## _pdp08 - Section II) provides a brief overview of Africa’s evolving trade landscape and the barriers it

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### Overview of Africa’s evolving trade landscape and the barriers it faces
- By 2004, developing countries accounted for a full 30 percent of Africa’s total exports, up from 18 percent in 1970, or 14 percent in 1980.
- China has become Africa’s third-largest market after the EU and the United States.
- Intra-African exports as a share of the continent’s total exports remained low and were virtually unchanged between 1970 and 2004.
- Between 1970 and 2004, the share of developing countries in Africa’s total imports increased by over 20 percentage points, while the combined share of the EU and the United States declined by nearly 20 percentage points.
- Africa’s exports remain dominated by primary commodities:
  - Agricultural products account for over one-fourth of total exports.
  - Minerals (including fuels) account for an additional 50 percent.
  - Manufactured exports account for about 30 percent.
- Protection faced by African exports:
  - OECD members (except EU members) still maintain high protection against African agricultural exports.
  - Africa’s own tariffs remain high relative to other developing regions; only a fraction of Africa’s tariffs are bound, often at levels considerably higher than applied rates.
- Key numeric tariff comparisons:
  - Simple average applied MFN tariffs (selected): Sub-Saharan Africa 21.6 (1997) and 17.2 (2004); Industrial countries 8.7 (1997) and 5.7 (2004).

### Preference erosion and the Doha Round
- Preference erosion is identified as a key concern of African countries in the Doha Round trade negotiations.
- Estimated export-loss findings:
  - Subramanian (2003): for least developed countries as a whole, losses from preference erosion due to a 40 percent reduction in MFN tariffs in export markets will probably amount to less than 2 percent of exports; a few countries may face significant losses.
  - Alexandraki and Lankes (2004) (based on a 40 percent reduction in the preference margin): overall impact on middle-income countries is likely to be small but heavily concentrated in a few countries dependent on sugar, bananas, and textiles and garments.
- Examples of country-level export-loss estimates (in percent of total merchandise exports):
  - Subramanian: Malawi 11.5; Mauritania 8.8; Cape Verde 6.3; São Tomé Príncipe 5.2; Tanzania 4.5; Madagascar 3.7; Ethiopia (excluding Eritrea) 3.2; Sierra Leone 3.1; Burundi 2.4; Uganda 2.3; Mozambique 2.1; Sudan 1.4; The Gambia 1.3.
  - Alexandraki and Lankes: Mauritius 19.6; Seychelles 7.7; Swaziland 5.8; Tunisia 4.3; Côte d’Ivoire 4.2; Morocco 4.1.
- Caveats and mitigating factors on estimated losses:
  - Partial equilibrium analysis omits general-equilibrium effects (resource reallocation, real exchange rate depreciation) that can reduce the impact of preference erosion.
  - Preferences are often not fully utilized due to rules of origin, compliance costs, and low utilization rates (e.g., textile and clothing products under the EU’s Everything But Arms Initiative).
  - Rents from preferences may be largely captured by large importers; AGOA beneficiaries, on average, captured only about one-third of the tariff rent from duty-free entry.
  - Studies estimate gross export revenue losses rather than income losses; income typically declines much less than revenue.

### Structure and sequencing in the chapter
- The chapter outlines a sequence: Section II provides a brief overview of Africa’s evolving trade landscape and the barriers it faces; Section III examines preference erosion; Section IV explores options to offset the negative effects of preference erosion on Africa.

