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...

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Main Authors:	Espitia, Alvaro, Mattoo, Aaditya, Mimouni, Mondher, Pichot, Xavier, Rocha, Nadia
Format:	Working Paper
Language:	English
Published:	World Bank, Washington, DC 2018
Subjects:	REGIONAL TRADE PREFERENTIAL TRADE AGREEMENTS PREFERENTIAL TARIFFS MOST-FAVORED NATION TARIFF PREFERENCE GLOBAL TRADE
Online Access:	http://documents.worldbank.org/curated/en/655601526483739564/How-preferential-is-preferential-trade http://hdl.handle.net/10986/29854

id	okr-10986-29854
recordtype	oai_dc
spelling	okr-10986-298542021-06-08T14:42:46Z How Preferential is Preferential Trade? Espitia, Alvaro Mattoo, Aaditya Mimouni, Mondher Pichot, Xavier Rocha, Nadia REGIONAL TRADE PREFERENTIAL TRADE AGREEMENTS PREFERENTIAL TARIFFS MOST-FAVORED NATION TARIFF PREFERENCE GLOBAL 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 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. 2018-05-23T19:25:13Z 2018-05-23T19:25:13Z 2018-05 Working Paper http://documents.worldbank.org/curated/en/655601526483739564/How-preferential-is-preferential-trade http://hdl.handle.net/10986/29854 English Policy Research Working Paper;No. 8446 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank World Bank, Washington, DC Publications & Research Publications & Research :: Policy Research Working Paper
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English
topic	REGIONAL TRADE PREFERENTIAL TRADE AGREEMENTS PREFERENTIAL TARIFFS MOST-FAVORED NATION TARIFF PREFERENCE GLOBAL TRADE
spellingShingle	REGIONAL TRADE PREFERENTIAL TRADE AGREEMENTS PREFERENTIAL TARIFFS MOST-FAVORED NATION TARIFF PREFERENCE GLOBAL TRADE Espitia, Alvaro Mattoo, Aaditya Mimouni, Mondher Pichot, Xavier Rocha, Nadia How Preferential is Preferential Trade?
relation	Policy Research Working Paper;No. 8446
description	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.
format	Working Paper
author	Espitia, Alvaro Mattoo, Aaditya Mimouni, Mondher Pichot, Xavier Rocha, Nadia
author_facet	Espitia, Alvaro Mattoo, Aaditya Mimouni, Mondher Pichot, Xavier Rocha, Nadia
author_sort	Espitia, Alvaro
title	How Preferential is Preferential Trade?
title_short	How Preferential is Preferential Trade?
title_full	How Preferential is Preferential Trade?
title_fullStr	How Preferential is Preferential Trade?
title_full_unstemmed	How Preferential is Preferential Trade?
title_sort	how preferential is preferential trade?
publisher	World Bank, Washington, DC
publishDate	2018
url	http://documents.worldbank.org/curated/en/655601526483739564/How-preferential-is-preferential-trade http://hdl.handle.net/10986/29854
_version_	1764470556568059904

How Preferential is Preferential Trade?

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