The Impact of Preference Erosion on Middle-Income Developing Countries

This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. Preference erosion has become an obstacle to multilateral trade liberalization, as beneficiaries of trade preferences have an incentive to resist reductions in most-favored-nation (MFN) tariffs. This study identifies middle-income developing countries that are vulnerable to export revenue loss from preference erosion. It concludes that the problem is heavily concentrated in a sub-set of preference beneficiaries—primarily small island economies dependent on sugar, banana, and—to a lesser extent—textile exports. Accordingly, measures to help mitigate th