_____   Es As
POLICY RESEARCH WORKING PAPER   2595
Unrestricted Market Access                                    The European Union, Japan,
and the United States have
for  Sub-Saharan  Africa                                      recently announced initiatives
to improve market access for
How  Much  Is It Worth                                        the poorest countries. How
would these initiatives affect
and Who  Pays?                                                Sub-Saharan Africa and the
rest of the world?
Elena Ianchovichina
Aaditya Mattoo
Marcelo Olarreaga
The World Bank
Development Research Group
Trade                                                                U
April 2001



POLICY RESEARCH WORKING PAPER 2595
Summary findings
The European Union, Japan, and the United States have         Japanese and European agricultural markets, especially
recently announced initiatives to improve market access       the heavily protected Japanese market for meat and
for the poorest countries. lanchovichina, Mattoo, and         certain cereal grains.
Olarreaga assess the impact on Sub-Saharan Africa of            The smallness of Sub-Saharan Africa's trade ensures
these initiatives and others that might be taken.             that the costs of trade diversion for the Quad, other
They find that fully unrestricted access to all the Quad    developing countries, and the world would be on the
countries (Canada, the European Union, Japan, and the         whole negligible. One concern, however, is that
United States) would produce substantial gains for Sub-       preferential access to protected markets might lead Sub-
Saharan Africa, leading to a 14 percent increase in non-      Saharan Africa to produce goods in which it does not
oil exports ($2.5 billion) and boosting real incomes by       have a global comparative advantage, and the future
about 1 percent ($1.8 billion). Most of these gains would     erosion of these preferences might lead to adjustment
come from preferential access to the highly protected         costs.
This paper-a product of Trade, Development Research Group-is part of a larger effort in the group to understand the
implications of improved market access for developing countries. Copies of the paper are available free from the World
Bank, 1818 H Street NW, Washington, DC 20433. Please contact Lili Tabada, room MC3-333, telephone 202-473-6896,
fax 202-522-1159, email address ItabadaCaworldbank.org. Policy Research Working Papers are also posted on the Web
at http://econ.worldbank.org. The authors may be contacted at eianchovichinaCaworldbank.org, amattooCaworldbank.org,
or molarreaga@worldbank.org. April 2001. (29 pages)
The Policy Research Workig Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about
development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The
papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this
paper are entirely those of the authors. They do not necessanily represent the view of the World Bank, its Executive Directors, or the
countnies they represent.
Produced by the Policy Research Dissemination Center



Unrestricted Market Access For Sub-Saharan Africa:
How much is it worth and who pays?
Elena lanchovichina
Aaditya Mattoo
Marcelo Olarreaga
Development Research Group, World Bank
JEL classification: Fl 1, F13
Keywords: Duty-free access, least developed countries, Sub-Saharan Africa.
We are grateful to Ataman Aksoy, Uri Dadush, Simon Evenett, Lawrence Hinkle, Bernard
Hoekman, Will Martin, Francis Ng, Arvind Subramanian and David Tarr and seminar
participants at the World Bank for valuable comments; to Gerard Durand, Alice Enders, Daniel
Morales and Javier Suarez for helpful advice and data on tariffs; to Emiko Fukase for help in
converting data from the Harmonized System to the GTAP commodity classifications; and to Lili
Tabada for excellent assistance.






1.    Introduction
Improved market access for the poorest countries is widely seen as necessary to support
their development effort and also as a critical element of a new "Development Round" of
multilateral trade negotiations. Japan, the European Union and the United States are
among those who have recently announced initiatives, supported by multilateral
institutions like the WTO and the World Bank. While the measures differ in coverage,
conditions and clarity, they have one thing in common: improved access is to be
preferential, i.e. only the poorest countries will benefit.
The purpose of this paper is twofold. First, to assess the value of alternative initiatives
for a subset of Sub-Saharan African countries, henceforth referred to as SSA. Our
definition of SSA includes thirty seven countries in the region and excludes the Southern
African Customs Union (SACU) and seven other Southern African countries (for a list of
countries included in our SSA definition see Table 1).1 Second, to identify the
implications of these initiatives for the rest of the world. Any liberalization is likely to
benefit consumers in the preference granting countries. But preferential access for SSA
exports will necessarily divert trade away from other exporters, many of whom are likely
to be in other developing countries. And will also lead to a loss in tariff revenue for the
preference-granting country. We first depict these effects in a simple partial equilibrium
model, and then empirically assess their importance using a computable general
equilibrium model.
A case study of the impact on SSA seems worthwhile for at least three reasons. First, all
but three of the thirty seven countries in SSA have been classified as Least Developed
Countries (LDC) or Highly Indebted Poor Countries (HIPC), and are therefore likely to
be part of any LDCs or HIPC initiative by the European Union, United States, Canada
and Japan (the QUAD). This region, with a population of 500 million, has a GDP per
capita of 320 dollars (or less than a dollar per day). Second, the legislation recently
I We discuss the reasons for exclusion of some Sub-Saharan African countries from the SSA region in the
footnote to Table 1.
3



passed by the United States Congress grants completely unrestricted access2 (no input
requirements or rules of origin) to any African country with a GDP per capita below 1500
dollars. Only two of the thirty seven SSA countries in our sample have a GDP above
1500 dollars (Gabon 4800 dollars and Seychelles 7000 dollars). Third, and this is an
important practical reason, existing multi-country general equilibrium models, such as
GTAP, which we use in this paper, provide a standard and readily-available country
aggregate for SSA.
The precise coverage and status of the different initiatives is not clear. We choose to
focus on five scenarios, each of which reflects in somewhat stark form, an initiative that
is either underway or under consideration. These include duty and quota-free access for
SSA exports of:
a) apparel to the US;
b) all products to the US (widest interpretation of the Africa Growth and Opportunity
Act);
c) industrial products to Japan;
d) all products except arms to the EU (latest proposal by the European Commission);
e) all products to the US, EU, Canada and Japan, i.e. the QUAD.
We also carry out two further simulations designed to put preferential market access in
perspective. The first examines the impact on SSA of a cut in the non-preferential levels
of protection in all other countries. The question we have in mind is whether SSA,
having obtained preferential access to the QUAD market, would view a new round of
multilateral trade negotiations with enthusiasm or apprehension.3 The second simulation
compares the implications for welfare in SSA of an improvement in supply conditions
with the implications of preferential access.
2 This is for an initial period of four years.
The question seemns relevant because imiproved access for least developed countries is being seen as a
condition for a new round rather than as a result.
4



