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Measuring the Relative Strength of Preferential Market Access

Report by Nicita, Alessandro / UNCTAD, 2011

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In the past 20 years, tariffs imposed on international trade have been decreasing both in virtue of multilateral agreements under the auspices of the World Trade Organization (WTO) and of the proliferation of preferential trade agreements (PTAs) at the regional and bilateral level. The consequence of the large number of PTAs is that an increasing share of international trade is not subject to the most favoured nation tariffs, but enters markets through preferential access. Preferential access can be thought of as a policy given comparative advantage where countries discriminate across trading partners by providing some countries with a relative advantage. As the number of PTAs increases, it becomes more difficult to assess the tariff advantage originating from an existing or future trade agreement. This paper proposes two new indices aimed at assessing the value of the preferential margin. The first index measures the relative value of preferential regimes on actual exports flows. It provides the tariff advan age to the exports originating from a given country relative to similar exports originating elsewhere. The second index measures the potential value of the preferential regime and it is calculated not on observed but on “potential” export flows. These indices are useful for calculating both the strength of existing or future trade agreements as well as the preference erosion that a third-parties trade agreement may cause.

UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENT







POLICY ISSUES IN INTERNATIONAL TRADE AND COMMODITIES


STUDY SERIES No. 47






MEASURING THE RELATIVE STRENGTH
OF PREFERENTIAL MARKET ACCESS







by



Alessandro NICITA


UNCTAD, Geneva











UNITED NATIONS 


New York and Geneva, 2011 





ii


NOTE


The purpose of this series of studies is to analyse policy issues and to stimulate discussions in the
area of international trade and development. The series includes studies by UNCTAD staff, as well as by
distinguished researchers from academia. In keeping with the objective of the series, authors are encouraged
to express their own views, which do not necessarily reflect the views of the UNCTAD secretariat or its
member States.


The designations employed and the presentation of the material do not imply the expression of any
opinion whatsoever on the part of the United Nations Secretariat concerning the legal status of any country,
territory, city or area, or of its authorities, or concerning the delimitation of its frontiers or boundaries.


Material in this publication may be freely quoted or reprinted, but acknowledgement is requested,
together with a reference to the document number. It would be appreciated if a copy of the publication
containing the quotation or reprint were sent to the UNCTAD Secretariat at the following address:



Chief


Trade Analysis Branch
Division on International Trade in Goods and Services, and Commodities


United Nations Conference on Trade and Development
Palais des Nations
CH-1211 Geneva


Switzerland



Series editor:
Victor Ognivtsev


Officer-in-Charge, Trade Analysis Branch





UNCTAD/ITCD/TAB/48







UNITED NATIONS PUBLICATION


ISSN 1607-8291






© Copyright United Nations 2011
All rights reserved





iii


ABSTRACT




In the past 20 years, tariffs imposed on international trade have been decreasing both in virtue of
multilateral agreements under the auspices of the World Trade Organization (WTO) and of the proliferation
of preferential trade agreements (PTAs) at the regional and bilateral level. The consequence of the large
number of PTAs is that an increasing share of international trade is not subject to the most favoured nation
tariffs, but enters markets through preferential access. Preferential access can be thought of as a policy
given comparative advantage where countries discriminate across trading partners by providing some
countries with a relative advantage. As the number of PTAs increases, it becomes more difficult to assess
the tariff advantage originating from an existing or future trade agreement. This paper proposes two new
indices aimed at assessing the value of the preferential margin. The first index measures the relative value
of preferential regimes on actual exports flows. It provides the tariff advantage to the exports originating
from a given country relative to similar exports originating elsewhere. The second index measures the
potential value of the preferential regime and it is calculated not on observed but on “potential” export
flows. These indices are useful for calculating both the strength of existing or future trade agreements as
well as the preference erosion that a third-parties trade agreement may cause.







Key words: Trade, Preferential Margins, Tariff, Trade Agreements


JEL Classification: F1, F13, F15








iv






ACKNOWLEDGEMENTS



The author is grateful to seminar participants at UNCTAD, the World Bank, and the 
WTO for their comments.

Any mistakes or errors remain the author’s own.










v


CONTENTS




INTRODUCTION..................................................................................................................................1




1. Relative Preferential Margins ..................................................................................................2


2. The Extent of Preferential Margins.........................................................................................5




3. Simulations: Effects of FTA on Relative Preferential Margins ..........................................11




4. Conclusions .......................................................................................................................13




References .........................................................................................................................................18












vi


List of figures



Figure 1. MFN Preferential Margin and Relative Preferential Margin............................................ 8
Figure 2. Real Preferential Margin on Exports to Developed and Developing Countries............... 9
Figure 3. Relative Preferential Margin and Potential Preferential Margin
(Overall and Bilateral).................................................................................................... 11





List of tables

Table 1. Preferential Margins ......................................................................................................... 6
Table 2. Regional Real Preferential Margin................................................................................. 10
Table 3. Impact of Free trade Agreements on the Relative Preferential Margin.......................... 14








1


INTRODUCTION

In the past 20 years, tariff liberalization has been used as an effective development tool based


on the evidence that there are many benefits that a country can gain through more active participation
in world trade. During this period, tariffs imposed on international trade have been decreasing both in
virtue of multilateral agreements under the auspices of the World Trade Organization (WTO) and of
the proliferation of preferential trade agreements (PTAs) at the regional and bilateral level. According
to 2007 data, about 40 per cent of world trade is free under most-favoured nation (MFN) tariffs, and
an additional 30 per cent is exempted from tariffs because of preferential access.



Multilateral trade liberalization was initiated by the General Agreement on Tariffs and Trade


(GATT) and then culminated in the Uruguay Round of trade negotiations of 1994. More recently,
PTAs have become more prominent in the trade agenda. The number of active PTAs has increased
constantly in the last decade. In 2007, there were more than 200 PTAs notified to WTO. This number
of active PTAs has continued to increase since the early 1990s and it is expected to grow given the
large number of agreements in their proposal stage. As of today, virtually all members of WTO have
notified participation in one or more PTAs.



The consequence of the large number of PTAs is that an increasing share of international


trade is not subject to the MFN tariffs, but enters markets through preferential access. Preferential
access can be thought of as a policy given comparative advantage where countries discriminate across
trading partners by providing some countries with a relative advantage. For example, high-income
countries often grant non-reciprocal preferential access to least developed countries (LDCs) to help
their export and facilitate economic growth. Likewise, regional trade agreements (RTAs) are a
common form of reciprocal preferential access that apply lower (or zero) tariff for products
originating within RTA members so as to foster trade cooperation among neighboring countries. Such
agreements, by providing some trading partners with a lower tariff, inevitably discriminate against
those trading partners outside the trade agreement.1 This makes it difficult to assess the tariff benefits
originating from a trade agreement.



This paper proposes two new indices aimed at assessing the value of the preferential margin.


The first index measures the relative value of preferential regimes on actual exports flows. It provides
the tariff advantage to the exports originating from a given country relative to preferences provided to
its competitors. The second index measures the potential value of the preferential regime and it is
calculated not on observed but on “potential” export flows. These indices are useful for calculating
both the strength of existing or future trade agreements as well as the preferences erosion caused by
third-party trade agreements (i.e. the preference erosion for LDCs of a EU-China trade agreement).
The indices are calculated for a sample of 127 countries using 2008 data on tariffs and trade. Both
these indices are calculated at aggregate and bilateral levels. The paper then provides some
simulations. In particular it provides the changes in these indices consequent to FTA of each country
with its 5 closest developing countries, a FTA with the USA and a FTA with European Union.
Finally, it also provides changes in these indices both for members and non-members consequent to
the implementation of a free trade agreement (FTA) among East Asian countries.



