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The World Bank Economic Review Advance Access published online on May 22, 2006
The World Bank Economic Review, doi:10.1093/wber/lhj010
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© The Author 2006. Published by Oxford University Press on behalf of the International Bank for Reconstruction and Development / THE WORLD BANK. All rights reserved. For permissions, please e-mail: journals.permissions@oxfordjournals.org

Article

Preference Erosion and Multilateral Trade Liberalization

Joseph Francois 1 *, Bernard Hoekman 2, and Miriam Manchin 3

1 Professor of Economics in the Department of Economics at Erasmus University Rotterdam, fellow at the Tinbergen Institute, and research fellow at the Centre for Economic Policy Research
2 Research manager in the Development Research Group at the World Bank and research fellow at the Centre for Economic Policy Research
3 Research fellow at Centro Studi Luca d’Agliano

* To whom correspondence should be addressed.
Joseph Francois, E-mail: francois{at}few.eur.nl


  Abstract

Because of concern that tariff reductions in Organisation for Economic Co-operation and Development (OECD) countries will translate into worsening export performance for the least developed countries, the erosion of trade preferences may become a stumbling block for multilateral trade liberalization. An econometric analysis of actual preference use shows that preferences are underused because of administrative burdens--estimated to be equivalent to an average of 4 percent of the value of goods traded. To quantify the maximum scope for preference erosion, the compliance cost estimates are used in a model-based assessment of the impact of full elimination of OECD tariffs. Taking into account administrative costs eliminates erosion costs in the aggregate and greatly reduces the losses for countries most affected by preference erosion.


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