The paper is organized as follows. Section 2 describes the main effects of granting
preferential access to SSA using a partial equilibrium model. Section 3 describes briefly
the pattern of SSA exports in terms of products and destinations, and the current
conditions of access. Section 4 discusses the assumptions and structure of the multi-
country Computable General Equilibrium (CGE) model used to estimate the impact of
preferential access. Section 5 presents the empirical estimates under alternative
scenarios. Section 6 concludes.
2.    Unrestricted access for SSA: who wins and who loses?
The impact of granting unrestricted access on welfare in different groups of countries can
be illustrated using a simple partial model. This is depicted in Figure 1. There are three
countries: one developed country, one developing country (DC) and one Sub-Saharan
African country (SSA). There is only one good, which is imported by the developed
country and exported by both DC and SSA. Import demand is denoted by M, export
supply of the DC is denoted by XD, export supply of SSA is denoted by Xs and total
(world) export supply is denoted XT .4
Imports to the developed country are subject to an exogenous tariff t , which is initially
applied to imports from both DC and SSA. The tariff-inclusive export supplies of the DC
and SSA are denoted by XD +t and Xs +t, adding up to total tariff-inclusive export
supply of XoT.  The original equilibrium price in the developed country,  0D is
determined where import demand equals total world supply.
The initial export quantities of the DC and SSA are respectively given by x' and x,
adding up to aggregate exports of XT . Both developing country and SSA exporters
4 For simplicity of exposition, let us assume that this product is not locally consumed in DC or SSA.
5



receive the same price for their exports, p  -_t, i.e. the developing country price net of
the tariffs that they have to pay.
FIGURE 1: PARTIAL EQUILIBRIUM EFFECT OF LDC PREFERENCES
p                             xs + t
A                                        D1++t
T
xl
PO .
p0D  .    .     ......... 
... ..   ...........
S  S      D D       T  TN
xo xi    xix   x 0 X  XI1
Now assume that SSA exports can enter duty-free into the developed country market, so
the relevant export supply for SSA is Xs and the relevant aggregate export supply is
6



X1T . The new world price will be determined by the intersection of the import demand,
M, with the new aggregate supply, X[.
It is easy to show that pD < pD, so long as dX  > 0.5 The intuition is straightforward.
I    0      ~~~dp
At the original developed country price pD, SSA exporters increase the quantity supplied
because they now receive a higher price than before, i.e. Xs (pD ) > XS (pD -t). Hence,
there will be an excess supply at the original price, inducing the price in the developed
country to fall. But the decline in price will be less than the tariff reduction, so the price
received by SSA exporters will be higher than before, i.e. pD > pD -t.  The price
received by developing country exporters, on the other hand, will be lower than before,
D      D
i.e. p, -t<p  -t_.
The changes in producers' surplus for SSA and DC, as well as the change in consumers'
surplus and tariff revenue for the developed country, are depicted in Figure 1.
Gain in producers' surplus for SSA = piNE - pLM = pNUT
Loss in producers' surplus for DC = p1QR - p'SR = p  IQSp
Gain in consumers' surplus for developed country = p10BCpD
Loss in tariff revenue for developed country = pOLUT + ZQVW= t(  + 4 - xI)
Preferential access necessarily benefits the recipients, SSA, because they get a higher
price for their exports, but it hurts those who are excluded, DC, because they get a lower
price for their exports. The impact on the developed country is ambiguous, and depends
on the relative strengths of the gain in consumers' surplus (due to trade creation) and the
loss in tariff revenue (due to trade diversion). If SSA is the least-cost source for a
particular product, then the developed country and the world as a whole will necessarily
S It is, of course, also required that the rnarket equilibrium be stable.
7



gain from granting preferential access. If it is not, then the developed country and the
world could lose from a preferential arrangement.
How important the gains and losses are for different countries is ultimately an empirical
question, and to address this question, we will use a multi-country Computable General
Equilibrium (CGE) model. But the smallness of SSA - it accounts for a less than I
percent share of QUAD imports - suggests that any impact of preferential access on the
welfare of other countries and the world is unlikely.to be large.
3.    The pattern of Sub-Saharan Africa exports
In 1995, SSA exported 31.5 billion dollars worth of merchandise other than oil. About
two-thirds of exports went to the European Union, around 7 percent to the United States
and a fifth to other developing countries (ROW in Figure 2 below). Canada, Japan and
other developed countries together accounted for only 6 percent of SSA exports (4
percent for Japan, 1 for Canada and 1 for the rest of the OECD). Thus, almost 80 percent
of SSA exports were concentrated in the QUAD.
Oil exports accounted for around 43 percent of SSA's total merchandise exports
(explained by Nigeria's presence in the SSA aggregate). Nearly half of the oil was
exported to the United States and about a third to the European Union. However, since
oil is subject to hardly any protection in the QUAD countries, its presence has little
impact on our simulations (see Table 2).
8



FIGURE 2: GEOGRAPHIC PATTERN OF SSA NON-OIL EXPORTS'
United States
ROW          7%
Rest oif OECD
4%
Canada]
1%
-- -   ~ European Union
67%
aFigures exclude service exports
Source: Version 4 of GTAP database.
As can be seen from Figure 3, agricultural products dominate SSA exports with a value
of around 8 billion dollars - accounting for 42 percent of non-oil exports. Within
agriculture, the main export products from the region are crops, consisting mostly of
cocoa, tea, coffee and spice exports to the EU, worth almost 4 billion dollars. Mineral and
mineral products (mostly non-metal) are also significant, and the bulk again go to the EU
(see Table 3). Food products, mainly consisting of fish preparations, constitute important
exports to the European Union and Japan. In the light of the US proposal offering
unrestricted access for exports of apparel, note that textiles and clothing represent only
about 3 percent of SSA's non-oil exports, suggesting that the gains for SSA from the US
initiative would not be large - unless of course the levels of protection in the US were
particularly high.
9



