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:
- increase export earnings
- promote industrialization
- 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:
- 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)
- the effects of preference erosion that may follow multilaterally agreed reductions
in most favoured nation (MFN) tariff rates
- the relationship between preference erosion and recent proposals for Aid for Trade and the Enhanced Integrated Framework (EIF)
- 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
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
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.