Preference Erosion, the Doha Round, and African LDCs

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Case Study #10-9 of the Program: ''Food Policy For Developing Countries: The Role Of Government In The Global Food System''



African least-developed countries (ALDCs) have enjoyed preferential treatment in exporting their agricultural products to developed countries. Reductions of agricultural trade barriers on a mostfavored nation (MFN) basis by preference-granting developed countries may erode the benefits of these preferences. In particular, MFN tariff reductions coordinated through a World Trade Organization (WTO) agreement could cause serious preference erosions, and the current Doha Round of trade negotiations, aimed at ambitiously reducing agricultural trade barriers, may conclude with such an agreement. The Doha Round has also declared a “development agenda,” which emphasizes the interests of developing countries, including the LDCs. The so-called special and differential treatment of developing countries—of which trade preferences make up an important instrument—is designed to help realize the development agenda and counter any unwanted consequences from multilateral liberalization. Some WTO members have discussed extending trade preferences as a way to safeguard the interests of the LDCs, but the desirability and feasibility of this proposal have been debated with diverging views. This case discusses a range of policy issues relating to preference erosion and WTO multilateral trade liberalization, including the role of preferences in promoting exports from the ALDCs, the extent and scope of likely preference erosion, and the possibility of extending preferences. It analyzes the positions and interests of several key stakeholders, especially the ALDCs, and presents policy options for tackling these issues. Specifically, the so-called July Package proposal for extending preferences has been interpreted as “deepening, widening, broadening, and strengthening” preferential treatment for ALDCs. An analysis of the quantitative estimates of the impact of these actions shows that preference erosion is indeed a concern for the ALDCs and that adopting the July Package will help the ALDCs cope with the erosion. Furthermore, costs to the preference-granting countries of adopting these measures are estimated to be modest, and trade diversion does not appear to be a serious concern for third countries. Responding to concerns about preference erosion, a number of authors argue that enhancing preferences is not the right answer to the problem. They insist that the multilateralism championed by the WTO will eventually help the poorest countries and that transitory issues such as preference erosion can be handled by complementary nontrade policy measures, including effective development aid and investment in domestic infrastructure. Your assignment is to propose a policy package that would tackle the preference erosion problem facing ALDCs, for discussion by the WTO. The package may include policies to strengthen preferences and/or complementary measures.

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14 pp.

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Cornell University Division of Nutritional Sciences

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Wusheng Yu (2007). Case Study #10-9, ''Preference Erosion, the Doha Round, and African LDCs''. In: Per Pinstrup-Andersen and Fuzhi Cheng (editors), ''Food Policy for Developing Countries: Case Studies.''14 pp.

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