Non-Reciprocal Preference Erosion Arising From MFN Liberalitzation in Agriculture: What are the Risks?

Abstract

This paper estimates the risk of preference erosion for non-reciprocal preference recipients in the agricultural sector as a consequence of MFN tariff cuts. It is based on a simulation of a single tariff-cutting scenario. The measure of preference erosion risk is the difference in preference margins enjoyed by individual suppliers to the QUAD (Canada, EU, Japan, United States) markets before and after a MFN tariff reduction, multiplied by the associated trade flow. The paper does not attempt to determine how losses in preference margins translate into trade outcomes, but it does highlight which products and which non-reciprocal preference beneficiaries are the most vulnerable to erosion effects in the major developed country markets. Overall, the paper finds that the risk of preference erosion is small, but some countries are strongly affected in particular product lines (notably sugar and bananas).