FIGURE 3: PRODUCT COMPOSITION OF SSA NON-OIL EXPORTSA
Manufacture n.e.c.
8%
Wood products
5%
Textiles and clothing
3%               11 Agriculture
42%
Minerals and metal
prod.
26%
Forestry    Food Products
5%           11%
aFigures exclude service exports.
Source: Version 4 of GTAP database.
The pattern of protection that SSA  exports currently face is shown in Table 2 - the
construction of which is described in the next section. A large number of products from
SSA already enter the QUAD duty-free, either because the MFN tariff is zero or as a
result of existing preferential schemes.6  These schemes vary in the advantage that they
confer on poor countries (Figure 4).7
6 There are in fact a large number of tariff lines for which MFN or preferential tariffs are zero - a fact that
is hidden by the level of aggregation in Table 2.
7 Note that these average preferences are tariff-weighted, which gives a larger weight to preferences where
MFN tariffs are higher. The simple average preferences are 53 percent in Canada, 69 in the European
Union, 57 percent in Japan and 54 percent in the United States. The smaller magnitude of tariff-weighted
preferences illustrates the fact that products with high MFN tariffs tend to have low LDC preferences.
10



FIGURE 4: AVERAGE LDC PREFERENCE IN QUAD
50 
45-
Z   40-
35-
o30-
25-
20-
1 15
I 10
5
0   Canada        European Union        Japan          United States
Source: WTO, GTAP, authors' calculations
Canada appears on average to give a preference of more than 40 percent on its existing
MFN tariffs while Japan grants a preference around 25 percent. The EU's average
preference margin of close to 37 percent includes the preferences under the Lome
convention (the greater of the LDC and Lome preferences applies).8
A number of products in the QUAD have both high MFN tariffs and limited preference
margins, as can be seen from Table 2, and offer significant room for improvement of
market access for SSA. The EU has the largest number of such categories, which include
cereals, livestock, meat and dairy products, plant based fibers, and sugar-related sectors.
For cereals,9 SSA faces an average import-weighted tariff of 50 percent tariff (including
LDC and Lome preferences), with the highest nominal tariff, 174 percent, imposed on
oats (HS classification 100400). For livestock, meat and dairy products, SSA faces an
8 For an excellent discussion of the relative importance of Lome preferences see Kennan and Stevens
(1997).
9 At the 6-digit level of the HS classification, this category includes rye, barley, oats, mnaize, grain sorghum,
buckmeat, millet, and canary seed. SSA exports are mostly of rye, barley and oats (80 percent).
11



average import-weighted tariff of 50 percent in the EU, with the highest nominal tariff,
114 percent, applied to bovine meat (HS classification 02629).10
The US applies high tariffs to the tobacco and sugar-related sectors, and to wearing
apparel. For wearing apparel, the average import-weighted MFN tariff is 11.6 per cent,
and the LDC preferences (which apply to most of SSA) bring it down marginally to 11.4
per cent. Japan imposes high tariffs on cereals and the livestock, meat and dairy products
category. The most striking case is of cereals on which the average MFN tariff is 471
percent.11 The extent of LDC preference in cereals is rather limited (25 percent), which
implies that the tariff faced by SSA exporters is on average 390 percent. Livestock, meat
and dairy products are subject to an average MFN rate of 71 percent and an average LDC
rate of 62 percent. Canada has high tariffs on wearing apparel with the average MFN rate
of 18 per cent and the average LDC rate of 16.3 per cent.
It is evident from Table 3, that it is precisely when MFN tariffs are high that the
preferences granted by the QUAD through various schemes is low. Furthermore, this
descriptive analysis has shown that any meaningful market access initiative for SSA
would need to include agriculture and food products. These represent more than 50
percent of SSA ne,l-oil exports and are also the most highly protected in QUAD
markets.12
4.    A multi-country CGE model
The GTAP model (Hertel, 1997) is widely used for trade policy analysis. It is a standard
global applied general equilibrium model that assumes perfectly competitive markets and
constant returns to scale technology. The model has a sophisticated representation of
consumer demands via a constant difference of elasticities (CDE) functional form and a
° Note that even though there is an LDC (plus ACP) average preference of 18 percent for the category of
livestock, meat and dairy products, no preference is granted for bovine meat (HS classification 02629).
" As discussed in the next section these are import-weighted tariffs that include tariff equivalents of non-
tariff measures.
12



supply side that emphasizes the role of inter-sectoral factor mobility in the determination
of sectoral output. Product differentiation between imports and domestic goods, and
imports by region of origin allows for two-way trade in each product category, depending
on the ease of substitution between products from different regions.
At the macroeconomic level, each region's final demand is governed by a representative,
regional household which allocates regional income across private consumption,
government expenditure and savings according to a Cobb Douglas utility function. Land,
labor, capital and the natural resources in a region are unchanged and fully employed.
The returns to these factor inputs accrue to the households in the region in which they are
employed. Global savings must equal global investment, which is allocated across
regions in order to equate expected rates of return. The price of the global investment
good is chosen as the numeraire.
The GTAP model is solved in order to determine the endogenous changes in output and
trade flows as a result of the proposed trade policy changes. The model maintains all of
the restrictions imposed by economic theory: changes in consumer demand add up to
changes in total spending; each region's total exports equal total imports of these goods
by other regions, less shipping costs; each region's income is determined by spending on
its output and tax revenues.
We apply the model to an aggregated version of Version 4 GTAP data base (McDougall
et al., 1998). It combines detailed bilateral trade, transportation and protection data
accounting for inter-regional linkages among economies and input-output data bases
accounting for inter-sectoral linkages within countries. The regional aggregation features
the QUAD regions: the European Union, the United States, Canada, and Japan, Sub-
Saharan Africa (excluding Southern African Customs Union (SACU) countries and Rest
of Southern Africa; see footnote to Table 1), an aggregate region representing all other
12 See OECD (1997) and Hoekman, Ng and Olarreaga (2000) for detailed descriptions of the extent and
structure of tariff preferences to developing countries in the QUAD.
13



