ISSN 2434-2459

ISS Research Series No.4

AGISSS
Gakushuin University
March 2023

Duty-Free, Quota-Free
Market Access Initiative: A Review
Tadashi ITO
Katsunori SHIRAIAssociation of Gakushuin International Social Sciences Studies
�- �- � Mejiro, Toshima-ku, Tokyo ���- ���� JAPANDuty-Free, Quota-Free Market Access Initiative: A Review
Tadashi Ito ♠Katsunori Shirai ♣ABSTRACT: This study reviewed the DFQF access initiatives for the LDCs agreed at the WTO
meeting in 2005. After explaining the background of the DFQF initiatives, we summarised the
DFQF initiatives of the major developed-country members along with the cases of South Korea
and China. The developed member countries began preferential treatment of LDCs in the 1970s
and 1980s before accelerating their initiatives in the early 2000s.Further enhancements were
implemented in and after 2005. The initiatives of the European Union, Canada, Australia, andJapan are not selective for either countries or products while the zero-tariff scheme of the UnitedStates is somewhat selective. The initiatives of South Korea and China are selective with regard
to products and/or countries. While the European Union, Canada, Australia, and Japan haveachieved almost full zero-tariff coverage of all tariff lines, the coverage ratio of the UnitedStates has reached about 85%. Econometric analyses using the triple difference estimatormethod showed that the DFQF programmes of Australia and Canada were found to bepositively associated with LDC exports to these countries whereas those of the United States,
Japan, and the European Union show no positive association.
JEL F13, F14
Keywords: WTO, Duty Free Quota Free access (DFQF), Generalised System of Preference(GSP)

Corresponding author - Tadashi ITO: Faculty of International Social Sciences, Gakushuin
University, Tokyo, Japan. E-mail: tadashi.itoATgakushuin.ac.jp (Change AT to @)♣Katsunori Shirai: Osaka Gakuin University, Department of Economics, Osaka, Japan. E-mail:kshiraiATogu.ac.jp (Change AT to @)♠DFQF-Review

INTRODUCTION
The WTO Doha Development Round of trade negotiations became mired in conflicts among
member countries regarding major issues such as agriculture, services, and trade remedies, but there
was a notable achievement related to development issues. At the 2005 Ministerial Conference inHong Kong, an agreement was reached on an initiative to provide least-developed countries (LDCs)
with duty-free, quota-free market access (hereinafter, the "DFQF initiative"). The Hong Kong
Ministerial Declaration of 18 December 2005 states:“… developed-country Members, and developing-country Members declaring themselves in aposition to do so, agree to implement duty-free and quota-free market access for products
originating from LDCs …”This study reviews the effects of the DFQF initiative in the seven years since the declaration. First,
we present a general overview of the DFQF initiative. Second, we examine the implementation of
the DFQF initiative in major developed countries, together with the cases of China and South
Korea, which have recently begun to grant zero tariffs, although with certain conditions. Third,
using data at the tariff-line level, we present time series data that illustrate the evolution of thetariff-free status granted by these counties to LDCs. Finally, we review the literature on the effects
of preferential tariff initiatives on LDC exports and present an econometric analysis of the DFQF
policies of each of the major countries. The analysis shows that the DFQF policies of Canada andAustralia have had significant positive impacts while those of the United States, European Union,
and Japan have not.

1. THE DUTY-FREE, QUOTA-FREE MARKET ACCESS INITIATIVE:
OVERVIEWAs of 2 March2013,34 of 159 WTO member countries are designated as LDCs by the United

Nations, making LDCs a substantial portion of the WTO member countries. This is why
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DFQF-Review

development is a central focus of this trade negotiation round, as the name “Doha Development
Round” suggests. The DFQF initiative is a form of special and differential treatment (SDT) in
GATT provisions (GATT 1947, Article XVIII). SDT exempts developing countries from thebinding rules that apply to developed countries. SDT provisions include 1) longer implementation
periods for agreements and commitments; 2) measures to increase trading opportunities; 3)
provisions requiring all WTO members to safeguard the trade interests of developing countries; 4)
support to help developing countries build the infrastructure for WTO work, including dispute
resolution and the implementation of technical standards; and 5) provisions related to LDC
members. In 2001, the Doha Declaration mandated that the Committee on Trade and Development
consider ways that developing countries, particularly LDCs, can be assisted in making the best useof SDT. During the Hong Kong Ministerial Conference of 2005, member countries declared thatdeveloped-country members, and developing-country members declaring themselves in a position
to do so, agreed to implement duty-free, quota-free market access for products originating from
LDCs by 2008 and that member countries facing difficulties in achieving 100% coverage shallachieve at least 97%coverage, defined at the tariff line level. The full text of the main part of thisagreement is reprinted in the Appendix.

2. SUMMARY OF THE DFQF INITIATIVE OF MAJOR DEVELOPEDCOUNTRIES, SOUTH KOREA, AND CHINA

This section provides a summary of the DFQF initiatives of some major countries and shows
how these countries granted duty-free, quota-free market access over the years.
2.1. Summary of preferential tariff initiatives for LDCs
Table 1 summarises major developed countries’ preferential tariff initiatives for LDCs. It also
includes the cases of South Korea and China, as well as some examples of the developing country
members’ initiatives. The United States, the European Union, Australia, Canada, and Japan all began
to implement preferential tariff initiatives for LDCs in or before 1980. These developed-country3