### How can Africa benefit from the Doha Round? (scenarios and modeled impacts)
- Baseline modeling approach referenced: Anderson, Martin, and van der Mensbrugghe (2005) using the World Bank’s LINKAGE model with GTAP Version VI.
- Four Doha Round scenarios analyzed:
  - Scenario 1 (agricultural liberalization only):
    - United States cuts actual domestic support by 28 percent.
    - Norway cuts by 18 percent.
    - EU cuts by 16 percent.
    - Australia cuts by 10 percent.
    - Average agricultural tariff cut: 44 percent for developed countries as a group and 21 percent for developing countries.
    - Agricultural export subsidies are eliminated completely.
  - Scenario 2: Scenario 1 plus nonagricultural tariff bindings cut by 50 percent in high-income countries, 33 percent in developing countries, and zero in the least developed countries.
  - Scenario 3: Scenario 2 plus developing countries (including least developed) fully participate by reducing their bound tariffs by the same percentage as high-income countries.
  - Scenario 4: Full liberalization (illustrative).
- Average applied tariff changes (selected, 2015, from Scenario tables):
  - Agriculture and food (Rest of sub-Saharan Africa): Baseline 21.2; Scenario 1 19.6; Scenario 2 19.6; Scenario 3 16.1.
  - Textiles and clothing (Rest of sub-Saharan Africa): Baseline 26.2; Scenario 1 26.2; Scenario 2 25.9; Scenario 3 24.6.
  - Other merchandise (Rest of sub-Saharan Africa): Baseline 14.0; Scenario 1 14.0; Scenario 2 14.0; Scenario 3 13.7.
- Modeled changes in real income (deviations from baseline, 2015):
  - In billions of 2001 dollars (Sub-Saharan Africa): Scenario 1 0.3; Scenario 2 0.4; Scenario 3 1.2; Full liberalization 4.8.
  - Percentage change (Sub-Saharan Africa): Scenario 1 0.06; Scenario 2 0.10; Scenario 3 0.27; Full liberalization 1.1.
- Key scenario findings:
  - Scenario 1: The bulk of benefits from agricultural liberalization accrues to high-income reforming countries; gains for SSA are only $0.3 billion (0.06 percent).
  - Scenario 2: Adding nonagricultural tariff cuts nearly doubles gains for SSA as a group, though the “rest of SSA” may suffer a small loss—illustrating that deeper industrial-country cuts can exacerbate preference erosion unless offset by other liberalization.
  - Scenario 3: When developing and least developed countries reduce bound tariffs similarly to high-income countries, SSA gains more than quadruple relative to Scenario 1 to nearly 0.27 percent of income (1.2 billion), and all African groups gain.
  - Full liberalization: SSA gains exceed 1 percent of initial income (4.8 billion).
- Trade composition effects (Scenario 2, changes in SSA’s merchandise trade by destination/source, in billions of US dollars):
  - Exports:
    - High-Income Countries: -0.3
    - Sub-Saharan Africa: 0.0
    - Other Developing Countries: 1.5
    - World: 1.2
    - Agricultural and food exports: High-Income Countries 1.4; Sub-Saharan Africa 0.4; Other Developing Countries 0.8; World 2.6
    - Other merchandise exports: High-Income Countries -1.7; Sub-Saharan Africa -0.4; Other Developing Countries 0.7; World -1.4
  - Imports:
    - High-Income Countries: 0.5
    - Sub-Saharan Africa: 0.0
    - Other Developing Countries: 0.4
    - World: 0.9
    - Agricultural and food imports: High-Income Countries -0.3; Sub-Saharan Africa 0.4; Other Developing Countries 0.5; World 0.2
    - Other merchandise imports: High-Income Countries 0.8; Sub-Saharan Africa -0.4; Other Developing Countries -0.1; World 0.7
- Interpretation:
  - Africa’s own liberalization, together with liberalization in other developing countries, is critical for poorer SSA countries to achieve a positive Doha Round outcome and to offset preference erosion.
  - Moderate reductions in applied tariffs in SSA—achieved through substantial reductions in bound rates—can overcome negative effects of preference erosion.
  - Industrial-country liberalization remains important for direct market access and for the Round’s overall ambition, but liberalization by developing countries provides significant additional benefits for Africa.

### Policy implications and recommendations
- For market access benefits, the Doha Round should produce comprehensive reductions in trade barriers across all commodities in all WTO members.
- Because of preference erosion, liberalization by industrial countries alone does not ensure benefits for every African country; commitments by developing countries are essential.
- African countries, including least developed ones, need to bind and reduce their own tariffs to maximize Doha Round benefits. Binding and reductions would:
  - Help create a more favorable investment climate.
  - Reduce uncertainty and transaction costs by narrowing the binding overhang.
  - Anchor business expectations and facilitate industry adjustment.
- Use of special and differential treatment:
  - Special and differential treatment should be designed to reduce adjustment costs from preference erosion and from African liberalization.
  - Where needed, use special and differential treatment to reduce short-term adjustment costs while committing to reciprocal liberalization.
- Strategic negotiation posture:
  - A defensive strategy focused solely on minimizing preference erosion is insufficient.
  - Shift strategy from retaining preferences to demanding reciprocity and from seeking special and differential treatment solely for protection to building competitiveness.
  - Ambitious African liberalization would strengthen Africa’s bargaining position to secure greater market access in industrial countries and provide stronger grounds to request aid for trade.

