The Tide That Does Not Raise All Boats: An Assesment of EU Preferential Trade Policies

The aim of this article is to assess the impact of the European Union's trade preferences on global trade, focusing on several methodological issues that are relevant to these preferences' trade-creating impact. Using highly disaggregated eight-digit data in a theoretically grounded gravity model framework, we define an explicit measure of preferential tariff margins computed on alternative definitions based on a comparison between bilateral applied tariffs and two different reference levels: the Most Favoured Nation duty and a Constant Elasticity of Substitution price aggregator. From a methodological point of view, we show that the assessment of these policies' impacts can be very sensitive to the definition of the preferential tariff margin. From a policy perspective, such preferential schemes have an actual impact on trade volumes, although with significant differences across sectors.