Assessing the Effects of EU Trade Preferences for Developing Countries Maria Persson Akademiskt seminarium om EU:s handelspolitik Kommerskollegium 13 November
Presentation Based on
Background PhD Student at the Department of Economics, Lund University Thesis From Trade Preferences to Trade Facilitation focuses on different aspects of EU trade with developing countries
Thesis Chapters 1. Assessing the Effects of EU Trade Preferences for Developing Countries, with F. Wilhelmsson 2. Trade Facilitation and the EU-ACP Economic Partnership Agreements, Journal of Economic Integration 3. Trade Facilitation and the Extensive and Intensive Margins of Trade
Disposition What are Trade Preferences? Historical Overview of EU Systems Empirical Research Results/ Interpretations Future Research
What are Trade Preferences? Lower trade barriers, e.g. tariff reductions, offered to developing countries to improve their market access Normally non-reciprocal High income country offers trade preferences to developing countries Violate GATT rules Enabling Clause 1979 Historical interpretation: Cannot discriminate between developing countries, except better access for LDCs Possible effects: increased exports and diversification
EU Trade Preferences Preferences for African, Caribbean and Pacific (ACP) countries Preferences for Mediterranean countries Generalized System of Preferences Special arrangements for Least Developed Countries (LDCs) GSP+
ACP Preferences Origin: Treaty of Rome Preferences for colonies Yaoundé Conventions 1963, 1969 Former colonies in Africa Reciprocal trade preferences Lomé Conventions starting 1975 African, Caribbean and Pacific countries Non-reciprocal trade preferences No restrictions on manufactures and tropical products; preferential treatment on agricultural goods overlapping with CAP
ACP Preferences Lomé not compatible with the Enabling clause: discriminates other developing countries! Cotonou Agreement 2000 Prolonged Lomé style preferences until 2008 Negotiations about Economic Partnership Agreements, to enter into force January 1, 2008
Mediterranean Preferences Since the end of 1960s; 1970s Maghreb (Algeria, Morocco, Tunisia), Mashrek (Egypt, Syria, Jordan, Lebanon), Israel Modelled after Lomé, but better access for ACPs on some key products such as textiles and agricultural goods covered by CAP Since 1995, being replaced by Euro- Mediterranean Association Agreements
Generalized System of Preferences Covers most developing countries EU GSP since 1971 Unilaterally granted by the EU Smaller preference margins than ACP or MED
Generalized System of Preferences Special Arrangements Least developed countries Better preferences since 1977 Everything But Arms 2001 GSP+ Better preferences for countries affected by the production and trafficking of illicit drugs since 1991 Since July 1, 2005 replaced by Special incentive arrangement for sustainable development and good governance
Pyramid of Privilege
Overlapping Systems
Question Our Paper What are the effects of trade preferences on EU imports from developing countries? Different effects from different preferential regimes? Method Fixed effects estimation of Gravity Model Data from 1960 to 2002
Previous Studies Cross-sectional Gravity Sapir (1981) GSP significant and positive 1973 and 1974 Oguledo and MacPhee (1994) GSP, Mediterranean and Lomé preferences significant and positive 1976 Lomé > Mediterranean > GSP Nilsson (2002) GSP and Lomé often significant and positive between 1973 and 1992 Mediterranean preferences mostly insignificant
Panel Gravity Carrère (2004) Previous Studies ACP preferences significant and positive 1962-1996 Large effect Péridy (2005) Mediterranean preferences significant and positive 1975-2001 (various panel data methods)
Contribution Estimation method Fixed effects (country-pair and time effects) Country-pair time trends Longer time period Control for more different preference systems Take EU enlargements into account
Model
Data EU15 imports from developing countries 1960-2002 Excluded Countries with a deeper form of integration: new EU members, Turkey Formerly planned economies in Central and Eastern Europe Major oil exporting countries Number of developing countries: 109 Number of observations: 43 314 Actual EU imports: 31 873
Estimation Results
Conclusions Trade preferences can really increase exports Larger effects for countries with better preferences Lomé: 30% of actual exports Mediterranean: 14% General GSP and GSP+: No significant effect LDCs: 21% Countries joining the EU start to import less from developing countries
Comments Preference effects contrary to common views Shares of EU imports have declined Interpretation: Trade would have been even worse without preferences Large negative EU effect! Methodological perspective: need to take account of EU enlargements to estimate preference effects correctly Policy perspective: Same for the 12 new members?
Future Research Methodological developments Poisson or Heckman estimations Detailed trade data Explore the effects from EU enlargements Effect on export diversification? Effect on trade survival?