*Source: _pdp08 - Section II) provides a brief overview of Africa’s evolving trade landscape and the barriers it*

### Section II) provides a brief overview of Africa’s evolving trade landscape and the barriers it

### _pdp08 - Section II) provides a brief overview of Africa’s evolving trade landscape and the barriers it

### Overview of Africa’s evolving trade landscape and the barriers it faces
- Section II) provides a brief overview of Africa’s evolving trade landscape and the barriers it faces in various markets.

### Preference erosion and the Doha Round
- It then examines preference erosion, which is a key concern of African countries in the  Doha Round trade negotiations (Section III).

### Structure and sequencing in the chapter
- This is followed, in

*Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/pdp/2005/_pdp08.pdf*

### Section IV, by an exploration of options to offset the negative effects of preference erosion

### Section IV, by an exploration of options to offset the negative effects of preference erosion on Africa

### Africa’s evolving trade and the barriers it faces
- By 2004, developing countries accounted for a full 30 percent of Africa’s total exports, up from 18 percent in 1970, or 14 percent in 1980.
- China has become Africa’s third-largest market after the EU and the United States.
- Intra-African exports as a share of the continent’s total exports remained low and were virtually unchanged between 1970 and 2004.
- Between 1970 and 2004, the share of developing countries in Africa’s total imports increased by over 20 percentage points, while the combined share of the EU and the United States declined by nearly 20 percentage points.
- Africa’s exports remain dominated by primary commodities:
  - Agricultural products account for over one-fourth of total exports.
  - Minerals (including fuels) account for an additional 50 percent.
  - Manufactured exports account for about 30 percent.
- Implications of export composition:
  - Because MFN tariffs on most industrial goods in developed countries are already low, African countries—especially net agricultural exporters—will probably gain more from agricultural liberalization than from liberalization of industrial goods in developed-country markets.
  - Preference erosion effects for African industrial goods in industrial-country markets are unlikely to dominate the overall Doha Round outcome.
- Protection faced by African exports:
  - OECD members (except EU members) still maintain high protection against African agricultural exports, implying large potential benefits if those markets liberalize.
  - Africa’s own tariffs remain high relative to other developing regions; only a fraction of Africa’s tariffs are bound, often at levels considerably higher than applied rates.
- Key numeric tariff comparisons:
  - Simple average applied MFN tariffs (selected): Sub-Saharan Africa 21.6 (1997) and 17.2 (2004); Industrial countries 8.7 (1997) and 5.7 (2004).

### Impact of preference erosion
- Estimates of export losses from preference erosion:
  - Subramanian (2003) finds that for least developed countries as a whole, losses from preference erosion due to a 40 percent reduction in MFN tariffs in export markets will probably amount to less than 2 percent of exports; a few countries may face significant losses.
  - Alexandraki and Lankes (2004) (based on a 40 percent reduction in the preference margin) conclude overall impact on middle-income countries is likely to be small but heavily concentrated in a few countries dependent on sugar, bananas, and textiles and garments.
- Examples of country-level export-loss estimates (in percent of total merchandise exports):
  - Subramanian: Malawi 11.5; Mauritania 8.8; Cape Verde 6.3; São Tomé Príncipe 5.2; Tanzania 4.5; Madagascar 3.7; Ethiopia (excluding Eritrea) 3.2; Sierra Leone 3.1; Burundi 2.4; Uganda 2.3; Mozambique 2.1; Sudan 1.4; The Gambia 1.3.
  - Alexandraki and Lankes: Mauritius 19.6; Seychelles 7.7; Swaziland 5.8; Tunisia 4.3; Côte d’Ivoire 4.2; Morocco 4.1.
- Caveats and mitigating factors on estimated losses:
  - Partial equilibrium analysis omits general-equilibrium effects (resource reallocation, real exchange rate depreciation) that can reduce the impact of preference erosion.
  - Preferences are often not fully utilized due to rules of origin, compliance costs, and low utilization rates (e.g., textile and clothing products under the EU’s Everything But Arms Initiative).
  - Rents from preferences may be largely captured by large importers; AGOA beneficiaries, on average, captured only about one-third of the tariff rent from duty-free entry.
  - Studies estimate gross export revenue losses rather than income losses; income typically declines much less than revenue.

