What Are OECD Trade Preferences Worth to Sub-Saharan Africa?

Abstract

A problem which has complicated multilateral trade negotiations like GATT's Uruguay Round is that OECD countries have adopted important departures from the most-favored-nation (MFN) principle in their trade regimes. Recently these departures have taken the form of regional trade preferences, such as the Canada-United States Free Trade Arrangement, NAFTA, the Australia-New Zealand Free Trade Arrangement or European Community and EFTA preferences for Eastern Europe. Developing countries receive important trade preferences under the OECD countries' Generalized System of Preference (GSP) schemes, and through preferences extended under the EEC Lome Convention and the US Caribbean Basin Initiative (CBI). Since the Uruguay Round will lower trade barriers on an MFN basis it poses a dilemma for preference-receiving countries. Specifically, MFN tariff reductions will erode these countries' margins of preference and cause their competitive position to deteriorate vis-a-vis other suppliers. Trade losses will occur as some preference-receiving goods are displaced (diverted) by exports from other (non-preference receiving) countries. As a result, preference-receiving countries could justifiably try to minimize reductions in MFN tariffs. Overall, the strategy which these countries might adopt vis-a-vis the multilateral trade negotiations could be determined by an assessment of whether the likely trade gains from lower MFN tariffs on their non-preference receiving goods would offset the expected losses from their preference-receiving exports. This study examines the problem of preference erosion from the perspective of Sub-Saharan African countries. Sub-Saharan Africa (SSA) was selected for analysis due to the extensive multiple tariff preferences these countries receive in OECD markets (i.e., GSP, Lome Convention and, in many cases, least developed country preferences), and the fact that the region's export growth has been below that of most other countries (World Bank 1992).