Multilateral trade liberalisation and the potential for preference erosion on the EU market

Since the launch of the Doha Development Agenda (DDA) in 2001 there has been growing concern about the impact of multilateral liberalisation on vulnerable developing countries. Specifically, there is concern that those countries which currently benefit from preferential access to large industrialised markets will lose out as most favoured nation (MFN) tariffs are reduced. This reduction will naturally erode the margin of preferences which is accorded to developing countries in these markets, making it more difficult for them to compete and potentially reducing their exports or profit margins or both. This paper looks at the potential for preference erosion on the EU market. It uses a new Eurostat database based on actual utilisation of preferences, data which has previously been unavailable in usable form, which should be the most reliable way to estimate the real value of preferences. The analysis shows that, although certain countries are vulnerable to the reduction of the EU’s MFN tariffs, they are not as numerous as might be expected and the vulnerability is overwhelmingly concentrated in a few key products. Relatively few LDCs are vulnerable. The positive aspects of multilateral liberalisation, which will certainly be significant, are not taken into account and therefore the results overstate vulnerability. The potential problem should be manageable within a broad DDA outcome, which ensures wider and deeper market access for affected countries.