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OVERVIEW OF SELECTED MENA ECONOMIES 31


Multilateral trade liberalization as it is negotiated under the WTO can lead to the erosion of trade preferences for developing countries. The nego- tiated tariff cuts are applied to bound tariffs, which can result in rates that are higher or equal to most favored nation (MFN) applied tariffs, which are greater or equal to preferential tariffs. The difference between the MFN rate and the preferential tariff rates is the preferential margin enjoyed by countries benefiting from trade preferences, and they can vary greatly across countries. This variation in preferential margins across countries combines two effects: a composition effect, which reflects the variation in product spe- cialization and the geographic destination of exports, and a true preferential effect, which reflects on average the preferences from which the countries benefit (Bouët, Fontagné, and Jean 2006).


Decomposing preferential margins for the MENA countries shows that, overall, these countries have positive but modest true preferential margins, meaning that they benefit on average from preferential treatment. On the other hand, they all have negative composition effects, meaning that the countries concentrate on exports on which import tariffs are high globally. This means that for middle-income MENA countries, multilateral trade liber- alization is more likely to improve market access than to result in erosion of trade preferences.


These indicators computed for agriculture show a much more diverse situation. Half of the middle-income countries in MENA, Egypt, Jordan, and Lebanon, have a negative apparent margin in agriculture, meaning that they face on average higher tariffs than the world average, but the contribution to this margin is different across these countries. Egypt and Jordan have negative composition effects, meaning that they export agricultural prod- ucts that are highly protected globally or to countries that are protectors of agriculture. So for these countries global trade liberalization is expected to improve their market access; only in the case of Egypt, which has a positive true preferential margin, could trade liberalization also result in erosion of preferences. All the other countries have negative true preferential margins in agriculture. This is not surprising because agriculture has been left out of most regional agreements, so the countries do not benefit from preferences in agriculture. Morocco and Syria both have enjoyed positive composition effects, meaning that they already export goods on which import duties are low. For these countries, erosion of preferences may not be an issue and market access may not improve much as a result of trade liberalization in agriculture (Bouët 2006).


Increasingly, WTO member countries are forming groups and alliances within the WTO to increase their bargaining power in negotiations. The G20, a group of developing countries that became active at the WTO meeting in


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