This paper is organized as follows. Section 1 presents the methodology to calculate the


relative preferential margin indices. Section 2 discusses the results. Section 3 provides a discussion on
the change in these indices as a consequence of full trade liberalization in the region, with the USA
and the European Union. Section 4 concludes.




                                                            


1 Hoekman, Martin and Primo Braga (2009) provide a discussion on the different effects of trade agreements.





2


1. Relative Preferential Margins 

The strength of a trade agreement is generally measured by the preferential margin. The


commonly used measure of preference margins is simply the difference between the preferential tariff
and the MFN rate.2 Because in most instances other countries will also have some form of preferential
access, this measure generally overestimates the relative preference enjoyed by countries. In practice,
it is possible that preferential rates granted to a particular country, although lower than MFN, still
penalize it relative to other countries that benefit from even lower or zero tariffs. In other words, in
calculating the comparative advantage given by the preferential regime it is important the relative
market access condition, not just the absolute level of prevailing restrictions. The above discussion
implies that the advantage, in terms of tariffs, of an RTA or a free trade agreement (FTA) depends on
the existing structure of preferences.



To better capture the different effects of preferences, this paper adopts the methodology of


Hoekman and Nicita (2008). The strength of the preferential trade agreement is measured by the
“relative” preferential margin (relative to any preferential access provided to other competitors). In
this sense, the relative preferential margin that a country grants to a given country is the difference –
in tariff percentage points – that a determined basket of goods enjoys when imported from the given
country relative to being imported from any other.3



There are two sets of weights when calculating such a preferential margin. First, the


counterfactual is a weighted average of tariffs imposed on all other partners. Second, the overall tariff
(and the preferential margin) is an average constructed across many tariff lines. To calculate the
counterfactual, the first step is to calculate the trade weighted average tariff at the tariff line level that
one country (i.e. the United States) imposes on all other countries except the country for which the
preferential margin is calculated (i.e. Mexico). This is done by using (United States) bilateral imports
as weights, in order to take into account the supply capacity of (United States) trading partners. The
second step is to aggregate across tariff lines. This is done by using (Mexico) exports (to the United
States) so as to take care of different product compositions across partners.4



A further complication arises in the aggregation across products. A proper aggregation would


take into account the fact that imports of some goods can be more responsive to change in prices than
others. In theory, products where imports are less sensitive to prices (inelastic) should be given less
weight because a tariff change would have little effect on overall volumes of trade.5 To correct for
this, HS six-digit product lines are aggregated using also import demand elasticities.6



In more formal terms, the bilateral relative preferential margin (RPM) measuring the


advantage that exports of country j have in exporting its goods to country k can be calculated as:
                                                            


2 Some indices of preferential margins also adjust for effective utilization rates as in Alexandraki and Lankes
(2004); Low, Piermartini and Richtering, (2009); and Carrere, de Melo, and Tumurchudur (2008). Although
these indices are computationally simpler, they also use a less precise counterfactual which does not fully take
into account export composition.
3 To clarify with an example, in a proper measure of the preferential market access that Mexico enjoys in the
United States, the counterfactual is the average tariff for Mexico’s export bundle (to the United States) if this
were to originate in other countries. The relative preferential margin is the difference between the bilateral trade-
weighted preferential tariff imposed by the United States on Mexico and that counterfactual.
4 As trade flows are generally reported at the six-digit harmonized system (HS), this indicator is constructed on
the basis of the six-digit HS instead of the tariff line level.


5 This corrects for the issue that, when aggregating across product lines, the overall RPM should be higher if the
exporting country has a higher preferential margin in products for which demand is more elastic to small
movements in prices.
6 See Kee, Nicita and Olarreaga (2008). 





3


vj,
εexp


tεexp


εexp


imp


timp
εexp


εexp


t
imp


timp
εexp


RPM


hs
hs,k


j
hs,k


j
hs,k


hs
hs,k


k
hs,j


hs
hs,k


j
hs,k


v


v
hs,k


v


v
hs,k


v
hs,k


hs
hs,k


k
hs,j


hs
hs,k


j
hs,k


j
hs,k


v


v
hs,k


v


v
hs,k


v
hs,k


hs
hs,k


k
hs,j


k,j


≠−
⎟⎟






⎜⎜






=


=
⎟⎟






⎜⎜







=







∑∑




∑∑





where, imp are imports and exp are exports, ε is the import demand elasticity, t is the tariff, hs


are HS six-digit categories, and v are exporters competing with country j in exporting to country k.7
Note that any measure of preference margin could be positive or negative, depending on the
advantage or disadvantage of the country with respect to other competing exporters. In practice, the
RPM provides a measure of the tariff advantage (or disadvantage) provided to the actual exports of
country j in country k, given the existing structure of tariff preferences.



The RPM measures the relative preference on the observed level of trade but it says little


about how the structure of preferences could potentially provide advantage to a determined country.
That is, the value of preferential access depends not only on what a given country exports, but also on
how large is the market for which preferential access is given. This may be of particular interest in
the trade negotiation process as it would make a difference whether the preferences given are on
goods imported in large quantities, or goods with low volumes of trade. To control for this, this paper
proposes another indicator: the potential preferential margin (PPM). It is called potential because it
provides a measure of the potential value of the preferential regime given to a particular country on
the basis of the overall structure of imports of the country providing preferential access.8 This index is
similar to the RPM,9 but the aggregation across tariff lines is done by using imports rather than
exports.


The PPM is most informative at the bilateral level. The bilateral PPM is to be interpreted as
the value of the preference for the given exporter in terms of potential exports to the trading partner.
In the calculation of the bilateral PPM, both elasticities and total imports for each product are taken
into account. If a large preference is given to a good that is minimally imported or is unresponsive to
prices (low elasticity) the potential value of that preference will be small. On the other hand, if the
preference is provided on goods that are imported in large volumes then the potential value of the
preference is high.



At the country level, the PPM provides an indication of the relative value of all preferential


regimes with weights given by the trade value of each product in each market. In most cases, the
overall PPM will be negative as preferences schemes are often restricted to a limited number of
countries (relative preferences are negative in the countries outside the preferential schemes). A
positive PPM generally implies a widespread and large bilateral potential preferential margin in
particularly important markets.



                                                            


7 In short, the first term of the RPM is the trade (and elasticity) weighed average tariff that country k imposes on
country j, the second term is the counterfactual, the weighed tariff that country k imposes on the competitors of
country j on the existing basket of products traded between j and k.
8 For example, the potential value of United States preferences on Mexican oranges depends not only upon the
level of preferences given to other competitors (besides United States domestic production), but also on the size
of the market for imported oranges in the United States.
9 At the product level, the PPM is equal to the RPM. The difference is in the aggregation across products.





4


Regarding the calculation of the PPM, a further complication is that, although one country
could enjoy very high relative preference on a determined product, this product could be beyond its
production (and export) capability.10 Thus, any preference given to products beyond the production
capacity of the given country has no value. To control for this, the bilateral PPM is calculated only
across the set of products that are actually exported (to any country). In more formal terms, the PPM
of country j exporting to country k is as follows:






j


hs
hs,k


v
hs


hs


j
hs,khs,k


v
hs


hs
hs,k


v
hs


hs
v


v
hs,k


v


v
hs,k


v
hs,k


hs,k
v


hs,k


hs
hs,k


v
hs,k


j
hs,k


v


v
hs,k


v


v
hs,k


v
hs,k


hs
hs,k


v
hs,k


k,j


exphs,
εimp


tεimp


εimp


imp


timp
εimp


εimp


t
imp


timp
εimp


PPM


∈−
⎟⎟






⎜⎜






=
⎟⎟






⎜⎜







=






∑ ∑






∑∑





where notation is as above and the sum across hs products is only for those products exported


by j.

