Preferential Market Access Design: Evidence and Lessons from African Apparel Exports to the US and to the EU

With a quasi-identical preferential margin of 10%, the EU and the US offer apparently similar preferential market access for apparel exports to a group of African countries. Yet, effective market access under the two schemes has been very different due to implementation design because these agreements differ in their product-specific rules of origin (PSRO). While access to the EU market requires yarn to be woven into fabric and then made-up into apparel in the same country or in a country qualifying to satisfy origin requirements (double transformation), starting around 2001, the US Africa Growth Opportunity Act (AGOA) grants a “Special Regime” (AGOA-SR) to “lesser developed countries” allowing them the use of fabric from any origin and still meet the criteria for preferences (single transformation). We exploit this ‘quasi-experimental’ change in the design of preferences. Using several estimation methods, we estimate that the AGOA-SR contributed to an increase in export volume of about 42% for the top seven beneficiaries or approximately three times as much as the growth effect of the 10% preferential margin granted under AGOA. Design also mattered for diversity in apparel exports as the number of export varieties grew more rapidly under the AGOA-SR regime.