The impact of LDC graduation on trade a quantitative assessment

Gianmarco CARIOLA

Twelve Least-Developed Countries (LDCs) will graduate from the LDC status in the coming decade implying that they will lose preferential access to export markets. We quantify the expected impact of LDC graduation on exports of graduating and non-graduating LDCs incorporating detailed preference utilization data in a partial equilibrium model. We compare the results under actual and full preference utilization rates. Separately, we explore how underutilization of tariff preferences affects the exports of countries benefiting from such preferences. The analysis generates four main results. First, we project that graduation will have a negative impact on the exports of graduating LDCs (more than US$ 6 billion export loss or 6% of exports), especially in the clothing sector. Second, the adverse trade effects of graduation would be overestimated by 30% under full instead of actual utilization rates. Third, we show that the increase in exports of non-graduating LDCs following graduation of other LDCs is limited, implying that non-graduating poorer LDCs hardly benefit from graduation of richer LDCs. Fourth, we show that there would be significant benefits of increasing the utilization of LDC preferences. The exports of LDCs would increase by almost 7 billions US dollars if they simultaneously switched to a full utilization regime.