Although the difference between PPM and RPM has no univocal meaning, it does provide an


indication of the extent to which the preferential regime is aligned to the export structure of a country.
This is more informative at the bilateral level. A high PPM paired with a low RPM would imply that,
although the country has large potential preferences, its export structure is biased toward sectors
where its preferential advantage is lower. On the other hand, a low PPM and a high RPM imply that,
although the preferential access given to a country is not extremely favourable, the country’s exports
are concentrated in those sectors where its relative preferential margin is higher.



As a cautionary note, the PPM is an indicator just based on tariff preferences and do not take


into account other trade costs or economic, political and geographic factors that could favor or
obstruct trade flows.



The analysis of this paper utilizes 2008 data on trade flows and tariffs for 127 countries.


Trade data originates from the United Nations COMTRADE database, tariff data originates from the
UNCTAD Trade Analysis and Information System (TRAINS) database. Both databases are available
from the World Bank through the World Integrated Trade Solutions (WITS). Import demand
elasticities are from Kee, Nicita and Olarreaga (2008). Tariff, trade, and import demand elasticity data
follow the Harmonized System 2007 at the six-digit level and cover about covers about 5,000
different products. Data on bilateral RPM and PPM are available from the author on request.




                                                            


10 For example, a generous preferential access on airplanes produced in Africa will not likely create any trade.
There are likely other obstacles that preclude Africa from exporting airplanes.





5


2. The Extent of Preferential Margins 

The large number of existing PTAs implies that, in a great number of cases, countries


discriminate across trading partners by applying different tariffs to the same products depending on
their origin. According to the data, in only about 40 per cent of trade do countries not discriminate
across trading partners and apply (within each single HS six-digit product) the same tariff. About 30
per cent of trade is in products where countries apply two different tariff rates, and about 15 per cent
in products with three different tariff rates. The remaining 15 per cent of trade is given by products for
which there are four or more different tariff rates. The extent of the favouritism (or discrimination)
provided to their trading partners largely varies by importing country; it depends on the number of
trade agreements, and on the variance of the tariffs applied across these agreements.



Table 1 provides some statistics on the preferential margins that each country faces on its


exports as well as the preferential margin that the given country imposes on imports, depending on
their origin. The table differentiates by developed, developing and least developed countries
(however, the indices can be calculated for any bilateral trade flow or group of countries). Column 1
reports the traditional preferential margin (henceforth PM). It captures the trade-weighted difference
between MFN and preferential tariff. Countries with higher PM are those where a substantial share of
exports is bound to markets where countries have preferences. In general, the PM is larger when the
country is under an advantageous preferential regime (as in the case of many LDCs), or when the
country is part of a strong PTA. Countries that do not participate in a substantial number of PTA or
are exporters of goods subject to low MFN tariff (i.e. oil) tend to have low preferential margins. As
discussed above, the traditional PM does not take into account the preferences that the trading partner
is according to competitors, while the RPM does. The RPM provides the average relative tariff
advantage (or disadvantage) that the country has in exporting to all its trading partners. 11 A negative
value implies that the country’s exports, on average, are relatively disadvantaged vis-à-vis its
competitors.



Although the RPM provides a more precise measure of preferential margin, it is still


correlated with the MFN preferential margin (correlation = 0.83). However, some differences do exist.
For example, Madagascar and Paraguay MFN preferential margins are similar, but the RPM of
Paraguay is much lower than that of Madagascar. The interpretation of this is that Madagascar exports
competitors face a much higher tariff than those competing with Paraguay. In other words,
considering all systems of preferences Paraguay exports do not have a large advantage vis-à-vis
similar products originating elsewhere. A scatter plot between the traditional MFN preferential margin
and the RPM is illustrated in figure 1. The differences between the RPM and the traditional PM result
substantial in a number of cases, especially for those countries trading with members that are part of
large PTAs, as these countries compete for market access with other exporters facing similar or lower
tariffs. This is the case of a number of Latin American countries as well as some East European and
African countries. Moreover, the difference between traditional and relative preferential margins
depends also on the composition of the export basket (more precisely on the variance of tariffs applied
by trading partners on the given country’s major export products). In general, a large difference
between PM and RPM indicates that, although the country has a substantial advantage relative to
MFN tariffs, this advantage is reduced because it is also provided to the country’s competitors. On
average, the RPM is about one third the PM, although it varies considerably across countries (and
even more so when calculated at the bilateral level).





                                                            


11 Instead of bilaterally, equation (1) is then calculated at the exporting country level (i.e. a given country’s
overall level of relative preferences for its exports relative to all its export markets, as in Hoekman and Nicita
(2008)), thus summing also for k, (or at the importing country level, so as to measure the variance in the tariff of
the importing country).





6


Table 1. Preferential Margins


Preferences on Exports Preferences given to Imports


Country
Code


Country/Economy
Name


MFN
Preferential


Margin


Relative
Preferential


Margin (RPM)


RPM in
Developed
Countries


RPM in
Developing
Countries


RPM on
Developed
Countries
Imports


RPM on
Developing
Countries
Imports


RPM on
Least


Developed
Countries
imports



ALB Albania 0.028 0.014 0.014 0.009 -0.006 0.005 -0.001


DZA Algeria 0.001 0.000 0.001 0.000 0.020 -0.023 -0.004
AGO Angola 0.005 -0.001 0.001 -0.004 0.000 0.000 0.000
ARG Argentina 0.063 0.010 -0.003 0.017 -0.059 0.108 -0.104
AUS Australia 0.005 -0.001 0.000 -0.002 -0.013 0.004 0.044
AZE Azerbaijan 0.018 0.002 0.000 0.010 -0.016 0.027 0.000
BHR Bahrain 0.023 0.007 0.009 0.002 0.008 -0.011 -0.005
BGD Bangladesh 0.036 0.036 0.037 0.020 0.000 -0.004 0.000
BLR Belarus 0.013 0.000 0.000 0.000 -0.072 0.051 0.031
BEN Benin 0.035 0.021 0.004 0.026 -0.011 0.023 0.056


