Tariff Preferences after the Uruguay Round

From time to time, concern is expressed that market access opportunities for developing countries under the Generalized System of Preferences (GSP) are being reduced by the cuts in MFN tariffs. There is, however, little evidence of serious trade losses for developing countries.

Quantifying the impact

The goal of the industrialized countries' tariff preference schemes is to stimulate exports from developing countries by charging lower tariffs or granting duty free entry to the developing countries' exports. The two principal tariff preference schemes are

• the "generalised system of [tariff] preferences" (GSP) for WTO developing country members, and
• the European Union's Lomé IV convention, which offers preferences to 70 African, Caribbean and Pacific (ACP) countries.


There is no question that margins of preference for developing country trade have been reduced by the MFN tariff reductions agreed in the Uruguay Round. But exactly how great is the impact?

In answering this question, it is important to

• identify the quantitative significance of reductions in preference margins, and
• ask if the MFN tariff reductions give any off-setting gains for countries receiving preferential treatment.

Erosion of GSP preferences

Although GSP schemes remain potentially valuable to some developing countries, they have fundamental limits due to their discretionary, unilateral basis.

However, the erosion of GSP preference margins, largely because of MFN tariff reductions, is less significant for developing countries than the increases in bound market access commitments resulting from the Uruguay Round.

Limits of unilateral trade privileges

GSP schemes may give valuable duty-free or low-duty treatment for many products from lower-income developing countries. But, for a number of reasons, existing GSP schemes make only limited contributions to developing countries' trade and economic growth.

• GSP schemes often exclude "sensitive products", including many agricultural products
• The developed countries giving the preferences can unilaterally decide to exclude certain developing countries or to withdraw GSP privileges from particular countries. For example, alleged failure to meet social or political criteria, including unilaterally defined "labour standards", may affect preferences.


Unlike GSP preferences, bound MFN tariff reductions cannot be unilaterally withdrawn.

Quantitative significance of GSP erosion

Quantitatively, UNCTAD has estimated that the actual import share from developing countries receiving GSP treatment is only 17 per cent of the imports from developing countries into the European Union, the United States and Japan combined. A further 28 per cent obtains duty-free treatment, with the remaining 55 per cent paying MFN tariff rates.

The relatively low percentages for imports under GSP reflect the combined effects of

• duty-free treatment,
• product exclusions ("sensitive" products such as agricultural products or textiles and clothing),
• country exclusions,
• burdensome rules of origin, and
• the importance of free-trade area agreements.


The reduced GSP treatment on 17 per cent of imports must be set against

• 1. bound MFN tariff reductions on 55 per cent of imports, plus
• 2. better market access -- for a wider group of countries -- for agricultural products, and textiles and clothing, historically subjected to non-tariff restraints that will be eliminated as a result of the Uruguay Round.


WTO assessments strongly suggest that developing countries will benefit from better and more secure market access as a result of the Uruguay Round. This will, however, vary across countries.

Some developed countries have already reviewed their GSP schemes - or are currently doing so -- to take into account the changes brought about by the Uruguay Round.

Erosion of Lomé IV preferences

Under the Lomé Convention, products originating in the 70 participating African, Caribbean and Pacific (ACP) states are imported free of duties and quotas into the EU.

Products covered by the Common Agricultural Policy, are charged duties or face quotas, but on preferential terms compared to products from non-ACP countries.

The Lomé IV Agreement is currently subject to a WTO waiver, but any such agreements in future must take into account the new rules negotiated in the Uruguay Round.

Quantitative significance

While the impact of preference erosion may be significant for certain exports from certain countries, the total effect for ACP countries is likely to be modest. For the African members for example

• petroleum and other fuels, which account for 50 per cent of African imports to the EU, already benefit from MFN tariffs bound at zero. (Angola is the only African LDC that is an exporter);
• industrial products account for 25 per cent of current EU imports from Africa. Three-quarters of those imports already benefit from bound MFN duty-free treatment or very low bound MFN tariffs.

The Lomé market access opportunities, which are unilateral and time-bound, should not be compared to WTO-bound MFN tariff reductions.

The Uruguay Round improved market access for Africa outside the EU – a key result given the importance of geographic as well as product diversification of African exports. Central and Eastern Europe, Asia and Latin America have made tariff commitments, providing new trade opportunities for African exporters.

In traditional markets in developed country, African suppliers will benefit from

• tariff reductions on industrial products,
• the eventual elimination of quota constraints on textiles and clothing products, and
• better market access for agricultural products.


For example, once Japan's tariff cuts are fully implemented, the share of duty-free industrial imports from African countries will increase from 58 to 75 per cent .

This should increase the scope for diversifying exports, especially when coupled with reductions in tariff escalation and more secure access to foreign markets.

Limitations of GSP schemes

The parameters of unilateral and unbound GSP preferences often mean that they provide only limited market access advantages to developing countries.

