Does Africa need Trade Preferences

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Does Africa need Trade Preferences?
Expert Group Meeting on Market Access Tunis 22nd-2
3rd November 2004

• Andrew Mold
• TRID
• Economic Commission for Africa

2
Main Messages of Paper

• Preferences are controversial, and the empirical
  evidence is mixed.but
• They are needed and should be strengthened
• A number of misnomers surround preferences (e.g.
  low utilisation rates)
• Existing preferences too complex, too unstable,
  and politically determined.
• Take Politics Out Of Preferences!

3
Why Preferences?

• Proliferation of preferences
• 28 for LDCs
• 9 of those from Quad countries
• Need for Special and Differential Treatment
• Ex-post cost for preference-giving countries
  (unlike aid)

4
The Orthodox View

• Free trade considered superior by orthodox
  economists (includ. WB)
• ?support for multilateral system, not unilateral
  preferences like GSP, or regional agreements
  (Art. XXIV)
• Danger of trade diversion

5
Econometric debate on GSP

• Two papers - Ozden and Reinhardt (2002), World
  Bank and Rose (2002).
• Contradictory Messages
• Rose - gravity model, 178 countries, 1948-1999.
• Result? Member of GATT/WTO does not increase
  trade, but GSP does!

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The Controversies which need to be Addressed?

• Do preferences entail greater conditionality on
  African countries?
• Does their existence effectively keep other
  issues off the table?
• Are the goals of agricultural trade
  liberalisation and stronger preferences strictly
  compatible?
• Have African countries already achieved their
  goals? (EBA)

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Ways to Evaluate Preferences

• Share of preference-countries in imports
• Product Specific- Analysis
• Utility and Utilization Rates
• Econometric estimation using gravity models
• General equilibrium modeling

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Share of ACP Countries in EU Imports
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Share of EU preferential imports by region
(average 2001-2002)
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Utilization and Utility Rates of Preferences for
LDCs
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High Usage of Preferences by African Countries?

• In general, preference use is indeed high!
• OECD (2004) research shows that choice of scheme
  depends on
• Size of the Transactions
• Size of Margins
• Rules of origin
• Knowledge of schemes is also important

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Use of EU Preferences
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Why might preferences be less efficient now?

• Preference margin erosion (av. tariffs 30 1970,
  now 3)
• Proliferation of preferences (AGOA, EBA, GSP,
  GSP, Cotonou, etc.) has devalued existing
  preferences
• Free trade agreements make some preferences
  obsolete
• Decline in terms of trade (e.g. Ocampo y Parra,
  2003)

14
Overall protection in agriculture(Percent tariff
equivalent)
15
Some Tariff Peaks in Agriculture
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The Problems with EBA

• Rules of origin are stricter than in Cotonou
• Sugar, rice and bananas left out until 2009
• Actions still possible against import surges
• Divides Africa against itself?

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EBA Phased-in Products
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And the Problems with AGOA?

• Benefits highly concentrated (60 of increase in
  trade by Nigeria).
• Pushing African countries into textiles in a
  difficult moment? (phasing out of MFA)
• Strict rules of origin
• Not a no strings agreement

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Conclusions - How to Improve Preferences?

• Automatic cumulation for Africa?
• One homogenous QUAD deal for Africa? (1.8 bln
  gain for Africa?)
• Simplification of existing schemes
• Legally-binding commitment on part of QUAD
  countries? (take politics out of preferences!)
• Not all that glitters is gold

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Too many people have decided to do without
generosity in order to practice charity

• Albert Camus
• The Fall