BOL
Bolivia, Plurinational
State of 0.046 0.025 0.005 0.034 -0.046 0.052 -0.008


BIH Bosnia and Herzegovina 0.044 0.017 0.016 0.019 -0.050 0.062 -0.028
BWA Botswana 0.009 0.001 0.001 0.001 -0.001 0.042 0.048
BRA Brazil 0.048 0.010 -0.003 0.030 -0.030 0.040 -0.004
BRN Brunei Darussalam 0.001 0.001 0.000 0.007 -0.003 0.004 -0.004
BFA Burkina Faso 0.012 0.007 0.006 0.007 -0.008 0.012 0.031
BDI Burundi 0.014 0.004 0.001 0.013 -0.064 0.042 0.008
KHM Cambodia 0.052 0.026 0.027 0.001 -0.013 0.009 -0.004
CMR Cameroon 0.010 0.005 0.003 0.020 -0.001 -0.007 0.083
CAN Canada 0.017 0.012 0.008 0.059 0.003 -0.006 0.098
CPV Cape Verde 0.076 0.038 0.022 0.067 0.000 0.000
CAF Central African Rep. 0.002 0.000 0.000 -0.001 0.000 0.000
TCD Chad 0.003 0.001 0.001 0.000 0.000 0.000 0.000
CHL Chile 0.026 0.012 0.004 0.029 0.002 -0.007 -0.025
CHN China 0.008 -0.006 -0.006 -0.006 -0.010 0.005 0.002
COL Colombia 0.051 0.026 0.004 0.066 -0.057 0.078 -0.012
COG Congo, Dem. Rep. of 0.011 0.000 0.001 0.000 0.000 0.000 0.000
CRI Costa Rica 0.021 0.010 0.005 0.021 -0.009 0.020 -0.003
CIV Côte d’Ivoire 0.020 0.007 0.005 0.011 -0.003 0.002 0.060
HRV Croatia 0.056 0.018 0.015 0.025 0.009 -0.009 -0.051
CUB Cuba 0.040 -0.009 -0.020 -0.003 -0.026 0.013 -0.012
DJI Djibouti 0.010 -0.007 0.003 -0.012 -0.003 0.002 0.065
DOM Dominican Republic 0.051 0.022 0.023 0.002 -0.008 0.011 0.000
ECU Ecuador 0.040 0.016 0.008 0.031 -0.035 0.048 -0.075
EGY Egypt 0.043 0.013 0.008 0.031 -0.009 0.004 0.189
SLV El Salvador 0.100 0.054 0.056 0.051 -0.007 0.023 -0.017
GNQ Equatorial Guinea 0.013 0.002 0.001 0.003 0.000 0.000
ETH Ethiopia 0.020 0.006 0.004 0.014 0.000 0.000 0.001
EUN European Union 0.016 0.000 -0.002 0.003 -0.007 0.007 0.042
GAB Gabon 0.001 0.002 0.003 -0.001 -0.019 0.035 0.019
GMB Gambia 0.008 0.008 0.023 -0.002 0.000 0.000 0.000
GEO Georgia 0.052 0.009 0.004 0.019 -0.004 0.014 -0.001
GHA Ghana 0.004 0.003 0.007 -0.003 -0.002 0.001 0.064
GTM Guatemala 0.071 0.033 0.030 0.041 -0.016 0.026 0.000
GIN Guinea 0.002 0.001 0.000 0.001 0.000 0.000 0.000
GNB Guinea-Bissau 0.006 0.004 0.003 0.004 0.000 0.000
GUY Guyana 0.067 0.023 0.002 0.103 -0.023 0.091 -0.083
HND Honduras 0.086 0.043 0.046 0.021 -0.019 0.043 -0.028
HKG Hong Kong, China 0.014 -0.001 -0.008 0.007 0.000 0.000 0.000
ISL Iceland 0.018 0.016 0.019 -0.012 0.011 -0.021 0.043
IND India 0.007 -0.001 0.000 -0.001 -0.001 0.003 0.098
IDN Indonesia 0.012 -0.001 0.000 -0.003 0.001 0.000
IRN Iran (Islamic Rep. of) 0.005 -0.001 0.000 -0.003 0.000 -0.001 0.000
ISR Israel 0.009 0.003 0.004 0.000 0.010 -0.011 -0.004
JPN Japan 0.007 -0.007 -0.006 -0.010 -0.004 0.005 0.009
JOR Jordan 0.047 0.025 0.031 0.012 -0.001 0.004 0.008





7


Preferences on Exports Preferences given to Imports


Country
Code


Country/Economy
Name


MFN
Preferential


Margin


Relative
Preferential


Margin (RPM)


RPM in
Developed
Countries


RPM in
Developing
Countries


RPM on
Developed
Countries
Imports


RPM on
Developing
Countries
Imports


RPM on
Least


Developed
Countries
imports


KAZ Kazakhstan 0.038 0.003 0.000 0.009 -0.010 0.022 0.025
KEN Kenya 0.075 0.026 0.017 0.042 -0.005 0.020 0.110
KOR Korea, Republic of 0.009 -0.004 -0.004 -0.003 -0.004 0.005 0.018
KWT Kuwait 0.010 0.001 0.000 0.002 -0.008 0.005 0.000
KGZ Kyrgyz Republic 0.121 0.044 -0.002 0.046 -0.008 0.028 0.001


LAO Lao People’s Democratic Republic 0.015 0.016 0.038 0.003 -0.022 0.020 -0.002


LBN Lebanon 0.035 0.020 0.016 0.028 -0.009 0.017 0.054
LSO Lesotho 0.104 0.043 0.043 0.044 0.000 0.000 0.000
LBY Libyan Arab Jamahiriya 0.005 0.001 0.000 0.010 0.000 0.000 0.000
MDG Madagascar 0.081 0.048 0.051 0.017 -0.040 0.031 0.022
MWI Malawi 0.136 0.074 0.058 0.099 -0.114 0.013 0.024
MYS Malaysia 0.008 0.003 0.001 0.007 -0.019 0.024 -0.021
MLI Mali 0.004 0.001 0.006 -0.001 -0.019 0.061 0.036
MRT Mauritania 0.024 0.006 0.012 0.000 0.000 0.000 0.000
MUS Mauritius 0.087 0.038 0.031 0.088 -0.004 0.008 0.017
MEX Mexico 0.023 0.014 0.013 0.019 0.058 -0.039 -0.123
MNG Mongolia 0.005 0.000 0.002 -0.001 0.000 0.000 0.000
MAR Morocco 0.020 0.020 0.023 0.007 0.048 -0.049 0.057
MOZ Mozambique 0.033 0.033 0.039 0.014 -0.003 0.003 0.008
MMR Myanmar 0.033 0.016 0.043 0.009 0.000 -0.002 0.000
NAM Namibia 0.010 0.009 0.011 0.000 -0.043 0.094 0.007
NPL Nepal 0.149 0.115 0.029 0.175 -0.002 0.003 0.001
NZL New Zealand 0.015 -0.002 0.000 -0.010 0.003 -0.008 0.050
NIC Nicaragua 0.087 0.040 0.039 0.043 0.005 -0.006 -0.007
NER Niger 0.006 0.002 0.001 0.003 -0.014 0.034 0.088
NGA Nigeria 0.001 0.001 0.004 -0.004 0.000 0.000 0.000
NOR Norway 0.011 0.004 0.004 0.004 -0.001 0.000 0.016
OMN Oman 0.006 0.000 0.001 0.000 0.016 -0.021 -0.013
PAK Pakistan 0.009 -0.010 -0.013 -0.002 -0.003 0.004 0.001
PAN Panama 0.013 -0.005 0.005 -0.011 -0.002 0.005
PNG Papua New Guinea 0.003 0.003 0.003 0.000 0.000 0.001 0.000
PRY Paraguay 0.083 0.009 0.000 0.013 -0.023 0.036 -0.007
PER Peru 0.025 0.012 0.010 0.015 -0.024 0.025 -0.007
PHL Philippines 0.010 0.007 0.003 0.014 -0.008 0.019 -0.006
QAT Qatar 0.003 0.000 0.000 0.000 0.002 -0.005 -0.007
RUS Russian Federation 0.020 0.001 0.000 0.005 -0.019 0.029 0.037
RWA Rwanda 0.002 0.001 0.002 0.000 -0.027 0.034 0.112
SAU Saudi Arabia 0.008 0.001 0.000 0.004 -0.002 -0.001 0.001
SEN Senegal 0.056 0.028 0.026 0.030 -0.005 0.006 0.001
SER Serbia 0.106 0.020 0.015 0.028 -0.013 0.011 -0.002
SGP Singapore 0.011 0.003 0.001 0.006 0.000 0.000 0.000
ZAF South Africa 0.013 0.003 0.001 0.009 0.007 -0.009 0.023
LKA Sri Lanka 0.024 0.010 0.010 0.008 -0.007 0.012 -0.001
SDN Sudan 0.002 0.001 0.001 0.002 -0.016 0.007 0.058
SUR Suriname 0.007 0.002 0.002 0.014 -0.032 0.028 0.000
SWZ Swaziland 0.031 0.009 0.035 -0.018 0.000 0.000 0.000
CHE Switzerland 0.007 0.007 0.008 0.000 0.000 0.001 0.127
SYR Syrian Arab Rep. 0.069 0.017 0.003 0.076 0.000 0.000 0.000


