Schemes for aggregating preferential tariffs, trade volume effects and African LDCs

This study argues that aggregated preferential tariffs calculated according to the tradeweighted aggregation scheme tend to underestimate the true import barriers imposed on imports originated from the LDCs. This downward bias impacts numerical simulations aiming at estimating preference erosion effects of multilateral trade liberalization and export promotion effects of expanding preferences in the spirit of the Hong Kong WTO declaration. Two specific claims are offered. The first of these states that the downward bias would likely lead to underestimating the preference erosion effect. The second claim says that the export promotion effect would also be under-estimated with the biased aggregated preferential tariffs. Taking advantage of a global bilateral tariff database at the HS-6 level, an alternative simple average based aggregation scheme is developed and the resulting aggregated preferential tariffs imposed on the African LDCs are presented. These modified tariffs are generally higher than the trade-weighted tariffs contained in the GTAP databases. Numerical simulations of policy scenarios pertaining to preference erosion and preference enhancement are conducted against both the modified and original GTAP database. Results from these simulations provide support to the two claims. Having established these results, this study illustrates the merits of the Hong Kong WTO declaration regarding expanding preferences for the LDCs.