7||18.04||n.a.||0.16||0.48|
|Northern Mariana Islands*||10.5||n.a.||n.a.||12.89||11.30|
|Papua New Guinea||2,260.20||2.64||0.06||11.03||0.59|
|Saint Pierre and Miquelon*||4.8||56.08||0.02||21.26||3.16|
|Serbia and Montenegro||2,455.00||0.64||1.37||59.62||10.20|
|St. Kitts and Nevis||48.3||78.48||0.04||17.23||10.52|
|St. Vincent and the Grenadines||38.1||13.23||0.16||30.23||0.09|
|Syrian Arab Republic*||5,730.70||3.70||1.76||57.07||1.42|
|Trinidad and Tobago||5,241.30||54.85||0.01||7.84||0.94|
|Turks and Caicos Islands||33.8||18.88||0.01||47.88||1.92|
|United Arab Emirates*||47,100.00||2.57||4.09||8.40||1.44|
|Wallis and Futura Islands||1.3||0.70||4.77||24.45||2.19|
|Hong Kong SAR||229,000.00||18.24||8.51||13.68||3.66|
|Korea, Republic of||196,000.00||19.55||2.24||14.10||3.48|
|Taiwan Province of China||151,000.00||17.67||2.41||12.51||1.85|
|(i) European Union Preferential Trade Arrangements used in Simulation|
|GSP rates for LDC|
|Preference for European Economic Area|
|Preference for Overseas Countries and Territories|
|Preference for Countries Fighting Drug|
|Preference for Albania|
|Preference for Algeria|
|Preference for Andorra|
|Preference for Bosnia and Herzegovina|
|Preference for Bulgaria|
|Preference for Taiwan Province of China|
|Preference for Croatia|
|Preference for Cyprus|
|Preference for Czech Republic|
|Preference for Egypt|
|Preference for Estonia|
|Preference for Faroe Island|
|Preference for West Bank and Gaza Strip|
|Preference for Hong Kong SAR|
|Preference for Hungary|
|Preference for Iceland|
|Preference for Israel|
|Preference for Jordan|
|Preference for Lebanon|
|Preference for Latvia|
|Preference for Lithuania|
|Preference for Macedonia, former Yugoslav Republic of|
|Preference for Malta|
|Preference for Mexico|
|Preference for Morocco|
|Preference for Myanmar|
|Preference for Norway|
|Preference for Poland|
|Preference for Romania|
|Preference for Slovak Republic|
|Preference for Slovenia|
|Preference for South Africa|
|Preference for Switzerland|
|Preference for Syrian Arab Republic|
|Preference for Tunisia|
|Preference for Turkey|
|Preference for Serbia and Montenegro|
|(ii) U.S. Preferential Trade Arrangements used in Simulation|
|GSP rates for LDC|
|Africa Growth and Opportunity Act (AGOA)|
|Andean Trade Preference Act (ATPA)|
|Andean Trade Promotion and Drug Eradication Act (ATPDEA)|
|Caribbean Basin Initiative (CBI)|
|Caribbean Basin Trade Partnership Act (CBTPA)|
|Preference for Canada|
|Preference for Chile|
|Preference for Israel Special Rate (duty-free treatment)|
|Preference for Jordan|
|Preference for Mexico|
|Preference for Singapore|
|No exclusions||3 percent tariff lines|
|tiered agricultural formula|
|Central African Republic||0.06||-0.04||0.05||0.06||-0.04||0.05||0.06||-0.04||0.05|
|Congo, Dem. Rep. of||0.08||-0.02||0.07||0.04||-0.02||0.03||0.09||-0.02||0.08|
|São Tomé and Príncipe||0.85||4.34||0.89||0.85||4.34||0.89||0.90||4.34||0.93|
|Non African LDCs|
|Afghanistan, Islamic Republic of||1.92||0.16||1.40||1.85||0.15||1.35||1.95||0.16||1.42|
|Lao People’s Democratic Republic*||2.69||-6.21||2.47||2.68||-5.94||2.47||2.70||-6.21||2.48|
|Yemen, Republic of||0.84||0.12||0.57||0.80||0.11||0.55||0.81||0.12||0.55|
|Other developing countries|
|Antigua and Barbuda||0.48||0.63||0.49||0.47||0.63||0.47||0.50||0.63||0.50|
|Bosnia and Herzegovina||7.83||1.62||7.74||6.89||1.08||6.81||8.50||1.63||8.40|
|British Indian Ocean Ter.||-0.60||8.76||7.24||-0.60||1.38||1.01||-0.60||8.76||7.24|
|British Virgin Islands||0.10||1.55||0.21||0.10||1.10||0.18||0.10||1.55||0.21|
|Cocos (Keeling) Islands||1.52||3.13||2.94||1.52||3.13||2.94||1.52||3.13||2.94|
|Congo, Rep. of||0.54||-0.03||0.14||0.05||-0.03||-0.01||0.74||-0.03||0.20|
|French Southern and Antarctic*||5.81||1.73||5.68||5.47||1.73||5.31||5.95||1.73||5.80|
|Iran, Islamic Republic of*||0.40||1.26||0.41||0.40||1.16||0.41||0.43||1.30||0.44|
|Korea, Dem. People’s Republic of||4.56||22.34||4.51||4.55||-2.72||4.54||4.56||-22.34||4.52|
|Macedonia, former Yugoslav Republic of||-1.50||10.77||-0.34||-1.25||7.19||-0.45||-1.59||10.78||-0.42|
|Micronesia, Federated States of*||0.72||13.49||13.38||0.72||13.02||12.91||0.72||13.49||13.38|
|Northern Mariana Islands*||16.19||n.a.||16.19||16.19||n.a.||16.19||16.19||n.a.||16.19|
|Papua New Guinea||0.08||0.11||0.09||0.08||0.11||0.08||0.22||0.11||0.21|
|Saint Pierre and Miquelon*||3.69||0.03||1.85||3.69||0.03||1.85||3.69||0.03||1.85|
|Serbia and Montenegro||16.20||2.48||15.35||8.90||2.44||8.50||19.48||2.48||18.43|
|St. Kitts and Nevis||8.97||-0.64||2.41||0.16||-0.64||-0.39||12.50||-0.64||3.53|
|St. Vincent and the Grenadines||-5.76||-0.73||-5.64||0.05||-0.73||0.03||-7.29||-0.73||-7.14|
|Syrian Arab Republic*||1.64||2.32||1.69||-0.10||1.73||0.03||2.40||2.32||2.40|
|Trinidad and Tobago||-0.93||0.01||-0.06||0.52||0.01||0.05||-1.50||0.01||-0.10|
|Turks and Caicos Islands||-0.23||0.03||-0.15||-2.74||0.03||-1.86||0.59||0.03||0.41|
|United Arab Emirates*||2.00||5.16||2.67||1.94||4.57||2.50||2.03||5.16||2.69|
|Virgin Islands (U.S.)*||1.15||n.a.||1.15||1.12||n.a.||1.12||1.16||n.a.||1.15|
|Wallis and Futura Islands||1.72||6.28||1.69||1.68||6.28||1.69||1.75||6.28||1.69|
|Hong Kong SAR||5.01||9.37||7.07||4.97||6.94||5.90||5.03||9.37||7.08|
|Korea, Republic of||4.62||3.12||3.67||4.61||2.55||3.30||4.64||3.12||3.68|
|Taiwan Province of China||2.52||3.36||3.03||2.50||2.69||2.61||2.52||3.36||3.03|
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