TWN Taiwan Province of China 0.002 -0.004 -0.003 -0.004 0.000 0.000 0.000


TJK Tajikistan 0.028 -0.004 -0.015 0.013
TZA Tanzania, United Rep. 0.046 0.033 0.035 0.031 -0.019 0.020 0.172
THA Thailand 0.024 0.009 0.006 0.017 0.000 0.000 0.000


MKD
The former Yugoslav
Republic of Macedonia 0.065 0.021 0.016 0.039 -0.018 0.022 -0.003


TGO Togo 0.050 0.020 0.005 0.028 -0.007 0.017 0.067
TTO Trinidad and Tobago 0.023 0.018 0.009 0.053 -0.009 0.006 -0.005
TUN Tunisia 0.031 0.021 0.022 0.008 -0.016 0.030 -0.002
TUR Turkey 0.040 0.028 0.036 -0.005 0.001 -0.008 0.016


Table 1 (continued)





8


Preferences on Exports Preferences given to Imports


Country
Code


Country/Economy
Name


MFN
Preferential


Margin


Relative
Preferential


Margin (RPM)


RPM in
Developed
Countries


RPM in
Developing
Countries


RPM on
Developed
Countries
Imports


RPM on
Developing
Countries
Imports


RPM on
Least


Developed
Countries
imports


TKM Turkmenistan 0.021 0.001 -0.003 0.005
UGA Uganda 0.070 0.024 0.015 0.048 -0.029 0.054 0.116
UKR Ukraine 0.088 0.020 -0.001 0.038
ARE United Arab Emirates 0.007 0.003 0.002 0.006 -0.004 -0.001 0.000
USA United States 0.032 0.017 0.004 0.041 -0.002 0.002 -0.006
URY Uruguay 0.075 0.018 -0.004 0.035 -0.054 0.046 -0.001
UZB Uzbekistan 0.096 0.015 -0.003 0.025 -0.050 0.030 -0.253


VEN Venezuela, Bolivarian Republic of 0.009 0.002 -0.003 0.024 -0.047 0.078 -0.058


VNM Viet Nam 0.013 0.000 -0.001 0.004 -0.025 0.031 0.007
YEM Yemen 0.003 0.002 0.006 0.001 0.029 -0.026 -0.006
ZAR Zaire 0.002 0.001 0.001 0.001
ZMB Zambia 0.023 0.012 0.010 0.015 -0.021 0.045 0.055
ZWE Zimbabwe 0.046 0.041 0.012 0.058


Sample Mean 0.031 0.012 0.009 0.017 -0.010 0.013 0.013


Sample St.Dev. 0.0319 0.0176 0.0152 0.0267 0.0209 0.0236 0.0510







Figure 1. MFN Preferential Margin and Relative Preferential Margin







The magnitude of the RPM varies from about 11.5 per cent (Nepal) to -1 per cent (Pakistan).


The interpretation of this is that Nepal’s exports benefit from 11.5 percentage point lower tariffs in
their destinations relative to its competitors. Conversely, Pakistan’s exports face a tariff that is 1 per
cent higher that that of its competitors. Not surprisingly, low-income developing countries tend to be
among those that benefit most from the structure of preferences. In 2007, out of the 10 countries with
higher RPM, 5 are from sub-Saharan Africa (Lesotho, Madagascar, Malawi, Mauritius and
Zimbabwe) 3 are from Central America (El Salvador, Honduras and Nicaragua), 1 is from South Asia
(Nepal) and 1 is from central Asia (Kyrgyzstan). These relatively high numbers of RPM are largely
driven by preferential access in the United States or European Union (EU) markets.




PNGBRNDZAGABNGAGMBICAFSDTWNZ RRWYEMTCDQ TGHAMLINGA OIRLBYUSNEROMNG B
SUAREI DJPN CHESAUCHN YSBWAVENISRPAKOR AMDJI PHLK TCMRNORCOGSGPID BFAHTI BLR


PANV MGNQZAHKGBDI LAONZLEUN CANAZE ISL
CIV MARRUSETHTKMCRIZMBMEXBH TTOMRTLKATHPER


CHLALB MOZTJK TUNSWZUSA
MMRLBN BGDBENKAZ


CUB TURECUEGYBIHBOL
TZAZWEJ RBRATGODOMCOL


KHMGEOHRVSEN
ARG MKDGUY


SYRUGAGTMURYKEN
CPVMDG


PRY HNDNICMUSUKR
UZB SLV


LSOSER
KGZ


MWI
NPL


-.0
5


0
.0


5
.1


.1
5


.2
M


FN
P


re
fe


re
nt


ia
l M


ar
gi


n


-.05 0 .05 .1 .15
Relative Preferential Margin


Table 1 (continued)





9


The majority of countries tend to have a positive RPM. This is not surprising, as it implies
that volumes of trade are biased towards flow where there is relative tariff advantage. Less than 20 per
cent of countries have negative RPM. This includes, with the exception of the United States, most
developed countries.12 The relative disadvantage of developed countries’ exports results from the
system of preferences that tends to tax exports from developing countries relatively less, especially
those from LDCs. Indeed, countries with the highest RPM include many low-income and least
developed countries. Moreover, countries with important trade agreements with major export markets
tend to have a higher RPM. This includes countries such Turkey, Tunisia and Mauritius (PTA with
the EU), Colombia and the Plurinational State of Bolivia (which has preferential access to a number
of Latin American markets). Also, countries that are part of FTAs where the external tariff is high also
have a higher RPM. This group includes countries in Latin America (especially those within the
Southern Common Market (MERCOSUR)) but also countries within the North American Free Trade
Agreement (NAFTA) area. Countries that do not engage in a large number of strong PTAs tend to
have a negative RPM (as they compete with countries which benefit from other PTAs). In particular,
China’s exports face an average tariff that is 0.5 per cent higher than that of its competitors, while
Japan’s exports disadvantage is about 0.7 per cent.



Columns 3 and 4 in table 1 report the RPM that export of the given country faces in high-


income and developing countries markets. These numbers provide an indication of whether the
country has a relative advantage (or disadvantage) in exporting to a developed or developing
countries. In general, RPM for exports to developed and developing countries is correlated (figure 2).
However, some differences do exist. The RPM of exports to developed countries has a lower sample
mean and a smaller standard deviation than that of exports to developing countries. This suggests a
lower degree of discrimination that developed countries apply to their imports.