### How can Africa benefit from the Doha Round? (scenarios and modeled impacts)
- Baseline modeling approach referenced: Anderson, Martin, and van der Mensbrugghe (2005) using the World Bank’s LINKAGE model with GTAP Version VI.
- Four Doha Round scenarios analyzed:
  - Scenario 1 (agricultural liberalization only):
    - United States cuts actual domestic support by 28 percent.
    - Norway cuts by 18 percent.
    - EU cuts by 16 percent.
    - Australia cuts by 10 percent.
    - Average agricultural tariff cut: 44 percent for developed countries as a group and 21 percent for developing countries.
    - Agricultural export subsidies are eliminated completely.
  - Scenario 2: Scenario 1 plus nonagricultural tariff bindings cut by 50 percent in high-income countries, 33 percent in developing countries, and zero in the least developed countries.
  - Scenario 3: Scenario 2 plus developing countries (including least developed) fully participate by reducing their bound tariffs by the same percentage as high-income countries.
  - Scenario 4: Full liberalization (illustrative).
- Average applied tariff changes (selected, 2015, from Scenario tables):
  - Agriculture and food (Rest of sub-Saharan Africa): Baseline 21.2; Scenario 1 19.6; Scenario 2 19.6; Scenario 3 16.1.
  - Textiles and clothing (Rest of sub-Saharan Africa): Baseline 26.2; Scenario 1 26.2; Scenario 2 25.9; Scenario 3 24.6.
  - Other merchandise (Rest of sub-Saharan Africa): Baseline 14.0; Scenario 1 14.0; Scenario 2 14.0; Scenario 3 13.7.
- Modeled changes in real income (deviations from baseline, 2015):
  - In billions of 2001 dollars (Sub-Saharan Africa): Scenario 1 0.3; Scenario 2 0.4; Scenario 3 1.2; Full liberalization 4.8.
  - Percentage change (Sub-Saharan Africa): Scenario 1 0.06; Scenario 2 0.10; Scenario 3 0.27; Full liberalization 1.1.
- Key findings from scenarios:
  - Scenario 1: The bulk of benefits from agricultural liberalization accrues to high-income reforming countries; gains for SSA are only $0.3 billion (0.06 percent).
  - Scenario 2: Adding nonagricultural tariff cuts nearly doubles gains for SSA as a group, though the “rest of SSA” may suffer a small loss—illustrating that deeper industrial-country cuts can exacerbate preference erosion unless offset by other liberalization.
  - Scenario 3: When developing and least developed countries reduce bound tariffs similarly to high-income countries, SSA gains more than quadruple relative to Scenario 1 to nearly 0.27 percent of income (1.2 billion), and all African groups gain.
  - Full liberalization: SSA gains exceed 1 percent of initial income (4.8 billion).
- Trade composition effects (Scenario 2, changes in SSA’s merchandise trade by destination/source, in billions of US dollars):
  - Exports:
    - High-Income Countries: -0.3
    - Sub-Saharan Africa: 0.0
    - Other Developing Countries: 1.5
    - World: 1.2
    - Agricultural and food exports: High-Income Countries 1.4; Sub-Saharan Africa 0.4; Other Developing Countries 0.8; World 2.6
    - Other merchandise exports: High-Income Countries -1.7; Sub-Saharan Africa -0.4; Other Developing Countries 0.7; World -1.4
  - Imports:
    - High-Income Countries: 0.5
    - Sub-Saharan Africa: 0.0
    - Other Developing Countries: 0.4
    - World: 0.9
    - Agricultural and food imports: High-Income Countries -0.3; Sub-Saharan Africa 0.4; Other Developing Countries 0.5; World 0.2
    - Other merchandise imports: High-Income Countries 0.8; Sub-Saharan Africa -0.4; Other Developing Countries -0.1; World 0.7
- Interpretation:
  - Africa’s own liberalization, together with liberalization in other developing countries, is critical for poorer SSA countries to achieve a positive Doha Round outcome and to offset preference erosion.
  - Moderate reductions in applied tariffs in SSA—achieved through substantial reductions in bound rates—can overcome negative effects of preference erosion.
  - Industrial-country liberalization remains important for its direct market access and its influence on overall ambition of the Round, but liberalization by developing countries provides significant additional benefits for Africa.

