TRADE PREFERENCES: Outlook 2024

Introduction

The Trade Preferences Outlook 2024, published by the United Nations Trade and Development (UNCTAD), examines the impact of non-reciprocal trade preferences (NRTPs) on export growth and diversification in developing and least developed countries (LDCs). These trade preferences, offered by 16 developed and 9 developing economies, aim to promote economic development by granting reduced or zero-tariff access to beneficiary countries. However, evolving global trade dynamics such as declining tariffs, a proliferation of free trade agreements (FTAs), and rising non-tariff measures (NTMs) have eroded their effectiveness. This report evaluates the relevance of NRTPs, assesses their current challenges, and provides recommendations for future enhancements.

Non-reciprocal trade preferences (NRTPs) have historically supported export growth and job creation in developing countries by providing market access advantages. However, the proliferation of FTAs, declining tariffs, and growing compliance costs from NTMs have reduced their utility. Although some developing countries have diversified their exports through trade preferences, many remain dependent on narrow product categories, particularly raw materials and light manufacturing.

To ensure NRTPs remain relevant, the report recommends modernizing their design, enhancing cooperation between trade partners, simplifying rules of origin, and addressing non-tariff barriers. Expanding cooperation beyond tariffs through investment promotion, services, and technology transfer is critical for fostering sustainable economic growth.

Key Highlights

Evolution of NRTPs

• 1964–1994: Trade preferences emerged to support industrialization in newly independent countries. The Generalized System of Preferences (GSP) was introduced by major economies in the early 1970s.
• 1995–Present: With the establishment of the WTO, NRTP schemes were modernized. Preferences for high-income countries were phased out, and more generous schemes for LDCs were introduced, such as the European Union’s Everything But Arms (EBA) and the United States’ African Growth and Opportunity Act (AGOA).

Current Challenges

• The global average MFN tariff fell from 22% in 1990 to 8.9% in 2022, reducing the tariff advantages of NRTPs.
• The number of FTAs increased from 3 in 1970 to 354 in 2022, limiting the relative benefits of NRTPs.
• Compliance costs related to product standards and certifications have become significant trade barriers.
• Fragmented production processes complicate the identification of product origins, reducing the use of tariff preferences.

Impact of NRTPs on Export Diversification

• Export diversification remains uneven across beneficiary countries:
  • The number of products exported by LDCs to major markets increased from 1,270 in 2002 to 1,360 in 2019–2022.
  • Sectors such as textiles and machinery saw significant diversification, while agricultural products contributed less to export expansion.
  • Countries like Bangladesh and Myanmar achieved notable diversification, while others remained dependent on narrow export categories.

Recommendations

1. Expand product coverage, simplify rules of origin, and ensure smooth transitions for LDCs.
2. Strengthen partnerships between preference-granting and beneficiary countries.
3. Simplify compliance procedures and promote regulatory cooperation.
4. Develop service trade preferences, promote investment, encourage technology transfer, and integrate development cooperation programs.

Conclusion

The Trade Preferences Outlook 2024 emphasizes that while NRTPs have played a crucial role in supporting export growth, their effectiveness is diminishing in today’s trade environment. Modernizing these schemes and addressing emerging trade barriers are essential for ensuring that developing countries can continue to benefit from global trade.

Download full report here

Author: AITCR 3