How preferential is world trade?

We calculate how much of world trade is preferential, and at which margin. We are using a detailed dataset based on tariff-line import and tariff data of the 20 largest importers, covering almost 90% of world imports in 2008. We show that while around 50% of world trade is between countries that apply preferences to each other and could therefore be considered “preferential”, only 16% of world trade is eligible for preferences and preferential margins are often very small. Our results show that less than 2% of world imports - excluding intra-EU trade - are eligible for preferences with a margin of 10 percentage points or more and less than 0.5% of trade has preferences above 20 percentage points. Assuming static trade flows and full utilization of preferences, all preferences together reduce the global trade-weighted tariff from 3% to 2%, which means that the global trade-weighted preference margin is 1.0%. Around 90% of this reduction is due to reciprocal preference regimes (PTAs, customs unions) with the remainder due to non-reciprocal regimes such as the GSP.