Stiglitz & Rashid on AGOA & EBA

Joe Stiglitz and Hamid Rashid indict unilateral preferences for LDCS:

The US has already had some success in pitting the poor against each other. Preferential access for African countries, under the African Growth and Opportunity Act (AGOA) and more recent initiatives, seems to be largely a matter of trade diversion – taking trade from some poor countries and giving it to others. For example, Bangladesh’s share in US clothing markets declined from 4.6% in 2001 to 3.9% in 2004. During the same period, AGOA countries’ market share in the US clothing sector increased from 1.6% to 2.6%, and it is likely to increase further when AGOA countries start to take full advantage of duty-free access. [Project Syndicate]

I am less enthusiastic about their criticism of the EU, however:

A year ago, the leaders of the world’s richest countries committed themselves to alleviating the plight of the poorest. At Doha in November 2001, they pledged to give something more valuable than money: the opportunity for poor countries to sell their goods and earn their way out of poverty. With great fanfare, developed countries seemed for a while to be making good on their promise, as Europe extended the “Everything but Arms” initiative (EBA), under which it was unilaterally to open its markets to the poorest countries of the world.

The opening was less than it seemed. The devil is in the details, as many less developed countries discovered that EBA’s complicated rules of origin, together with supply-side constraints, meant that there was little chance for poor countries to export their newly liberalized products. [Project Syndicate]

First, rules of origin are a necessary feature of preferential trade. If the EU is to impose lower trade barriers upon LDCs than its richer trading partners, then ROOs will be part of the package. And it seems that all ROOs wind up being complicated.

Second, the devilish detail that LDCs face supply-side factors that constrain their exports means that preferential trade programs are unlikely to help. Rather than indicting the EU’s policy, this fact reduces their degree of guilt.

On the other hand, their argument against the US is damning:

The US ostensibly agreed to a 97% opening of its markets to the poorest countries. The developing countries were disappointed with the results of Europe’s EBA initiative, and Europe has responded by committing itself to dealing with at least part of the problem that arises from the rules of origin tests. America’s intention was, to the contrary, to seem to be opening up its markets, while doing nothing of the sort, for it appears to allow the US to select a different 3% for each country. The result is what is mockingly coming to be called the EBP initiative: developing countries will be allowed freely to export everything but what they produce. They can export jet engines, supercomputers, airplanes, computer chips of all kinds—just not textiles, agricultural products, or processed foods, the goods they can and do produce.[Project Syndicate]