Trade Preferences for Developing Countries

Abstract

This report draws on a body of existing literature to assess the impact of trade preferences granted by the European Union on trade and welfare in developing countries. It is argued that the Everything But Arms amendment to the EU preference scheme will have limited effect on export potential and welfare in the least developed countries (LDCs). The EU would do well to simplify compliance with their rules of origin. When LDCs are granted deeper preferences under continued domestic agricultural policies in the EU, US, Canada and Japan, resources in LDCs will move towards the agricultural sector. The expected effect impact on LDCs of extending preferences to non-LDCs is quite small, while the negative effect of reductions of MFN tariffs under trade liberalisation is stronger.