developed economies and a region of all developing countries except the poorest Sub-
Saharan African countries. The sectoral aggregation is shown in Table 2.
The import tariffs in GTAP are averages of MFN applied tariff rates obtained at the tariff
line level and aggregated up to the GTAP concordance using trade-weights. In the case of'
agricultural products, where non-tariff barriers have played a very important role, the
distortions, particularly in the grains, livestock, and dairy product areas for the OECD
countries, were characterized using work by Tsigas (1998). For non-OECD countries,
indirect estimates of protection (including through non-tariff barriers) were derived using
OECD data and protection information from the GTAP version 3 data base. The version
4 GTAP data base is designed to capture some of these large distortions in agricultural
trade.
Table 2 provides "MFN" import weighted tariffs of version 4 of GTAP for each of the
QUAD countries, as well as the LDC tariffs offered by QUAD countries. LDC tariffs
(including Lome preferences in the case of the EU) have been calculated as follows.
First, we filtered the MFN and LDC tariff data communicated by each of the QUAI)
members to the Integrated Data Base of the WTO and the Trade Policy Review (in the
case of the EU) in 1999 to transform it from the 6-digit Harmonized System to the 15
categories of our GTAP aggregation (we exclude services as they are not included in the
preferential access initiatives). Then a preference margin was calculated for these 15
categories. The preference margin calculated from WTO tariff data was then applied to
the GTAP import-weighted "MEN" tariffs in order to obtain the LDC tariff rates reported
in Table 2.13
Even though not all the SSA countries in our sample are LDC countries, they were all
treated as beneficiaries of LDCs preferential regimes in our simulations.14 The non-LDC
countries are Cote d'Ivoire, Cameroon, Gabon, Ghana, Kenya, Nigeria, Senegal and
Seychelles - of which only Gabon, Nigeria and Seychelles are not HIPC countries. In the
13 Note that the preferential margin obtained from the WTO was calculated using simnple averages whereas
MFN tariffs in GTAP are import weighted tariffs.
14



case of the EU, we assume that all the SSA countries in our sample benefit not only from
LDC preferences, but also ACP preferences. This has the effect of understating the gains
that would arise from removing all barriers in our simulations.
5.    Implications of alternative initiatives
As noted above, we examine each scenarios, based respectively on duty and quota-free
access for SSA exports of:
a) apparel to the US;
b) all products to the US (widest interpretation of the Africa Growth and Opportunity
Act);
c) industrial products to Japan;
d) all products except arms to the EU (latest proposal by the European Commission);
e) all products to the US, EU, Canada and Japan, i.e. the QUAD.
In each case, we look at the impact on exports and welfare of SSA, as well as other
regions, and the impact on tariff revenue in the preference-granting countries. Recalling
the discussion in Section 2, we would expect the initiatives to result in an increase in
exports and welfare of SSA. Other developing country exports are likely to suffer from
the decline in prices in developed country markets. The impact on developed country
welfare depends on the relative magnitudes of the increase in consumer surplus and the
decline in tariff revenue. It is, however, important to keep in mind that general
equilibrium models capture more sophisticated interactions than those described in the
simple partial equilibrium framework of section 2.
In all simulations, tariffs (or tariff equivalents) on services and oil exports are kept
constant. The different initiatives do not include services exports. Furthermore, by
14 Table 1 lists the countries classified as LDC, HIPC and those in our SSA set.
15



freezing tariffs on oil, we are controlling for the presence of Nigeria in our Sub-Saharan
African aggregate. In any case, tariffs on both oil and services are very low in the
QUAD, and so imposing this condition has little impact on the results.
The main results are displayed in Tables 4, 5, 6. The gains to SSA from unrestricted
access to the US market for apparel are small: $33.7 million or a 0.2% increase in non-
oil export revenue.15 This result reflects the fact that exports of apparel from SSA account
for a small share of African exports (less than 3 percent), and even significant increases
do not make a big difference to aggregate exports. The apparel sector is likely to expand,
with the share of real value added generated in the sector increasing by a little over 3 per
cent. The reallocation of resources into apparel (and textiles) is likely to cause a small
contraction in a range of other sectors (Table 7). The welfare gains to SSA are also
small, around $24 million (0.02 percent).16  The loss in tariff revenue for the US is
negligible - $14m or 0.06% of total tariff revenue.
Even if the US were .o grant duty-free access to all SSA products - the most generous
interpretation of the Trade and Development Act - the impact on export revenue and
welfare of SSA remains small. The gains are only about twice the gains arising from free
access for apparel. in terms of sectoral value added, the expansion is still mostly in the
apparel sector, with a small increase in the value added also in the sugar-related sectors.
The result is not surprising given that these are really the only sectors where SSA faces
significant barriers in the US market.
15 We also evaluate the extent to which our results might change if we add Mauritius and the other six
Southern African countries to the thirty seven Sub-Saharan African countries as potential beneficiaries of
unrestricted market access for their exports of apparel to the US. Welfare and non-oil export revenues of
SSA increase by $112 m. (0.06%) and $192 m. (0.6%), respectively, compared to the estimates in Tables 4
and 5. Note that the above changes in welfare and export revenue remain relatively modest. Moreover,
these are upper bound estimates given that we assume that Mauritius exporters will not be facing any type
of rules of origin.
16 These welfare gains come not only from increased producers' surplus (as shown in Figure 1), but from
the induced reallocation of resources within distorted economies, e.g. from the protected importable sector
to the exportable sector. Fukase and Martin (2000) show that these effects can explain as much as a third
of the gains in a country like Vietnam.
16



