Policy Responses to Preference Erosion

Development Economics Research

Description

The Status Quo. • Many countries benefit from non-reciprocal trade preferences. • Recently deeper preferences for LDCs. • Result: Increasing discrimination ...

Sujets

• Économie
• Economy

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• Publié par: paul.vallen
• Nombre de lectures: 14
• Langue: English

Extrait

Policy Responses to Preference Erosion

Bernard Hoekman

World Bank and CEPR

IFRI, Paris – October 28, 2005

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The Status Quo

Many countries benefit from non-reciprocal trade preferences

Recently deeper preferences for LDCs

Result: Increasing discrimination between developing countries

But, value declining as ever more reciprocal trade preferences and lower MFN barriers

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Focus of paper

Premise: Nondiscriminatory, MFN liberalization has characteristics of a global public good

Implication: will lead to erosion for those currently benefiting from preferential access

Questions:

– The magnitude of erosion

– Solutions in- or outside the trading system?

– Policy options under each of these approaches?

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How large is erosion?

Very country and product specific A function of MFN protection, who gets the rents and how restrictive origin rules are – Recent estimates suggest costs of origin are about 4% on average Assuming away transactions costs, one estimate of loss from full erosion in EU to LDCs = some $600 million Larger numbers if one considers the impact of removal of apparel quotas on 1-1-2005

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More on erosion losses

Poorest countries (LDC+) vs. middle-income countries and small/vulnerable

– Poorest have not been able to diversify; less benefits and thus less erosion

– Some middle income countries specialized in “high rent” products – sugar, bananas (quotas, not tariffs)

In absolute terms “GSP losses” > LDC losses

Research: big losers highly concentrated in small # of countries and products.

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Solutions “Within” the WTO

Don’t liberalize highly distorted markets

Grant other preferences elsewhere (e.g., mode 4)

Shift to other trade policy instruments—e.g., import subsidies for preferred country exports

Downsides:

– continued discrimination against less preferred nations;

– opportunity costs of OECD reform foregone

That said, (1) relax origin rules as a transitional mechanism to maintain preference margins longer

(2) Improve special and differential treatment rules

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Solutions “Outside” the WTO

Preference losses due to removal of unilateral concessions—going outside WTO allows this to be reflected. Options:

Use existing assistance mechanisms of IFIs

Create a stand-alone “compensation” fund (in WTO?)

Part of expanded aid for trade, e.g., via an enhanced Integrated Framework (LDC+)

1. Existing multilateral mechanisms

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Focus on short-run adjustment (IMF) and structural development agenda (MDBs)

Instrument = loans (even if concessional)

No link between bilateral nature of issue

Whether trade gets financed is endogenous

Assistance is temporary

No direct link to affected private sector

But, assistance placed in an overall development program and macro/policy framework

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2. A Compensation Fund

Pro’s: – Directly targets the problem – Grant-based transfers – Direct support for global MFN trade reform – Can allow the private sector to be directly compensated—more “ownership”/support Con’s: – Goes against conventional wisdom on earmarking funds – Risk of non-additionality (“diversion” of aid) – Erosion just one source of adjustment pressure – why only this?

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3. Address Erosion as part an Aid for Trade Initiative

Adjustment shocks occur often; many exceed erosion

Trade capacity needs exceed value of erosion loss

Bilateral nature of problem can be recognized

– E.g., a window under an IF+; regional funds (EDF?)

Ensures funds go to national trade priorities

Helps address problem that many of the poorest countries would not lose much through erosion

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Quantifying the transfer

Erosion of what? Include ATC? FTAs?

If compensation pursued, limit transfers for erosion that is caused by Doha

– To support the global public good via reform in OECD and moving system back towards MFN

What methodology to use?