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Economic policy responses to preference erosion : from trade as aid toaid for trade

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  • Hoekman. Bernard
  • Prowse, Susan

Abstract

Trade preferences are a central issue in ongoing efforts to negotiate further multilateral trade liberalization."Less preferred"countries are increasingly concerned about the discrimination they confront, while"more preferred"developing countries worry that WTO-based liberalization of trade will erode the value of current preferential access regimes. This tension suggests there is a political economy case for preference-granting countries to explicitly address erosion fears. The authors argue that the appropriate instrument for this is development assistance. The alternative of addressing erosion concerns through the trading system will generate additional discrimination and trade distortions, rather than moving the WTO toward a more liberal, non-discriminatory regime. They further argue that prospective losses generated by most-favored-nation liberalization should be quantified on a bilateral basis, using methods that estimate what the associated transfer should have been and ignoring the various factors that reduce their value in practice (such as compliance costs or the fact that part of the rents created by preference programs accrue to importers in OECD countries). Given that many poor countries have not been able to benefit much from preference programs, a case is also made that preference erosion should be considered as part of a broader response by OECD countries to calls to make the trading system more supportive of economic development. The focus should be on identifying actions and policy measures that will improve the ability of developing countries to use trade for development.

Suggested Citation

  • Hoekman. Bernard & Prowse, Susan, 2005. "Economic policy responses to preference erosion : from trade as aid toaid for trade," Policy Research Working Paper Series 3721, The World Bank.
  • Handle: RePEc:wbk:wbrwps:3721
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Kym Anderson & Will Martin & Dominique van der Mensbrugghe, 2006. "Doha Merchandise Trade Reform: What Is at Stake for Developing Countries?," World Bank Economic Review, World Bank Group, vol. 20(2), pages 169-195.
    2. Alan Matthews & Hannah Chaplin & Thomas Giblin & Marian Mraz, 2007. "Strengthening Policy Coherence for Development in Agricultural Policy: Policy Recommendations to Irish Aid," The Institute for International Integration Studies Discussion Paper Series iiisdp188, IIIS.
    3. Fugazza, Marco, 2007. "A new geography of preferences for Sub-Saharan African countries in a globalizing trading system," MPRA Paper 11575, University Library of Munich, Germany.
    4. Chad E. Hart & John C. Beghin, 2004. "Rethinking Agricultural Domestic Support under the World Trade Organization," Center for Agricultural and Rural Development (CARD) Publications 04-bp43, Center for Agricultural and Rural Development (CARD) at Iowa State University.
    5. Will Martin & Kym Anderson, 2006. "Agricultural Trade Reform and the Doha Development Agenda," World Bank Publications, The World Bank, number 6889, April.
    6. Robert Z. Lawrence & Tatiana Rosito, 2006. "A New Compensation Mechanism for Preference Erosion in the Doha Round," IDB Publications (Working Papers) 2408, Inter-American Development Bank.
    7. Lawrence, Robert Z. & Rosito, Tatiana, 2006. "A New Compensation Mechanism for Preference Erosion in the Doha Round," Working Paper Series rwp06-044, Harvard University, John F. Kennedy School of Government.
    8. Calì, Massimiliano & te Velde, Dirk Willem, 2011. "Does Aid for Trade Really Improve Trade Performance?," World Development, Elsevier, vol. 39(5), pages 725-740, May.
    9. Simone Bertoli & Giovanni Andrea Cornia & Francesco Manaresi, 2008. "Aid Effort and Its Determinants: A Comparison of the Italian Performance with other OECD Donors," Working Papers - Economics wp2008_11.rdf, Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa.
    10. Finger, J. Michael & Wilson, John S., 2006. "Implementing a WTO agreement on trade facilitation : what makes sense ?," Policy Research Working Paper Series 3971, The World Bank.

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