This is a joint posting with Kimberly Elliott and also appeared on the Huffington Post.
With one important reservation, we welcome last week’s EU proposal that the upcoming Pittsburgh G-20 Summit “should adopt the “Everything But Arms” (EBA) initiative without delay to support people in developing countries suffering from the crisis.” The EBA nominally provides 100 percent duty-free, quota-free market access for exports from least-developed countries, so suggesting that the rest of the G-20 replicate it is clearly in line with a Sept. 2 letter sent by members of the CGD Global Trade Preference Reform Working Group. The letter called upon:
“rich-country leaders meeting at the G-20 Summit in Pittsburgh to assist least-developed countries by providing 100 percent duty-free, quota free market access, with easy to use and generous rules, by the end of the year” (emphasis added)
But there is one important difference: the EU position paper does not mention rules of origin, an arcane but important set of rules that all too often render nominal market access meaningless in practice, because the rules are difficult for poor countries to meet.
President Obama and the other G-20 leaders should endorse the EU’s call to open their markets fully to the exports of the poorest countries in the world. The United States is close to providing 100 percent duty-free, quota-free access for many countries in Africa under the African Growth and Opportunity Act, but it maintains restrictions on potentially important agricultural exports and offers very little duty-free access to a dozen or more poor countries in Asia that are not eligible for AGOA.
But the G-20 leaders should also urge the EU to simplify rules of origin under the EBA. Indeed, if the United States were to replace AGOA with something modeled on the EBA, including the latter’s rule of origin for apparel, it would actually make things worse for some African exporters that have succeeded in exporting garments to the United States under AGOA, but not to the European Union under the EBA. This chart shows why (the focus in the chart shown is on woven garments, because they have the most restrictive rule under the EBA, and the period after 2001, when the two programs were implemented).
The reference to the EBA program in the EU position paper is important, because it reinforces the view in the CGD Working Group letter that there are no legitimate obstacles to the immediate and unequivocal implementation of duty-free, quota-free (DFQF) treatment for the poorest countries as a part of the response to the economic crisis. No one suggests DFQF treatment is a panacea for the problems that the least developed countries now face, but it certainly creates a foundation for international coordination between preference-giving countries that could lead to further and more effective policy change.
Finally, we find it interesting that just one day after we sent our letter to President Obama, Prime Minister Gordon Brown, and the other leaders of the G-20 countries, Prime Minister Brown, Chancellor Angela Merkel of Germany, and President Nicolas Sarkozy of France sent a letter to Swedish Prime Minister Fredrik Reinfeldt, the current President of the Council of the European Union, suggesting that the European Union take a position at the G-20 summit that “all G20 countries should adopt the ‘Everything but Arms’ Initiative as a sign of resolute action in favor of development.” Just a coincidence, or perhaps someone is listening?