Japan's recent proposal to allow free access to its markets for industrial products from
least developed countries would produce even smaller gains for SSA. The Japanese
industrial market is already quite open and further improvements in access are unlikely to
prompt a surge in exports from SSA. Some expansion in sectoral value added is,
nevertheless, likely to be witnessed in the two categories where Japan does protect, sugar
and other food products. Japan would suffer a trivial loss in tariff revenue.
The proposed liberalization of access to the EU market could, however, lead to much
larger gains: an increase of around $513 million (2.8 per cent of non-oil exports) in
export revenue and $317 million (0.2 percent) in welfare, six times larger than the gains
from free access to the US market. The largest expansion is witnessed by the plant-based
fibers, livestock, meat and dairy products sectors, followed by the sugar-related sectors.
The expansion in these sectors leads to a decline in real value added in a number of other
sectors, including apparel, certain crops and leather products. The loss of EU tariff
revenue is around $777m (2 percent).
The most substantial gains for SSA would arise, not unexpectedly, from the liberalization
of the QUAD markets: a $2.5 billion or 13.9 percent increase in non-oil export revenue (7
percent increase in total export revenue from  goods and services).17 The associated
increase in welfare is close to $1.8 billion (1.2 percent). Somewhat unexpected is that
the source of the increase is primarily an expansion of agricultural exports to Japan by
close to $5b, in fact, at the expense of exports to some other markets, such as those of the
European Union and other developing countries.'8 Japan loses $7b or 22 per cent of its
tariff revenue.
Interestingly, if the entire QUAD offers preferential access, the relative importance of the
industrial sector in SSA actually declines, as resources are drawn into the agricultural
sectors. There is, however, diversification within agriculture. The biggest expansion in
17 The percentage increase is comparable with that obtained by Hoekman, Ng and Olarreaga (2000). They
use a partial equilibrium model to estimate the value of duty free access for least developed countries on
products where they currently face tariffs above 15 percent. SSA accounts for about half of the total
exports of all least developed countries.
17



value added in SSA comes in cereals grains, on which Japan currently imposes high
tariffs for SSA, and even higher tariffs for the rest of the world. There is also an
expansion in value added in categories of plant-based fibers and livestock, meat and dairy
products.
What about the impact on the rest of the world? The impact on developing countries,
who might fear the consequences of trade diversion, is surprisingly small, because SSA
exports are not large enough to have a significant impact on prices in export markets (see
discussion in Section 2). As can be seen from Figure 5, even in the QUAD liberalization
scenario, the loss in export revenue for other developing countries is only around 650
million dollars or less than 0.04 percent of their initial exports. In all five scenarios, the
gains for SSA in termns of export revenue outweigh the losses for other developing
countries.
FIGURE 5: EXPORT REVENUE CHANGES IN SSA AND OTHER DEVELOPING COUNTRIES
3000
2500-
2000-
,   1500-
.2  1000-
500-
0-
-500- 
-1000-/IX. ,:}  lli    |
US-apparel     US-AJI     JPN-mnfcs      EU-AIl      QUAD-ALL
|0 SSA * Other developing countries
Source: GTAP, authors' calculations.
18 The relative imnportance of Japan is consistent with recent results obtained by Bradford (2000).
18



The preference-granting country typically suffers a decline in welfare, because the main
impact of increased in SSA exports is not on consumer welfare but on tariff revenue as
imports from tariff-paying sources are displaced. The US and the EU would lose small
amounts from such trade diversion. Losses in Japan from liberalization of access for all
products are larger, around $5 billion, but have little impact on national welfare (around
0.1 percent).19
In all cases, world welfare is lowered by the granting of preferential access - largely
because of the loss in tariff revenue. While this may suggest that preferential access is
not a particularly efficient mechanism to assist SSA, there are two important
considerations. First, the welfare gains accrue to the poorest countries, whereas the
welfare losses are concentrated in the rich countries, and are small in relative terms: even
full liberalization in the QUAD would lead to a less than 0.01 percent decline in the
QUAD's welfare. Secondly, it is not certain that alternative means of assistance, e.g.
through direct transfers, would materialize and that their impact on SSA would be
preferable to that of improved market access.
To put the gains in SSA in perspective, we find that if total factor productivity in SSA
could be increased by 1.5 per cent, gains in welfare would be comparable to the gains
from completely unrestricted access to the QUAD market. This, of course, raises the
question of how such increases in productivity might be accomplished.
'9 Since econometric evidence on the Armington elasticities of substitution is weak and results could be
sensitive to their values (Gehlhar, 1994), we conducted a systematic sensitivity analysis (Arndt, 1996) with
respect to the Armington parameters in GTAP - O-D and CM e CD specifies the elasticity of substitution
between aggregate imports of commodity i and domestically produced i. We assume that CYD has a
uniform distribution in the interval [x/2,2x], where x is its value in the GTAP database. aM governs the
substitutability between imports of commodity i from different regions. We assume that aM = 20D as in
GTAP (Zeitsch, et aL, 1991). The systematic sensitivity analysis suggests that the welfare results for all
regions other than Sub-Saharan Africa are not very sensitive to the Armington elasticities. However, some
results for SSA could vary substantially. Using Chebyshev's inequality and the standard deviation from the
systematic sensitivity analysis, we can be 75% sure that the welfare change (%) for SSA lies in the interval
[0,3].
19



Apart from assisting SSA, generating enthusiasm for a new round is one motive for the
recent initiatives. Would SSA, having obtained preferential access to the QUAD market,
gain from further global liberalization? We examine the impact on SSA of a 25 percent
cut in the non-preferential levels of protection in all countries. As shown in Table 8,
exports to Japan decline significantly, due to the erosion of the (hypothetical) preferential
access to the Japanese market. But the impact on total exports of SSA to the world is
insignificant (a 0.2 percent decline), largely due to a diversion of exports to other
markets, and improved access to other developing country markets - to which exports
would increase by 10 percent. In the aggregate, SSA would suffer a loss in welfare of
about $525 million, due to the deterioration of SSA's terms-of-trade - reflecting a shift of
exports from the high-priced Japanese market to other relatively low-priced markets.
This implies that the assumed future global liberalization could reduce by 30 percent the
20
welfare gains SSA obtains from (hypothetical) unrestricted access to the QUAD.
6.     Concluding remarks
Unrestricted access for all products to the entire QUAD market would produce significant
benefits for SSA - a $2.5 billion (14 percent) increase in non-oil exports and a $1.8
billion (1.2 percent) increase in welfare. Most of the gains would come from preferential
access to the highly protected Japanese and European markets for agricultural products.
In contrast, some of the less ambitious initiatives that have been announced would have
hardly any effect. For instance, the elimination of barriers only in the United States
market or only on industrial products in the Japanese market would not result in any
meaningful gains for SSA.
Even if SSA is granted fully unrestricted access to the QUAD market, the cost for other
developing countries is small because SSA exports are not large enough to have a
20 In all experiments we assume that subsidies in QUAD markets remain unchanged. Given the high level
of subsidies on some agricultural commodities in the European Union and Japan, we conducted an
additional experiment in which we removed all agricultural subsidies (export and producer) in the QUAD
subsequent to granting preferential access to SSA. We find that this might generate additional benefits of
around $412 million for the SSA region due to an increase in the prices of cereal grains and livestock for
which the region is a net exporter.
20



