Abstract
We estimate the trade effect of removing uncertainty about future trading conditions in the context of the 2014 reform of the Generalized System of Preferences (GSP) of the European Union (EU). EU GSP members receive non-reciprocal trade preferences (NRTPs), but only as long as they are not too competitive; i.e. they will graduate in case their share of EU GSP imports in a sector exceeds a certain threshold. However, the 2014 reform removed the threat of these competitiveness-related graduations for members of the GSP+, a sub-scheme of the main programme. We find that the reform increased EU imports from GSP+ countries by about 7% on average whilst tariffs stayed the same. This trade impact is driven by the country-sector pairs most exposed to NRTPs uncertainty pre-reform. The effect is robust to taking into account other aspects of the reform, such as the reduction in GSP membership and changes in tariff margins, respectively.
Highlights
Go Ahead and TradeThe Generalized System of Preferences (GSP) of the European Union (EU) is one of the schemes by which, in the world trading system, developed countries offer “special and differential treatment” to developing countries, in the form of non-reciprocal trade preferences (NRTPs)
NRTPs schemes in force (Ornelas and Ritel, 2020) which are often available to all developing countries, some schemes are limited to countries from a specific region, or else feature more preferential sub-schemes reserved for Least Developed Countries (LDCs)
All models are estimated with a Poisson Pseudo-Maximum Likelihood (PPML) estimator using the routine that Correia et al have developed for PPML settings with high dimensional fixed effects Correia et al (2019)
Summary
The Generalized System of Preferences (GSP) of the European Union (EU) is one of the schemes by which, in the world trading system, developed countries offer “special and differential treatment” to developing countries, in the form of non-reciprocal trade preferences (NRTPs). Ingo Borchert and Mattia Di Ubaldo be induced to under-invest in products eligible for preferences schemes, or in products which satisfy the Rules of Origin requirements (Limao, 2016), thereby leading to under-utilization of preferences In spite of these important shortcomings of NRTPs schemes, there is, to the best of our knowledge, no work that investigates the trade effects of uncertainty related to NRTPs. Our paper intends to fill this gap in the literature. This paper adds both to the aforementioned literature on trade effects of NRTPs as well as to a fast growing strand of literature on the effects of trade policy uncertainty (TPU) (Handley, 2014; Handley and Limao, 2015; Handley and Limao, 2017; Crowley et al, 2018a,b; Carballo et al, 2018; Graziano et al, 2018).
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