unctad.org | Erosion of trade preferences in the post-Hong Kong framework: From ´Trade is Better than Aid´ to ´Aid for Trade´
Erosion of trade preferences in the post-Hong Kong framework: From ´Trade is Better than Aid´ to ´Aid for Trade´
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Full Report ( 210 Pages, 1400.0 KB )

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Until recently, trade preferences were part of and instrumental in the paradigm that trade is better than aid.

The original objectives of the Generalized System of Preferences (GSP) were to:

  1. increase export earnings

  2. promote industrialization

  3. accelerate economic growth

Trade preferences were expected to serve as a catalyst in triggering virtuous circles leading to higher exports and revenues, increased supply capacity and, ultimately, economic growth.

At the World Trade Organization´s (WTO) Sixth Ministerial Conference, held in Hong Kong (China), the original paradigm — that trade is better than aid — was almost reversed under the Aid for Trade Initiative. It is now recognized that trade instruments, such as increased market access and trade liberalization, are not per se sufficient to generate supply capacity and economic growth. Amidst such changes to the paradigm, the preference-receiving countries´ concern about the erosion of preferences has remained a constant preoccupation.

Within the framework of decisions taken by the WTO members at the Hong Kong Ministerial Conference, this study examines the following matters:

  1. which products and which LDCs and most vulnerable countries benefit most from existing preferences granted by the Triad (the United States, Japan and the European Union)

  2. the effects of preference erosion that may follow multilaterally agreed reductions in most favoured nation (MFN) tariff rates

  3. the relationship between preference erosion and recent proposals for Aid for Trade and the Enhanced Integrated Framework (EIF)

  4. the case for improving existing preferences and reestablishing multilateral principles for the granting of preferences to developing and least developed countries
Chapter I examines the issue of preference erosion in the post-Hong Kong scenario.

Chapter II provides extensive trade data and figures at the tariff-line level of the country/product pairs that have most benefited from trade preferences in 2004. This chapter is accompanied by a set of tables, contained in the Annex, with detailed information for years 2004 and 2002.

Chapter III provides estimates utilizing a partial equilibrium model of the losses and gains that LDCs may incur following multilaterally agreed MFN reduction.

Chapter IV examines the correlation between the EIF and Aid for Trade Initiatives with regard to preference erosion. It also provides a number of suggestions on how to improve existing trade preferences in accordance with multilaterally agreed criteria.

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