Most-favored Nation Tariffs Research Articles

Implications of the Uruguay Round for Kenya

This paper studies the implications of the Uruguay Round for Kenya’s own trade regime and its external trading environment. The analysis indicates that Kenya did not undertake significant liberalization commitments under the Uruguay Round. There are however, several effects on Kenya’s external trading environment due to most-favored nation tariff cuts, erosion of preference margins, and changes in food prices. These effects are determined using simple computational techniques in a partial equilibrium framework. Overall, the results indicate that the effect on Kenya’s balance of payments in the medium-term may be negative but modest, and can be offset by pursuit of appropriate structural adjustment policies.

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

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).

The Effects of Trade Preferences for Developing Countries

At the 1964 and 1968 United Nations Conferences on Trade and Development the developing countries pressed for, and the developed countries finally agreed to, the granting of preferential tariff treatment on the formers' manufactured exports. Such a discriminatory measure runs counter to the non-discrimination or most-favored-nation (MFN) principle set out in the first article of the General Agreement on Tariffs and Trade and a GATT waiver was necessary before the developed countries could introduce their individual schemes under the Generalized System of Preferences (GSP).' Since their introduction between 1971 and 1976, these schemes have aroused opposition not only from protectionist forces in the donor countries and from supporters of the non-discrimination principle, but also from economists arguing that the GSP yields little benefit to the developing countries who would do better to seek MFN tariff cuts on goods in whose production they possess a comparative advantage. The developing countries have, however, been if anything more skeptical of MFN tariff cuts since the introduction of GSP, because such cuts would erode the value of their preference margins. The relative merits of GSP versus MFN tariff cuts from the developing countries' perspective is partly an empirical matter, which could be settled by estimates of the trade creating and trade diverting impact of GSP. Such estimates require values for GSP beneficiaries' parameters, about which our knowledge is limited. In this paper I contend that the most influential estimates of GSP effects sidestep this requirement in a manner which guarantees the predominance of trade creation, whereas consideration of plausible parameter values and of the design of actual GSP schemes suggests trade diversion to be more significant. The standard partial equilibrium model with infinitely elastic supply (Figure 1) has proven popular for estimating the effect of non-preferential tariff changes, largely because of its meager data requirements. It is, however, inappropriate for preferential tariff changes because all imports come from the same source and all-or-nothing diversion of nonbeneficiaries' trade is predicted. This difficulty can be circumvented, while remaining within the

MFN tariff treatment of imports from China: Effects on U.S. employment

This article estimates the effects on U.S. output and employment of granting most-favored-nation (MFN) tariff treatment to imports from the People's Republic of China (PRC). Import demand elasticities are used to estimate changes in imports resulting from the lower tariff rates. A highly disaggregated U.S. input-output table and labor-output ratios are used to convert changes in imports into changes in domestic output and employment at a detailed sectorial level. U.S. import restraints on the textile and apparel industry are incorporated into the analysis. The article explores the implications of increased imports from the PRC for U.S., PRC, and LDC policy makers.

The Trade Effects of Tariff Preferences

In recent years the international community has heard a great deal of discussion of proposals for tariff preferences, to be extended by all developed countries to all less-developed countries (LDC's). It is obviously very important for policy purposes in both sets of countries to have some idea what the trade effects of such a preference scheme would be. The problem, however, poses a very difficult task for empirical economics, for the following reasons: There are, first, all the problems encountered in estimating the static effects of most-favorednation (MFN) tariff reductions [4; 5]. Second, since the tariff cut is preferential, we have to be concerned not merely with the displacement of domestic production by imports, but also with the substitution of one group of imports for another. Even less is known about elasticities of substitution between different classes of imports than about import demand elasticities. Third, export supply elasticities are probably lower for less developed countries than for developed countries. The trade effects of tariff cuts become more sensitive to the precise value of supply elasticities as these elasticities become smaller. Investigators studying the effects of MFN tariff cuts on trade in manufactured goods have frequently assumed (long-run) supply curves to be perfectly elastic, an assumption which causes little error if supply elasticities are high relative to demand elasticities. Such an assumption would be dangerous in the case of LDC exports. Finally, there are all the limitations of a static model, with its