significant impact on prices in export markets. The preference-granting countries would
generally suffer a decline in welfare, because the loss in tariff revenue outweighs any
gain in consumers' surplus, but this decline is of negligible magnitude.
There are important caveats to our analysis, most of which suggest that the gains to SSA
from preferential access may be smaller than we have estimated. First, we have almost
certainly exaggerated the generosity of the announced initiatives. Duty-free access may
have limited effects if accompanied by restrictive rules of origin, as in the recent US-
African-Caribbean trade bill. For instance, exporters of apparel from Africa and the
Caribbean are required, though in some cases only after a certain period of time, to use
yarn and fabric imported from the US to be able to benefit from duty free access to the
US market. This requirement may have a significant cost-increasing impact, particularly
if enforced through cumbersome administrative procedures. The imposition of other
conditions on access, such as those related to labour or environmental standards, could
also erode the benefits of preferential access.
There is another reason why the gains for SSA may be smaller. The announced
initiatives have not targeted SSA per se: not all of SSA will benefit, and not only SSA
will benefit.2' Some of the gains from preferential access for countries outside the region
will be at the expense of SSA. For instance, a country like Bangladesh may be better
equipped to take advantage of improved access to the EU in certain areas than SSA. The
fact that a wider group of countries than SSA benefit from preferential access also
implies that we may have understated the impact on developing countries which are
excluded from all initiatives.
The model has also abstracted from two sorts of difficulties. First, it assumed perfect
factor mobility between sectors. In reality, difficulties in reallocating resources, for
instance from mineral to meat production, may well damnpen the short run supply
response to new opportunities. Secondly, increased exports, especially to new and distant
21



markets like Japan, require access to efficient transport and distribution networks, both of
which are areas in which SSA faces significant impediments.
Finally, our analysis has ignored important dynamic considerations. One aspect of this is
the neglect of investment, especially foreign direct investment, which may well be
encouraged by the different initiatives - provided, of course, other conditions such as
political stability are satisfied. The other aspect we have ignored is the possibility of
changing dynamic comparative advantage. Preferential access may provide SSA with the
time needed to learn-by-doing and become competitive in new areas. In contrast with the
traditional infant industry protection which encouraged protection for the domestic
market, the current initiatives have the virtue of encouraging production for the export
market, and this may be more conducive to learning and spillovers of knowledge.
Furthermore, since protection is granted, not by a pliable domestic government, but by
foreign governments, domestic industry is likely to be confronted by a credible
liberalization deadline. There may be merit in this argument, but there is also a
downside. SSA countries may be lured by current preferences to specialize in products in
which they do not have a global comparative advantage. As MFN tariffs decline over
time (perhaps unpredictably) and preference margins are eroded, these countries could
suffer significant adjustment costs, and be even worse off because they have foregone
opportunities to learn-by-doing in areas where they do have a comparative advantage.
21 Thus, the EU initiative includes only LDCs from SSA and also LDCs from outside the region. The US
initiative includes, in principle, all African countries but only some may fulfil the necessary conditions -
for instance Gabon and Seychelles in SSA have incomes higher than the specified threshold.
22



References
Arndt, C. (1996), "An Introduction to Systematic Sensitivity Analysis via Gaussian
Quadrature," GTAP Technical Paper No. 2, Center for Global Trade Analysis, Purdue
University, (www.agecon.purdue.edu/gtap)
Bradford, Scott (2000), "Paying the price: the welfare effect of protection in OECD
countries", miimeo, Brighon Young University.
Fukase, E. and Martin, W. (2000), "The Effects of the United States Granting MFN
Status to Vietnam", Weltwirtschaftliches Archiv, 136, 539-59.
Gehlhar, M. and T. Hertel, and W. Martin (1994), "Economic Growth and the Changing
Structure of Trade in the Pacific Rim," American Journal of Agricultural Economics,
76(5): 1101-1110.
Hertel, T.W. (1997). Global Trade Analysis: Modeling and Applications, Cambridge
University Press.
Hoekman, Bernard, Francis Ng and Marcelo Olarreaga (2000), "Tariff peaks in the
QUAD and developing countries' exports", mimeo, The World Bank.
Kennan, Jane and Christopher Stevens (1997), "From Lome to the GSP: implications for
the ACP of losing Lome trade preferences", IDS, University of Sussex.
McDougall, R.A., A. Elbehri, and T.P. Truong (1998), Global Trade Assistance and
Protection: The GTAP 4 Data Base, Center for Global Trade Analysis, Purdue
University.
OECD (1997), Market Access for Least-Developed countries, (WTO document
WT/LDC/HL:19).
23



Tsigas, M.E. (1998) "Agricultural Protection in OECD countries," Chapter 13.2, in;
Hertel, T. W. (editor), Global Trade Analysis: Modeling and Applications, Cambridge
University Press.
Zeitsch, J., R. McDougall, P. Jomini, A. Welsh, J. Hambley, S. Brown, and J. Kelly
(1991), "SALTER: A General Equilibrium Model of the World Economy", SALTER
Working Paper No. 4, January.
24



