Tariff Preferences, WTO Negotiations and the LDCs: The Case of the 'Everything But Arms' Initiative

This paper aims to evaluate the impact of the recently adopted "Everything But Arms"(EBA) initiative of the EU on the Least Developed Countries (LDCs) and to show howthe EBA preferences will be eroded with further multilateral trade liberalization.Considering that preferences granted by the EU in the past have already coveredmost of the exporting goods from the LDCs, the number of products that are actuallyaffected by the EBA is quite small. Simulation results indicate that total welfare impacts of the EBA are less than US$300 million for all the LDCs and that a great dealof these gains are associated with three "sensitive" products that are subject to gradual liberalization. Impacts of the EBA on the EU and third countries appear to benegative but quite small.WTO negotiations exert pressures on the EU to reduce its protections, which may lower the high domestic prices in the EU and decrease the attractiveness of the EBA.Further results indeed show that gains for the LDCs from the EBA will be greatly reduced or even reversed under a series of EU reform scenarios, indicating the difficulties the LDCs are facing in the current negotiations. In light of these results, thisstudy concludes that other development assistance measures from developed countries should be made available to the LDCs to ease their dependency on trade preferences and to foster their supply capacities.