The tide that does not raise all boats: an assessment of EU preferential trade policies

The aim of this article is to assess the impact of the European Union’s trade preferences on bilateral trade flows. Using highly disaggregated 8-digit import data in a theoretically grounded gravity model framework, we define an explicit measure of preferential tariff margins and use that to estimate sector-specific elasticities. From the methodological point of view, we show that the assessment of these policies’ impacts is very sensitive to the definition of the preferential tariff margin. An important by-product of our procedures is that they can be used to obtain estimates of trade elasticities of substitution, some of the most important parameters in the international trade empirical literature. Results show that actual preferential schemes or possible future policies, such as the transatlantic trade agreement between the USA and the EU (TTIP), have a significant impact on trade volumes, with large differences across sectors.