A report to UNCTAD's Special Committee on Preferences in May 1994, stated that the major issues in the operation of the GSP schemes are

• the erosion of benefits from trade preferences to receiving countries as a result of the inclusion, as beneficiaries, of states of the former USSR;
• incomplete product coverage as a result of the widespread exclusions of agricultural products, and certain industrial products;
• for covered products, duty-free entry may be subject to quota limits;
• for covered products, specific-origin exports may be only be granted conditional access for reasons including competitive need limits;
• that developing countries may be denied benefits because of unilaterally determined criteria for specific exports ("country-product pair graduation") or all exports (graduation, linkages to labour standards, or treatment of foreign investors);
• that importing (ie developed) countries have different rules of origin, so that a specific-origin product may meet the rules in one export market but not in another, and
• that the time-frames of GSP schemes do not allow for an investment response to trade incentives.

Developing and Transition Economies'
Average Tariffs on imports from Industrial Economies

Destination	Latin America		Asia		Africa		Developing Europe		Total Developing		Total Transition
Origin	Pre	Post	Pre	Post	Pre	Post	Pre	Post	Pre	Post	Pre	Post
US	19.2	16.6	10.3	6.6	12.2	12.1	22.2	13.8	13.6	10.2	8.3	6.1
EU	24.3	19.1	14.2	10.8	24.6	24.6	29.9	16.2	18.4	13.8	10.6	7.9
Japan	33.2	24.3	13.2	8.4	17.8	17.8	0.1	16.7	14.1	9.3	14.0	10.9
Other industrial	19.2	17.1	9.6	6.6	16.8	16.8	26.9	14.2	12.4	9.4	9.6	7.0
Total industrial	22.1	18.2	12.4	8.4	23.0	23.0	26.4	15.5	14.9	10.7	10.4	7.7

*Trade weighted
Source: computed from IDB/GATT/Word Bank data basis

Table 1: Imports of preference-giving countries from beneficiaries of their GSP schemes, 1994-1996
(millions of US dollars)

Country	Year	Total Imports	Dutiable Imports	GSP Imports		% ages
				Covered	Receiving	(5)/(4)	(6)/(5)	(6)/(4)
1	2	3	4	5	6	7	8	9
Canada(a)	1995	18,066.7	6,746.0	3,864.8	2,415.7	57.3	62.5	35.8
	1996	18,914.4	6,719.1	4,192.1	2,639.5	62.4	63.0	39.3
European Union(b)	1994	211,527.5	132,480.7	97,837.0	47,798.4	73.9	48.9	36.1
	1995	257,445.0	166,847.9	123,913.3	70,023.9	74.3	56.5	42.0
	1996	272,200.6	169,551.4	104,456.1	62,489.6	61.6	59.8	36.9
Japan(c)	1994	143,201.7	87,860.9	37,144.2	16,934.4	42.3	45.6	19.3
	1995	163,511.3	93,388.5	41,008.4	17,157.2	43.9	41.8	18.4
	1996	184,774.8	104,805.8	42,491.7	17,934.4	40.5	42.2	17.1
United States	1994	92,967.6	63,138.9	27,036.2	18,009.8	42.8	66.6	28.5
	1995	99,968.4	64,310.1	26,498.5	18,064.6	41.2	68.2	28.1
	1996	108,764.5	69,528.6	27,114.5	16,757.2	39.0	61.8	24.1
Norway(a)	1995	3,261.8	1,814.1	1,253.7	877.5	69.1	70.0	48.4
	1996	3,606.5	1,734.1	1,204.4	888.2	69.5	73.7	51.2
Poland	1994	653.5	597.4	597.4	597.4	100.0	100.0	100.0
	1995	897.6	791.8	791.8	791.8	100.0	100.0	100.0
	1996	1,150.5	1,027.4	1,027.4	1,027.4	100.0	100.0	100.0
Switzerland(a)	1995	5,257.9	4,428.7	3,769.4	1,530.8	85.1	40.6	34.6
	1996	5,550.0	5,157.4	3,701.8	1,548.5	71.8	41.8	30.0
TOTAL(d)	1994	448,350.3	284,077.9	162,614.8	83,340.0	57.2	51.2	29.3
	1995	548,408.7	338,327.1	201,099.9	110,861.5	59.4	55.1	32.8
	1996	594,961.3	358,523.8	184,188.0	103,284.8	51.4	56.1	28.8
Memo Item(e)	1976	136,875.7	52,226.3	24,009.6	10,598.1	46.0	44.1	20.3

Source: Notifications and UNCTAD secretariat calculations.
a) Figures for 1994 not available
b) Figures for 1995-1996 include Austria, Finland, Sweden as new members of the European Union
c) Fiscal years
d) Figures for 1994 exclude Canada, Norway, Switzerland
e) Figures for 1976 are for Australia, Austria, Canada, European Community, Finland, Hungary, Japan, New Zealand, Norway, Sweden, Switzerland, United States. Figures are not therefore comparative in absolute values, but give an order of magnitude for preferential imports.
From: UNCTAD TD/B/COM.1/20/Add.1, 1998