How Preferential is Preferential Trade?
World trade is increasingly ruled by preferential trade agreements (PTAs), but their precise nature remains relatively opaque. This paper assesses a central dimension of these agreements, the significance of tariff preferences, using a new data set...
| Main Authors: | , , , , |
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| Format: | Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2018
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/655601526483739564/How-preferential-is-preferential-trade http://hdl.handle.net/10986/29854 |
| Summary: | World trade is increasingly ruled by
preferential trade agreements (PTAs), but their precise
nature remains relatively opaque. This paper assesses a
central dimension of these agreements, the significance of
tariff preferences, using a new data set on preferential and
non-preferential or Most Favored Nation (MFN) applied
tariffs, constructed by the International Trade Center and
the World Bank. The data set covers 5,203 products, 199
reporters, and 239 partners, representing approximately 97
percent of world imports in 2016. There are three main
findings. First, PTAs have significantly widened the scope
of tariff-free trade. Whereas 42 percent of the total value
of trade traded free under MFN rates in 2016, PTAs have
fully liberalized an additional 28 percent of global trade.
Second, the extent of preferential liberalization varies
significantly across countries and sectors. Around 70
percent of countries have reduced trade-weighted average
preferential tariffs to less than 5 percent, but PTAs have
not been able to eliminate the high levels of protection in
some low-income countries and in agricultural products,
textiles, and footwear. Third, while the average
preferential margin for trade covered by PTAs is low because
one-fifth of world trade under preferential agreements is
already duty free, more than a quarter of world trade is
subject to an average preference margin of 7.4 percent.
Considering competition from preferential and
non-preferential sources, however, only 5.2 percent of
global exports benefited from a preferential advantage of
over 5 percent and only 3.3 percent of global exports
suffered from a preferential disadvantage higher than 5
percent. Furthermore, data for a subsample of importers
reveal that not all eligible imports take advantage of
preferences, because of impediments such as restrictive
rules of origin, and therefore actual preference margins are
generally lower than potential margins. |
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