Figure 2. Real Preferential Margin on Exports to Developed
and Developing Countries




CUB


TJK
PAK


HKG
CHNJPN


KOR URYBRATWNTKM UZBARGVEN
KGZEUNVNM UKR


INDAUSRUSIDN BRNQATR KAZSAUCAFLBYNZL PRYBLRAZEKWTGINOMNBDISDDZAZARTCDSGPBWAGNQAGOC GZAFMYSNER
SURRWAARE GUYMNG PHLDJI GNBGABPNG SYRCMR


NGA BENNOR GEOETH USAISR CHL COLCIV BOLPAN CRITGO
THAYEMMLIBFAGHA


EGY CANCUCHE TTOBHR
PERZMBLKANAM


MRT ZWEMEX
ALB HRV UGASER


BIH MKDLBN KEN
ISL


CPVTUNGMBMARDOM
SENKHM


NPLGTM
JOR MUS


SWZ TZATUR
BGDLAO


NICMOZ
MMR LSO


HND


MDG


SLV
MWI


-.0
2


0
.0


2
.0


4
.0


6
R


P
M


in
D


ev
el


op
ed


C
ou


nt
rie


s


0 .05 .1 .15 .2
RPM in Developing Countries




                                                            


12 Intra-EU trade is excluded in the calculation of the RPM. By including intra-EU trade the RPM for Europe
turns positive.





10


The last 3 columns of table 1 report the RPM calculated as an import index. That is the
relative advantage that each country imposes on imports, depending on its origin. This measures the
extent to which the tariff schedule of the given country relatively favours imports from particular
groups of countries by providing them with a relatively lower tariff. The results suggest that the vast
majority of countries discriminate against imports originating in developed countries. On average,
developed countries’ exports are taxed 1 percentage point more.13 The significant exceptions are
countries (such as Mexico and Morocco) that have particularly strong PTA with developed countries’
markets. Regarding LDCs’ preferential access, the picture is more mixed. On average, the RPM
imposed on imports from LDCs is similar to that from other developing countries. However, its
standard deviation is substantially higher. This implies that there are significant differences across
countries in the treatment of LDCs’ imports. Indeed, while a number of countries substantially
facilitate imports from LDCs, an approximately equal number of countries impose relatively higher
tariffs on imports from LDCs. This largely depends on whether the given country has PTA or FTA
with the LDCs or not, and on whether the given country is providing a non-LDC with large
preferential access.



As noted above, the existing system of preferences is generally to the advantage of


developing countries. Among developing countries, the system of preferences appears to substantially
favor intraregional trade. Table 2 reports the RPM calculated at the regional level. Due to the presence
of RTAs, trade within each developing country region is often facilitated by a relatively lower tariff.
Regarding intraregional trade, the RPM goes from a maximum of almost 5 per cent (intraregional
trade within the Middle East–North Africa region) to 1.2 per cent of intra–East Asia trade. Regarding
intraregional trade in other regions, that of South Asia is favoured by a 4 per cent RPM, that within
Latin America is facilitated by 3.6 per cent, that within sub-Saharan Africa by 2.1 per cent, and that
within Central Asia by about 1.8 per cent. The counterpart of a lower relative tariff in intraregional
trade is a relatively higher tariff for most extraregional trade flows. For example, Latin America and
the Middle East–North Africa extraregional imports face a higher tariff regardless of origin, with the
exception of imports from developed countries (largely due to NAFTA for Latin America, and FTA
with the EU for North Africa). This is mirrored on a market access perspective. For example, sub-
Saharan Africa exports (which are favoured in most other regions) face relatively higher tariffs in
Latin America and marginally higher tariffs in the Middle East and North Africa, due to the larger
preferences provided by these regions to developed countries’ exports. Other regions, such as East
Asia and sub-Saharan Africa, tend to have a lower variance in the RPM, implying that the structure of
preferences in the countries in those regions is rather homogeneous.





Table 2. Regional Real Preferential Margin


Exporting Region


Importing Region East Asia Central Asia Latin America
Middle East


N. Africa South Asia
Sub-Saharan


Africa
Developed
Countries


East Asia 0.012 -0.007 0.002 0.001 0.003 0.003 -0.013


Central Asia -0.003 0.018 -0.016 -0.009 0.006 0.009 -0.017


Latin America -0.036 -0.021 0.036 -0.002 -0.039 -0.012 0.004


Middle East N. Africa -0.030 -0.022 -0.014 0.049 -0.048 -0.003 0.007


South Asia -0.015 0.002 -0.019 0.003 0.041 0.000 -0.005


Sub-Saharan Africa -0.019 -0.007 -0.005 0.009 -0.015 0.021 -0.006


Developed Countries -0.008 0.008 0.018 0.004 0.005 0.003 -0.004


                                                            


13 Note that the difference is not related to product composition as the RPM is weighed on the export basket of
the given country.





11


The PPM provides a measure of the relative potential value of the preferential regime given to
a particular country. The overall PPM has no direct interpretation and thus is not reported in the
tables. However, the relationship between RPM and PPM is illustrated in figure 3. As explained in the
previous section, in most cases, the overall PPM is negative as preference schemes are often restricted
to a limited number of countries (relative preferences are negative in the countries outside the
preferential schemes). More informative is PPM at the bilateral level. Figure 3b indicates that at the
bilateral level RPM and PPM show a positive correlation. This implies that countries with potential
large preferences are also those that take advantage of them by orienting their exports to markets and
products where preferences are higher.



Figure 3. Relative Preferential Margin and Potential Preferential Margin
(Overall and Bilateral)





 


 


3.   Simulations: Effects of FTA on Relative Preferential 
Margins 



The indices presented above are useful for assessing the strength of trade agreements. That is,


the tariff advantage that a trade agreement provides to imports originating from a given country with
respect to imports originating elsewhere. These indices can be used to assess the advantage of existing
agreements as described above, or used to calculate the impact of any future trade agreement. For
example, by examining the changes in the indices, it is possible to have an indication of whether a
new PTA would have a substantial impact on the relative tariff advantage of a given country or not. In
this regard, this section calculates and discusses the effects of four different FTAs. The first three
scenarios are about FTAs in which the given country is given free market access in the region, in the
EU and in the United States. The last scenario is the effect that a FTA among third parties has on both
members and non-members.



Before turning to the results, it is important to provide some indication of how to interpret


them. The impact of an FTA depends on several factors. First, as the RPM is calculated on the total
level of exports, the impact on a change in tariff on the overall RPM is largely dependent on the share
of bilateral trade over total exports. For example, if one country exports little to the United States, free
United States market access for that country will have little impact on the overall RPM (still, it may


-.2
-.1


0
.1


.2
bi


la
te


ra
l P


P
M


-.2 -.1 0 .1 .2
bilateral RPM


AGO


ALBARE


ARG


ARM


AUS


AZE


BDI


BFA


BGD


BHR


BIH


BLR
BLZ


BOL


BRA


BRN


BWA


CAF


CAN


CHECHL


CHN


CIV


CMRCOG


COL


CPV


CRI


CUB
DOMDZA


ECU


EGY


ETH


EUN


GAB
GEO


GHA


GIN


GMB


GNQ


GTM


GUY


HKG
HND


HRV


IDN
IND


IRN
IRQ


ISL


ISR


JAM JOR


JPN


KAZ
KEN


KGZ


KHM


KOR


KWT
LAOLBN


LBRLBY LKA


LSO


MAR


MDA


MDG


MEX


MKD


MLI


MMR


MNG


MOZ


MRT


MUS


MWI


MYS


NAM


NER
NGA


NIC


NOR


NZLOMN


PAK


PAN


PERPHL


PNG


PRY


QATRUS


RWA


SAU


SDN


SEN
SER


SGP


SLE


SLV


SUR


SWZ SY


TCD


TGO


THA


TJK


TKM


TTO


TUN


TUR


TWN


TZA
UGA


UKR
URY


USA


UZB


VEN


V M
YEMZAFZAR


ZMB


ZWE


-.0
5


-.0
4


-.0
3


-.0
2


-.0
1


0
Po


te
nt


ia
l P


re
fe


re
nc


e
M


ar
gi


n


-.02 0 .02 .04 .06 .08
Relative Preferential Margin





12


have a large impact on the bilateral RPM and PPM). Second, the impact on both RPM and PPM
depends on the level of the existing tariffs. If a given country exports products that are subjected to
low or already-zero tariffs, then an FTA will have limited effect. Third, the effect also depends on any
change in the competitors’ market access. For example, if the new FTA is negotiated for a region,
then the resulting RPM is likely to be smaller than the level of the old tariff, as competitors also
would have ameliorated their market access. Finally, as discussed above, the impact of an FTA on the
PPM also depends on whether the size of the import market (by product), and the extent to which a
given country can export a product for which free market access is given.



