Question

choose any quote on this reading and explain

How preferential is trade? Trade among PTA members is not all preferential on account of the fact that a significant portion of intra-PTA trade is MFN duty-free. In a sample covering imports of the 20 largest importers from all their trading partner countries – accounting for 90 per cent of world merchandise trade in 2008 – only 16 per cent qualified as preferential trade, assuming full utilization of preferences.2 In other words, despite the explosion of PTAs in recent years, 84 per cent of world merchandise trade still takes place on a non-discriminatory most-favoured nation (MFN) basis. This is firstly because half of world trade is already subject to zero MFN tariff rates. Secondly, PTAs tend to exempt high MFN-tariff items from preferential treatment and continue to trade these products at MFN rates. Existing preferential tariffs reduce the global tradeweighted average tariff by one percentage point, and 90 per cent of this reduction (i.e. 0.9 percentage points) is due to reciprocal preference regimes. Only 2 per cent of global imports are eligible for preferential tariffs where preference margins are 10 per cent or more. For most large exporters, preferential tariffs matter little for the bulk of their exports. This is not always true for individual sectors especially in certain smaller economies exporting a narrow set of commodities (mainly sugar, rice, bananas, fish and garments), where preference margins may be more substantial. There is a possibility though that these preferences will be eroded over time as the countries to which they export enter into more PTA

Answer 1

"How preferential is trade?"

A preferential trade area is a trading bloc that gives preferential access to certain products from the participating countries. This is done by reducing tariffs but not by abolishing them completely. A PTA can be established through a trade pact. It is the first stage of economic integration.

World trade is increasingly ruled by preferential trade agreements (PTAs), but their precise nature remains relatively opaque. This paper assesses a central dimension of these agreements, the significance of tariff preferences, using a new data set on preferential and non-preferential or Most Favored Nation (MFN) applied tariffs, constructed by the International Trade Center and the World Bank. The data set covers 5,203 products, 199 reporters, and 239 partners, representing approximately 97 percent of world imports in 2016. There are three main findings. First, PTAs have significantly widened the scope of tariff-free trade. Whereas 42 percent of the total value of trade traded free under MFN rates in 2016, PTAs have fully liberalized an additional 28 percent of global trade. Second, the extent of preferential liberalization varies significantly across countries and sectors. Around 70 percent of countries have reduced trade-weighted average preferential tariffs to less than 5 percent, but PTAs have not been able to eliminate the high levels of protection in some low-income countries and in agricultural products, textiles, and footwear. Third, while the average preferential margin for trade covered by PTAs is low because one-fifth of world trade under preferential agreements is already duty-free, more than a quarter of world trade is subject to an average preference margin of 7.4 percent. Considering competition from preferential and non-preferential sources, however, only 5.2 percent of global exports benefited from a preferential advantage of over 5 percent and only 3.3 percent of global exports suffered from a preferential disadvantage higher than 5 percent. Furthermore, data for a subsample of importers reveal that not all eligible imports take advantage of preferences, because of impediments such as restrictive rules of origin, and therefore actual preference margins are generally lower than potential margins.