Quantifying the Value of U.S. Tariff Preferences for Developing Countries.” World Bank Working Paper 3977

There has been much debate over the value of preferential trade programs offered by industrial countries, granting duty-free or reduced-duty access for many exports from developing countries.1 Some leaders from developing countries and nongovernmental organizations have argued that preference erosion would have serious development consequences and requires compensation (e.g., Oxfam 2005). Other leaders have argued that vulnerability to preference erosion is lim-ited to only a few countries and products, and thus requires more targeted assist-ance (WTO 2004). A country that is granted trade preferences would presumably see demand for its exports grow, relative to demand for exports from countries still facing most-favored-nation (MFN) tariffs. If the country receiving preferences is small, its exports would continue to be sold in the importing country at the prevailing tariff- inclusive price, with the exporter earning the difference. Thus, the benefits of such preferences for the exporting country would be increased exports and a transfer of rent from the importing country. But how important are these trade preferences to developing countries? Are the tariff margins large? Do countries fully utilize their preferential access? Is all rent actually earned by the exporting The authors are grateful to Maya Shivakumar and Nick Grossman for their superb work assembling and analyzing data. They also thank Pat Thomas for her valuable help constructing tables and Peg MacKnigh