In summary, a substantial increase in the RPM (especially in the overall RPM) indicates an


objective advantage in the given country in signing an FTA with that particular trading partner, as it
implies a much lower tariff on the existing level of exports. An increase in the PPM indicates a
substantial improvement in market access which has the potential to increase exports.



Table 3 reports the results on the change in RPM and PPM for the four scenarios. First are


discussed the three scenarios about the creation of a FTA in which the given country participates. The
last scenario showing the effect that a FTA among third parties is discussed last.



Regarding the FTA with the 5 closest countries, the change in overall RPM is generally small,


and larger than 1 percentage point only for about 14 countries. The little change in RPM depends on
two factors. One reason is that many countries are already engaged in a PTA with its closer
neighbours, and thus an additional FTA will have little or no effect. The other reason is that regional
trade is quite limited, and an FTA will be of little impact in the overall level of tariff faced by the
given country’s exports. Similar reasoning can be done for the scenario of an FTA with the EU and
the United States. However, given the large size of these two markets, the changes in overall RPM are
more substantial. In particular, an FTA with the EU would be important for a number of countries
including Tajikistan, Uruguay, Pakistan, Swaziland, Cuba, New Zealand, Mauritius and Guyana. The
countries that would benefit most from an FTA with the United States would be Viet Nam, Jordan,
Pakistan, Sri Lanka, Bangladesh, Malawi and Cambodia.



Table 3 also reports the effect of an FTA on the PPM. From a trade negotiation perspective,


the PPM is more relevant, as it gives the potential impact of the FTA on tariffs. That is, the PPM takes
into account not the observed level of trade, but the size of the importing market and the capacity of
the given country to export products in which preferences are given. Changes in bilateral PPM tend
to be high in the case of FTA with the closest five countries. For about 10 countries, the reduction in
PPM is larger than 10 percentage points. Regarding free access to the EU and the United States, the
largest effect in terms of PPM are for other developed countries. The reasons for the larger effect are
to be found in the capacity of those countries to produce (and export) most of the products imported in
large quantities by the EU and United States.



The RPM is particularly suited to analyse the impact of a FTA on non-member countries.


This is the fourth scenario on how a hypothetical FTA among some East Asia economies (China,
Indonesia, Hong Kong (China), Lao People’s Democratic Republic, Macau (China), Malaysia,
Philippines, Thailand, Taiwan Province of China and Viet Nam) will affect member and non-member
countries. Such agreement would have an impact on non-members as a reduction in the tariff between
China and Indonesia would affect the RPM and PPM of countries outside the FTA because their
relative advantage would be diminished. This is essentially the concept of preference erosion. The
results of this scenario are reported in the last three columns of table 3. Changes in RPM indicate that
the countries that would be more negatively affected are non-member countries with close linkages to
East Asia (Japan, Republic of Korea, Singapore, Myanmar, Nepal, Sri Lanka, etc.). The change in
overall RPM would generally be small, as it is diluted over total exports. Overall RPM changes only
for countries with a large share of exports bound for East Asia. Bilateral RPM (where the trading
partner is the group of countries forming the FTA) changes more. The change is especially large in
the case of Nepal, meaning that Nepal’s exports would lose almost 9 percentage points in terms of
relative tariff advantage with respect to export competitors within the new FTA. For other countries in





13


the region the change is smaller but still significant. Japan, Sri Lanka, Cambodia, the Republic of
Korea, Pakistan, Ukraine and Bangladesh RPMs would lose between 1 and 2 percentage points tariff
advantage.



The changes in PPM are generally larger for developed countries. For Japan, the Republic of


Korea, the United States, Singapore, Australia and Switzerland, but also India, the PPM is expected to
fall between 1 and 2 percentage points. The reason is that the East Asia economies represent a large
potential (in terms of demand for products exported by these developed countries), and the FTA
would shift some of this demand away from developed countries’ exports to the advantage of FTA
members. Other countries, whose export composition does not overlap with that of East Asian
countries (i.e. natural resources), will be less affected. Regarding the effect on member countries, the
larger beneficiaries in term of RPM would be Hong Kong (China), Taiwan Province of China and
Indonesia. The lowest gainer would be China.





4. Conclusions 
This paper provides two new indices aimed to assessing the value of preferential margin.


Those indices are useful for calculating both the strength of existing or future trade agreements as
well as the preference erosion that third parties trade agreements may cause. The first index is the
Relative Preferential Margin (RPM) and measures the relative value of preferential regimes on actual
exports flows. That is, the strength of the preferential trade agreement is relative to any preferential
access provided to other competitors. In this sense, the relative preferential margin that a country
grants to a given country is the difference – in tariff percentage points – that a determined basket of
goods enjoys when imported from the given country relative of being imported from elsewhere. The
second index is the Potential Preferential Margin (PPM) and measures the potential value of the
preferential regime. This index is calculated not on observed but on “potential” export flows.



The paper calculates these indices for some 127 countries, and provides changes in those


indices as a consequence of a number of hypothetical FTAs. In particular, it provides changes in the
indices consequent to free market access provided to each given country by its five closest developing
countries, by an FTA with the United States and by an FTA with the EU. Finally, it also provides
changes in these indices both for members and non-members consequent to the implementation of an
FTA among East Asian countries. The results point to a large variance of benefit and losses.








14







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16


T
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3


(c
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d)


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ee


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de
A


gr
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m
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t w
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c
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5


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Fr
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17


T
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3


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gr
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18


References 



Alexandraki K and Lankes HP (2004). “The Impact of Preference Erosion on Middle-Income
Developing Countries”. IMF Working Paper 04/169, International Monetary Fund,
Washington DC.


Carrere C, de Melo J and Tumurchudur B (2008). “Disentangling Market Access Effects for ASEAN
Members Under an ASEAN-EU FTA”. No 6762, CEPR Discussion Papers.


Hoekman B, Martin WJ and Primo Braga CA (2009). “Quantifying the Value of Preferences and
Potential Erosion Losses”. In: Trade Preference Erosion: Measurement and Policy Response.
Edited by Hoekman B, Martin WJ and Primo Braga. Palgrave Macmillan.


Hoekman B and Nicita A (2008). “Trade Policy, Trade Costs, and Developing Country Trade”. World
Bank Policy Research Working Paper Series No. 4797.


Kee HL, Nicita A and Olarreaga M (2008). “Import Demand Elasticities and Trade Distortions”. The
Review of Economics and Statistics. MIT Press, vol. 90(4), pages 666-682, 07.


Low P, Piermartini R and Richtering J (2009). “Multilateral Solutions to the Erosion of Non-
Reciprocal Preferences in NAMA”. In: Trade Preference Erosion: Measurement and Policy
Response. Edited by Hoekman B, Martin WJ and Primo Braga. Palgrave Macmillan.