### Policy implications and recommendations
- For market access benefits, the Doha Round should produce comprehensive reductions in trade barriers across all commodities in all WTO members.
- Because of preference erosion, liberalization by industrial countries alone does not ensure benefits for every African country; commitments by developing countries are essential.
- African countries, including least developed ones, need to bind and reduce their own tariffs to maximize Doha Round benefits—binding and reductions would:
  - Help create a more favorable investment climate.
  - Reduce uncertainty and transaction costs by narrowing the binding overhang.
  - Anchor business expectations and facilitate industry adjustment.
- Use of special and differential treatment:
  - Special and differential treatment should be designed to reduce adjustment costs from preference erosion and from African liberalization.
  - Where needed, use special and differential treatment to reduce short-term adjustment costs while committing to reciprocal liberalization.
- Strategic negotiation posture:
  - A defensive strategy focused solely on minimizing preference erosion is insufficient.
  - Shift strategy from retaining preferences to demanding reciprocity and from seeking special and differential treatment solely for protection to building competitiveness.
  - Ambitious African liberalization would strengthen Africa’s bargaining position to secure greater market access in industrial countries and provide stronger grounds to request aid for trade.

*Source: _pdp08 - Section IV, by an exploration of options to offset the negative effects of preference erosion*

### References

### _pdp08 - References

### References

- Acheterbosch, Thom, Hakim Ben Hammouda, Patrick N. Osakwe, and Frank van Tongeren, 2004, “Consequences of the Doha Round Trade Reforms for Africa,” paper presented at the Seventh Annual Conference on Global Economic Analysis, Washington, June 17–19.
- Alexandraki, Katerina, and Hans Peter Lankes, 2004, “The Impact of Preference Erosion on Middle-Income Developing Countries,” IMF Working Paper 04/169 (Washington: International Monetary Fund).
- Anderson, Kym, Will Martin, and Dominique van der Mensbrugghe, 2005, “Would Multilateral Trade Reform Benefit Sub-Saharan Africa?” (unpublished; Washington: World Bank).
- Candau, Fabien, Lionel Fontagne, and Sebastien Jean, 2004, “The Utilization Rate of Preferences in the EU,” paper presented at the Seventh Annual Conference on Global Economic Analysis, Washington, June 17–19.
- Cline, William R., 2004, Trade Policy and Global Poverty (Washington: Institute for International Economics).
- Hertel, Thomas W., and L. Alan Winters, eds., 2005, Putting Development Back into the Doha Agenda: Poverty Impacts of a WTO Agreement, (Washington: World Bank, forthcoming).
- Inama, Stefano, 2004, “Trade Preferences for LDCs: A Quantitative Analysis of Their Utilization and Suggestions to Improve It,” paper presented at the Seventh Annual Conference on Global Economic Analysis, Washington, June 17–19.
- International Monetary Fund, 2002, “Market Access for Developing Country Exports—Selected Issues,” (Washington).
- International Monetary Fund, 2005, Africa Regional Economic Outlook, May (Washington).
- Kowalski, P., 2004, Impact of Changes in Tariffs on Developing Countries' Government Revenue, TD/TC/WP(2004)29/Rev1 (Paris: Organization for Economic Cooperation and Development).
- Olarreaga, Macelo, and Ceglar Ozden, 2005, “AGOA and Apparel: Who Captures the Tariff Rent in the Presence of Preferential Market Access?” World Economy, Vol. 28, No. 1, pp. 63–77.
- Panagariya, Arvind, 2004, “Agricultural Liberalization and the Developing Countries: Debunking the Fallacies” (unpublished; New York: School of International and Public Affairs, Columbia University)
- Rolfe, Robert J. and Douglas P. Woodward, 2005, “African Apparel Exports, AGOA, and the Trade Preference Illusion,” Global Economy Journal, Vol. 5, No. 3, pp. 1–25.
- Subramanian, Arvind, 2003, “Financing of Losses from Preference Erosion,” paper prepared for the World Trade Organization, WT/TF/COH/14, Geneva.
- World Bank, 2002, Global Economic Prospects and the Developing Countries 2002: Making Trade Work for the Poor (Washington: World Bank).
- World Bank, 2005, Global Development Finance 2005: Mobilizing Finance and Managing Vulnerability (Washington: World Bank).
- Yang, Yongzheng, and Sanjeev Gupta, 2005, “Regional Trade Arrangements in Africa: Past Performance and the Way Forward,” IMF Working Paper 05/36 (Washington: International Monetary Fund).
- Yu, Wusheng and Trine Vig Jensen, 2005, “Tariff Preferences, WTO Negotiations and the LDCs: The Case of the ‘Everything But Arms’ Initiative,” World Economy, Vol. 28, No. 3, pp. 375–405.

*Source: _pdp08 - References*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/pdp/2005/_pdp08.pdf_