Preference utilisation and tariff reduction in EU imports from ACP countries

Despite the long relationship between the European Union and the African, Caribbean and Pacific (ACP) countries aimed at encouraging their exports while stimulating growth and investment, the ACP states still face difficulties in integrating into the world economy. This paper examines the non-least developed ACP countries preferential trade with the EU using data on EU member states' imports eligible for preferences under the Cotonou agreement for the period 2001 at the 8-digit level. Using data on tariffs and preferential quota applicable on each 8-digit product for the year 2001 ad-valorem tariff rates were calculated. The paper also investigates the existence of a threshold in the offered duty reduction under which traders have no incentives to ask for preferences since the costs of obtaining these exceeds their benefits. Our results showed that the higher the value of preferences offered, the higher the probability that preferences are requested. Using endogenous threshold estimation techniques we also provided evidence that there exists a minimum value of preferences needed for traders to request preferences. More specifically, if the difference between preferential and third country tariff rates are lower than 4 per cent, there are no incentives for traders to request preferences since the costs of obtaining the preferences are expected to be higher than the benefits from obtaining the preferences. Our results additionally indicate that country specificities also play an important role in the decision whether requesting preferences or not and how much to import. © 2006 The AuthorJournal compilation 2006 Blackwell Publishing Ltd.