19


UNCTAD Study Series on


POLICY ISSUES IN INTERNATIONAL TRADE
AND COMMODITIES




No. 1 Erich Supper, Is there effectively a level playing field for developing country exports?,


2001, 138 p. Sales No. E.00.II.D.22.


No. 2 Arvind Panagariya, E-commerce, WTO and developing countries, 2000, 24 p. Sales No.
E.00.II.D.23.


No. 3 Joseph Francois, Assessing the results of general equilibrium studies of multilateral
trade negotiations, 2000, 26 p. Sales No. E.00.II.D.24.


No. 4 John Whalley, What can the developing countries infer from the Uruguay Round
models for future negotiations?, 2000, 29 p. Sales No. E.00.II.D.25.


No. 5 Susan Teltscher, Tariffs, taxes and electronic commerce: Revenue implications for
developing countries, 2000, 57 p. Sales No. E.00.II.D.36.


No. 6 Bijit Bora, Peter J. Lloyd, Mari Pangestu, Industrial policy and the WTO, 2000, 47 p.
Sales No. E.00.II.D.26.


No. 7 Emilio J. Medina-Smith, Is the export-led growth hypothesis valid for developing
countries? A case study of Costa Rica, 2001, 49 p. Sales No. E.01.II.D.8.


No. 8 Christopher Findlay, Service sector reform and development strategies: Issues and
research priorities, 2001, 24 p. Sales No. E.01.II.D.7.


No. 9 Inge Nora Neufeld, Anti-dumping and countervailing procedures – Use or abuse?
Implications for developing countries, 2001, 33 p. Sales No. E.01.II.D.6.


No. 10 Robert Scollay, Regional trade agreements and developing countries: The case of the
Pacific Islands’ proposed free trade agreement, 2001, 45 p. Sales No. E.01.II.D.16.


No. 11 Robert Scollay and John Gilbert, An integrated approach to agricultural trade and
development issues: Exploring the welfare and distribution issues, 2001, 43 p. Sales
No. E.01.II.D.15.


No. 12 Marc Bacchetta and Bijit Bora, Post-Uruguay round market access barriers for
industrial products, 2001, 50 p. Sales No. E.01.II.D.23.


No. 13 Bijit Bora and Inge Nora Neufeld, Tariffs and the East Asian financial crisis, 2001, 30
p. Sales No. E.01.II.D.27.


No. 14 Bijit Bora, Lucian Cernat, Alessandro Turrini, Duty and quota-free access for LDCs:
Further evidence from CGE modelling, 2002, 130 p. Sales No. E.01.II.D.22.


No. 15 Bijit Bora, John Gilbert, Robert Scollay, Assessing regional trading arrangements in the
Asia-Pacific, 2001, 29 p. Sales No. E.01.II.D.21.





20


No. 16 Lucian Cernat, Assessing regional trade arrangements: Are South-South RTAs more
trade diverting?, 2001, 24 p. Sales No. E.01.II.D.32.


No. 17 Bijit Bora, Trade related investment measures and the WTO: 1995-2001, 2002.


No. 18 Bijit Bora, Aki Kuwahara, Sam Laird, Quantification of non-tariff measures, 2002, 42
p. Sales No. E.02.II.D.8.


No. 19 Greg McGuire, Trade in services – Market access opportunities and the benefits of
liberalization for developing economies, 2002, 45 p. Sales No. E.02.II.D.9.


No. 20 Alessandro Turrini, International trade and labour market performance: Major
findings and open questions, 2002, 30 p. Sales No. E.02.II.D.10.


No. 21 Lucian Cernat, Assessing south-south regional integration: Same issues, many metrics,
2003, 32 p. Sales No. E.02.II.D.11.


No. 22 Kym Anderson, Agriculture, trade reform and poverty reduction: Implications for
Sub-Saharan Africa, 2004, 30 p. Sales No. E.04.II.D.5.


No. 23 Ralf Peters and David Vanzetti, Shifting sands: Searching for a compromise in the
WTO negotiations on agriculture, 2004, 46 p. Sales No. E.04.II.D.4.


No. 24 Ralf Peters and David Vanzetti, User manual and handbook on Agricultural Trade
Policy Simulation Model (ATPSM), 2004, 45 p. Sales No. E.04.II.D.3.


No. 25 Khalil Rahman, Crawling out of snake pit: Special and differential treatment and post-
Cancun imperatives, 2004.


No. 26 Marco Fugazza, Export performance and its determinants: Supply and demand
constraints, 2004, 57 p. Sales No. E.04.II.D.20.


No. 27 Luis Abugattas, Swimming in the spaghetti bowl: Challenges for developing countries
under the “New Regionalism”, 2004, 30 p. Sales No. E.04.II.D.38.


No. 28 David Vanzetti, Greg McGuire and Prabowo, Trade policy at the crossroads – The
Indonesian story, 2005, 40 p. Sales No. E.04.II.D.40.


No. 29 Simonetta Zarrilli, International trade in GMOs and GM products: National and
multilateral legal frameworks, 2005, 57 p. Sales No. E.04.II.D.41.


No. 30 Sam Laird, David Vanzetti and Santiago Fernández de Córdoba, Smoke and mirrors:
Making sense of the WTO industrial tariff negotiations, 2006, Sales No. E.05.II.D.16.


No. 31 David Vanzetti, Santiago Fernandez de Córdoba and Veronica Chau, Banana split: How
EU policies divide global producers, 2005, 27 p. Sales No. E.05.II.D.17.


No. 32 Ralf Peters, Roadblock to reform: The persistence of agricultural export subsidies,
2006, 43 p. Sales No. E.05.II.D.18.


No. 33 Marco Fugazza and David Vanzetti, A South-South survival strategy: The potential for
trade among developing countries, 2006, 25 p.





21


No. 34 Andrew Cornford, The global implementation of Basel II: Prospects and outstanding
problems, 2006, 30 p.


No. 35 Lakshmi Puri, IBSA: An emerging trinity in the new geography of international trade,
2007, 50 p.


No. 36 Craig VanGrasstek, The challenges of trade policymaking: Analysis, communication
and representation, 2008, 45 p.


No. 37 Sudip Ranjan Basu, A new way to link development to institutions, policies and
geography, 2008, 50 p.


No. 38 Marco Fugazza and Jean-Christophe Maur, Non-tariff barriers in computable general
equilibrium modelling, 2008, 25 p.


No. 39 Alberto Portugal-Perez, The costs of rules of origin in apparel: African preferential
exports to the United States and the European Union, 2008, 35 p.


No. 40 Bailey Klinger, Is South-South trade a testing ground for structural transformation?,
2009, 30 p.


No. 41 Sudip Ranjan Basu, Victor Ognivtsev and Miho Shirotori, Building trade-relating
institutions and WTO accession, 2009, 50 p.


No. 42 Sudip Ranjan Basu and Monica Das, Institution and development revisited: A
nonparametric approach, 2010, 26 p.


No. 43 Marco Fugazza and Norbert Fiess, Trade liberalization and informality: New stylized
facts, 2010, 45 p.


No. 44 Miho Shirotori, Bolormaa Tumurchudur and Olivier Cadot, Revealed factor intensity
indices at the product level, 2010, 55 p.


No. 45 Marco Fugazza and Patrick Conway, The impact of removal of ATC Quotas on
international trade in textiles and apparel, 2010, 50 p.


No. 46 Marco Fugazza and Ana Cristina Molina, On the determinants of exports survival, 2011,
40 p.


No. 47 Alessandro Nicita, Measuring the relative strength of preferential market access, 2011,
30 p.









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