Table 1: Countries included in different groups
LDC              |            HIPC                           SSAa
Afghanistan, Angola,          Angola, Burundi, Benin,        Benin, Burundi, Burkina
Benin, Burundi, Burkina       Burkina Faso, Bolivia,         Faso, Central Africa,
Faso, Bangladesh,             Central Africa, Chad,          Cote d'Ivoire, Cameroon,
Bhutan, Central Africa,       Cote d'Ivoire, Cameroon,       Chad, Congo, Comoros,
Chad, Congo, Comoros,         Congo, Ethiopia, Ghana,        Cape Verde, Djibouti,
Cape Verde, Djibouti,         Guinea, Guinea Bissau,         Eritrea, Ethiopia, Gabon,
Eritrea, Ethiopia,            Guyana, Honduras,              Ghana, Guinea, Gambia,
Guinea, Gambia, Guinea        Kenya, Lao People's            Guinea Bissau,
Bissau, Equatorial            Democratic Republic,           Equatorial Guinea,
Guinea, Haiti,                Liberia, Madagascar,           Kenya, Liberia,
Cambodia, Kiribati, Lao       Mali, Myanmar,                 Madagascar, Mali,
People's Democratic           Mozambique,                    Mauritania, Niger,
Republic, Liberia,            Mauritania, Malawi,            Nigeria, Rwanda, Sudan,
Madagascar, Maldives,         Niger, Nicaragua,              Senegal, Sierra Leone,
Mali, Myanmar,                Rwanda, Sudan, Senegal,        Somalia, Sao Tome and
Mozambique,                   Sierra Leone, Somalia,         Principe, Seychelles,
Mauritania, Malawi,           Sao Tome and Principe,         Togo, Uganda, Zaire
Niger, Nepal, Rwanda,         Togo, Tanzania, Uganda,
Sudan, Solomon Islands,       Vietnam, Yemen, Zaire,
Sierra Leone, Somalia,        Zambia
Sao Tome and Principe,
Togo, Tuvalu, Tanzania,
Uganda, Vanuatu,
Yemen, Zaire, Zambia
aThe SSA aggregation we use does not include the Southern African Customs Union (Botswana, Lesotho,
Narnibia, South Africa and Swaziland). The reason for their exclusion is that these countries are neither
LDC nor HIPC. The average GDP per capita for the region is around 3400 dollars (the exception being
Lesotho with a GDP per capita of 500 dollars). We also exclude for data reasons the following Sub-Saharan
African countries from the SSA aggregation: Angola, Malawi, Mauritius, Mozambique, Tanzania, Zambia
and Zimbabwe. The reason for this is that these countries are part of a single aggregated region in the
GTAP data base and we cannot disentangle Mauritius, which is neither an LDC nor HIPC and which has a
GDP per capita above 3500 dollars. Mauritius might benefit from a U.S. initiative, but because its GDP per
capita is above $1000 its exporters would have to face very restrictive rules of origin. Furthermore, because
Mauritius is neither an LDC nor a HIPC, it will not be included in the "Everything but Arms" European
proposal, the recent Japanese and Canadian initiatives, or the expected G-8 proposal. Mauritius represents
around 20 percent of aggregate exports of this group of countries and more than 40 percent of these
countries' exports of apparel to the world, which would have significantly biased our results in apparel.
25



