The development interface between the multilateral trading system and regional trade agreements Market Access and Preference Erosion November 2007 Ralf Peters Trade Negotiations and Commercial Diplomacy Branch Division on International Trade UNCTAD, Geneva United Nations Conference on Trade and Development

MFN Market Access Conditions Determines the Level of RTA Preferences Preference margin

Market Access: Current Tariffs Source: UNCTAD TRAINS and UNCTAD calculations based on WTO CTS Specific Issues: Tariff escalation Tariff peaks

Initial tariff peaks Source: WITS/TRAINS Peaks: Tariffs above three times national average Percentage of Items with Peaks in all NAMA Tariff Universe Developed countries have lower average tariffs but more peaks => Harmonizing approach

Market Access: Tariff Escalation Source: UNCTAD TRAINS, AMAD, WTO EU most favoured nation, out-of-quota bound tariff rates United States bound and applied MFN tariff rates on cotton products Degree of processing

EU Market- ACP exports 1/3 in Agriculture

NAMA: Swiss Formula Coefficient: 8.5 Initial tariffFinal tariffReduction % % % Coefficient: 21 Initial tariffFinal tariffReduction % % % Proposal for developing countries Proposal for developed countries

Proposed sectors: –Bicycles –Chemicals –Electronics/electrical equipment –Fish –Footwear –Forest products –Gems and jewellery –Pharmaceutical and medical equipment Sectorals –Raw materials –Sporting –Apparel –Auto/auto parts –Footwear –Textiles Zero for Zero Or Zero for x

Market Access: Agriculture Tiered Formula –Linear cuts in 4 bands –Higher tariffs reduced by a higher percentage Order of magnitude proposed –Developed countries: 48 % – 73 % –Developing countries: 32 % - 49 % –SVEs: average cut of 24 %

Market Access: LDCs Exports Specific interests of LDCs LDCs Exports 2 Preferential schemes MFN tariffs Mostly MFN 3 1 Developed countries Developing countries 24% 38% Source: UNCTAD data from 2001/2002 Ambitious reductions neg. pos.

New rent Preference Erosion: Example EU Sugar World price 200 Euro Initial price 630 Euro New price 400 Euro Initial export New export Initial rent Reduction of preference margin

Preference Erosion: LDCs (1000 US$) UNCTAD calculation Sum Sugar, Tobacco, Fats+Oils, Coffee, Vegatables

Welfare SSA benefits $289m in spite of preference erosion Global gains $28b Source: David Vanzetti, Australian National University