Table 2: MFN and Preferential LDC import-weighted tariffs in QUAD
Canada           European Union             Japan        [ United States
GTAP commodity classification     JMFN           LDC        MFN        LDC  jMFN[  LDC   LMFN   ILDC1
~~~~~~~~M_____                              -
Cereals                               0.14       0.14       53.93      50.43    471.38      390.09     0.60      0.00
Vegetables, fruit and nuts            0.24        0.09       5.55      1.01       5.85       4.72       1.35     0.04
Plant-based fibers                     3.19       3.19      50.0       50.00     42.00       0.00      0.08      0.08
Other crops                           0.10        0.01       1.55      0.03       0.77       0.44       3.46     2.69
Livestock, meat and dairy products.   10.78       5.68      61.27      50.31     71.36      61.80       6.57     1.33
Forestry-Wood products-paper          0.47       0.00        2.03      0.00       0.60       0.03      0.53      0.00
Fishing                               0.00       0.00       4.95       0.00       4.44       4.09      0.27      0.00
Oil-Gas-Petroleum                     6.58       0.00        0.13      0.00       0.79       0.43      0.62      0.00
Mineral products                      0.70       0.04        0.89      0.00       0.20       0.0        2.39     0.25
Beverage-tobacco-sugar                7.10        3.22      54.98      14.13     40.86      28.37      30.02     28.02
Other Food products                   4.07       2.05        6.86      2.09       6.61       4.88       1.75     0.24
Textiles                              5.58       3.80       4.96       0.00       3.27       0.38      7.33      7.14
Apparel                               17.99      16.31      10.23      0.00       6.81       0.00      11.64     11.41
Leather                               11.97      4.42        5.11      0.0        9.59       2.03      8.01      4.84
Other manufacturing                    1.08       0.10       3.60      0.00       1.02       0.04       1.94     0.11
,Services                              0.00       0.00       0.02      0.02       3.21       3.21       0.00      0.00
Source: GTAP version 4 and authors calculations. Tariffs are weighted by total imports in
each country.
Table 3: Profile of Sub-Saharan Africa's Exports, 1995
United IEuropean  ICanada               Japan     Other OECD        Other
States j Union                     11Countries    Developing
-                         i             L ~~~~~~~~~~~Countries
Cereals                                                  01.                                       0322.
Vegetables, fruit and nuts                              5.5        478.2            0.4           3.4         10.1            95
- .~~~ - - - - - . - . ...~~------- .----- .- - -- -..........---        .- --                    -    10           6 8
Plant-based fibers                                      0.1        295.7            5.2         246 66,                    66.
Other crops                                           347.5       3651.1          40.8          124.7          77.6        694.4
Livestock, meat and dairy products                       5            55           0.2            2.9           0.5        136.2
Forestry-Wood products-paper                           2.           38417                        771.                       7.
Fishing                                                 6.6         216.1          0.5           61.7           8.3         80.4
Oil-Gas-Petroleum                                    6224.3       4278.3         420.8         164.2           193 --     2231.4
Mineral products                                      430.8       3107.8            49          23.5           21.1        425.5
Beverage-tobacco-sugar                                 138          107.3           0.2           0.13.7
Other Food products                                    49.1       13.107233.8                                 132          162 8
Textiles                                               11.9          98.9           1.1           0.2           0.6         40.1
Apparel                                                51.5          143            2.5           0.6           0.7          3.2
Leather                                                 6.9        241.1            0.9          0.9            0.7         30.6
Other manufacturing                                   315.2        1306.4          40.9          95.1         33.5         437.7
Services                                              604.8        1913.4          29.31       844.5         149.6        1802.4
Total                                               8101.8       18722.7         604.1        1687.7         540.7        7212.3
Source: GTAP ver 4, authors calculations.~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~............
26



Table 4: Welfare Changes (Million $ and percentages)
US         US   Japan   EU    Quad
Apparel    All   Industrl    All              All
Products Products Products Products
United States                    -10.19      -21.85     -1.75     -23.33    -235.78
... .....  . .... .   ...00%...    ..               . ------ ----_t_o___Oo%1._.__......   .
European Union                    -4.53      -15.25     -3.93     -278.22    -580.53
.L-- -9 --     L-°---%1 J-..oo..     [-0.00%..]   Lo.O 
Canada                            0.52       0.55       -0.09      7.02       33.72
.. . . ....   ..              .   ................. ........................... . .......... ...L...   L° .-°  ° .....  °  L° °°21 _0° L
Japan                             -0.54       0.33      -5.58      2.72      -5233.18
--- ---L- --90%]   L-0---iL. L°.1Q&Q4I   L-o. 12%1
Other OECD                        0.50       -0.79      -0.47      7.15       35.98
........... .. . .          ._  L°°°L I-.0L9Ž°Y. _L-° 00.i9L°              J9_    L
Other Developing countries       -11.18      -16.01     -2.80     -95.52     293.62
............±9.2.................. ...........                   .l _l- .°.....----L-.°. °-1° °° 2 L
Sub-Saharan Africa                23.57      49.17      14.74     316.57    1786.36
_  [0.02%]1  [0.03%]1  [0.01%]   [0.22%]   [1.22%]
Total                             -1.84      -11.3      0.12      -63.62    -3489.14
[-0.0% [°/    -0.00%]   [0.00%]   [-0.00%]   [-0.01%]
Source: Simulations with GTAP
Table 5: Change in Exports of SSA to Different Markets
US         US   Japan   EU   QUAD
Apparel       All    Industrl    All            All
Products Products Products Products
Million $ Million $ MHllion $ Million $ Million $
Un ited States                 74.3        164.6      -4.5      -102.1    -350.0
Euro ean Union        _        -26.7      -65.1       -18.8      914.7    -1118.4
Canada                         -0.6        -1.3       -0.4       -9.4       -36.0
Ja9pan            .              _ _       . .. ............   _.-2.5  -5.8  52.7  -46.1  5020.1
Other OECD                     -0.7        -1.6       -0.5       -13.3      -58.8
Other Developing (ROW)         -9.9        -23.4      -6.9      -224.8    -887.6
Totala                         33.7        66.8       21.5       513.4     2542.9
[0.2%]     [0.4%I      [0.1%]    12.8%]    [13.9%]
'Figures in parenthesis changes are expressed in terms of percentage of SSA non-oil exports.
Source: Simulations with GTAP
27



Table 6: Impact on Tariff Revenue in Different Countries (% changes)
us           us    Japan   EU    Quad
Apparel         All      Industrl    All           All
±        ~~Products  Products Products Products
United State.s                   -0.06        -018      __0.19         0.01       -0.17
European Union..                  0.00         0.01        0.00        -1.78      -1.33
Canada                            0.00         0.00        0,00        0.02       -0.06
kpan                    ~~~~         ~~~~~0.0  0.00  -0.04    0.)O       -21.92
Other Develgped Countries         0.00         0.00        -0.00      -0.03       0.01
Other Devloi§onris                0.00         0.00        -0.00      -0.02_    0.00
Sub-Saharan Africa                0.16         0.26        0.08        1.27        6.79
iTotal                            0.00    I -0.01          -0.00       -0.18      -2.73
Source: Simulations with GTAP
Table 7: Sectoral Composition of the Sub-Saharan Economy: change in
the_share_of real_value-added    _______   ______
Ius           us    Japan   EU  fQUAD
Apparel       All    Industrl    All   I All
~1PodctProdut ProducsProducts Products
Cereals                                                -0.01       -0.02       0.01       0.47       28.52
Vegetables, fruit and nuts                             -0.02       -0.04       0.03        -0. 1      -1.75
Plant-based fibers                                     -0.05      -0.16       -0.04      23.49       12.17
Other crops          _ _ _ _ _       _ _ _ __          -0.07    __ _ 01       -. 4       -1.86 -       -9.8
Livestock, meat and dairy products                -    ~ 0         -0.01          0.      2.52         1.45
Forestry-Wood products-paper                           -0.07       -0.16          0      -1.28        -6.48
Fishing                                                -0.02       -0.05      -0.01      -0.32        -1.46
Oil-Gas-Petroleu                   __0.5                           -09        -0.03        -0.6       -3.04
Mineral products                                       -0.12       -0.21      -0.08      -2.02       .-9.54
Beverage-tobacco-sugar                                 -0.01         0.3       0.02       0.59        *1.64
Other Food products                                    -0.07      -0.16        0.74       0.46        *4.69
Textiles                                                0.19       0.21       -0.02        -0.7       -2.87
Apparel               __3.5                                          3.4      -0.05        -1.3      *-3.08
Leather                                                -16         0.3         -0. 1     -3.12      -13.41
Other manufacturing                                    -0.07       -0.16      -0.05      -1.44        -6.98
Services  ___0                                                     -0.01      -0.01      -0.28         -1.3
Souce:Simlatons with GTAP.
28



Table 8: Changes associated with a 25% cut in MNF Tariffs (post duty
free access to QUAD for SSA)
I      Welfare in            SSA exports to:
(Million $)            (Million $)
United States                         13.3                  248.95
Eyroqpen Union                       2965.6  _           --- 899.19
Canada                               -170.1                  21.29
Ja,an                                9869.5                 -2027.7
Other developed countries            1117.0                   51.5 ____
Other developing countries          15121.5                  691.9
Sub-Saharan Africa                   -525.5
Total                               28364.5                  -76.4
________________________I[ 0.11% ]                         [-0.19% ]
Source: Simulations with GTAP
29






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Insurance in Morocco              Stephanie Gober                             33716
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