DFQF-Review

WTO members made substantial enhancements to their preferential tariff schemes in the 2000s. In
2000, the United States launched the African Growth and Opportunity Act (AGOA). The European
Union broadened its preferential tariff scheme for LDCs in 2001 under the Everything But Arms
(EBA) initiative. South Korea and China began their initiatives much later: South Korea started
granting preferential tariffs for LDCs in 2000, while China starting in 2006. However, both countries
target only certain products and/or beneficiary countries.
=== Table 1 ===2.2. Evolution of zero-tariff policies
Figures 1 to 5 show time series data for the number of zero-tariff lines of some major developed
countries. The tariff data are from World Integrated Trade Solutions (WITS). 1 In the case of theUnited States, tariff rates are set at the 10-digit product code. There are approximately 10,000 10digit codes in the United States. Red plots in Figure 1 show the number of total tariff lines from 1989
to 2010. Until the beginning of the 1990s, the total number of tariff lines was approximately 8200. In
the middle of that decade, it increased to around 10,000. We also count the number of zero-tariff lines
for each year. Green plots show the number of zero-tariff lines for most favoured nations (MFNs).
Until the beginning of the 1990s, the number of zero-tariff lines for MFNs was around 1600. It thensteadily increased to 4000 in 2010, reflecting the trade liberalisation movement of the past few
decades. Purple plots show tariffs for countries in the Generalised System of Preference (GSP). Under
the GSP, developed-country members have been granting preferential tariff rates for developingcountry members since the 1960s. As in the case of MFNs, the number of zero-tariff lines has steadily
increased. Blue plots show preferential tariffs for LDCs and orange plots show preferential tariffs for
AGOA countries. The number of zero-tariff lines for these categories reached 8000 out of about
10,000 tariff lines by the beginning of the 2000s. LDCs and AGOA-eligible countries are given a

1

We used all the data available from WITS. Data points for some years are missing in Figures 1 to
5 because the data were not reported to WITS.
4DFQF-Review

larger number of zero-tariff lines than members of the MFN or GSP categories. Since LDCs are
generally competing with other developing countries, the preference over GSP tariff rates is important.
In the case of the United States, the difference in the number of zero tariffs between GSP and LDCs
has remained stable at about 2000 from 1996 to 2011, as illustrated by the arrows in Figure 1. Figures
2 through 5 show the same figures for the European Union, Japan, Australia, and Canada, respectively,
which have achieved almost full zero-tariff coverage (i.e., adhering to the agreement of at least 97%
coverage by 2008). In contrast, the coverage rate for the United States reached only about 85%. The
European Union had already achieved a high number of zero tariffs for LDCs in the second half ofthe 1990s. Japan, Canada, and especially Australia have increased the difference in the number ofzero tariffs between GSP and LDCs, as indicated by the arrows in the figures. The DFQF initiativesof China and South Korea are much smaller when compared with those of the developed countries.
=== Figure 1to Figure 5 ===3. EVALUATION OF DFQF INITIATIVESThis section evaluates the impact of DFQF initiatives on LDC exports to DFQF-granting
countries. To the best of our knowledge, there is one study that evaluates the United States’AGOA
initiative and one study that assesses the European Union’s EBA initiative. Frazer and Van
Biesebroeck (2010) show that AGOA has had a positive impact. Davies and Nilsson (2013)
examined the case of the European Union and argue that EBA has had an even larger impact than
AGOA.
3.1. Estimation model: Programme evaluation
This section contains a quantitative analysis of the DFQF initiatives described above. In theeconometrics literature this is referred to as a programme evaluation. Programme evaluation is
generally expressed using the following equation:
E (Y1 − Y0 D ==1) E (Y1 D =−1) E (Y0 D =1) .

5DFQF-Review

The left-hand side is the average treatment effect on the treated (ATT). The first term on the righthand side is the mean value (here, import value) for the countries or products selected; the rightmost
term contains the mean value for the country or product as if it had not been selected. That is, therightmost term is the counterfactual. The first term on the right-hand side is observable but the second
term is not. If E (Y0 D= 1=) E (Y0 D= 0 ) holds, then ordinary least squares (OLS) estimation will
give an unbiased estimate; otherwise, endogeneity as a consequence of selection becomes a problem.
Many econometric techniques have been invented to solve this problem. However, a complete
solution to the endogeneity issue is almost always difficult, due to the unavailability of good
instrumental variables that satisfy the various requirements, such as high correlation with thevariables to be instrumented or the exclusion restrictions.
Most programme evaluation studies examine programmes with endogenously given criteria, suchas impact studies of preferential trade agreements. 2 LDC status, however, is decided exogenously.
To be more precise, Japan did not choose which countries would be eligible for the DFQF programme.
The developed-country members are required to grant DFQF treatment to all LDCs. Tariff lines to beliberalised are also not selected. The DFQF system therefore has the virtue of being almost free fromthe endogeneity issue. This makes OLS an appropriate estimation method for this study. Since ourdata have three dimensions (i.e., partner countries, years, and product code), we employ thedifference-in-difference-in-difference (triple-difference) estimation model, following Frazer and Van
Biesebroeck (2010). To accommodate the large number of dummies to control the multilateralresistance, we employ the recent development of the gravity model methodologies, discussed in Headand Mayer (2013) for example, and use the two-way fixed effects model. The DFQF programmes of
the United States, the European Union, Japan, Australia, and Canada are evaluated. 3

2

The endogeneity issue for trade agreements and related econometric issues are nicely discussed in
Baier and Bergstrand (2007) and Egger, Egger, and Greenaway (2008) for example.
3
Although an estimation which uses the entire data set is ideal, we were forced to perform theanalysis for each DFQF granting country separately due to the extremely large numbers of6

DFQF-Review

The estimation model is:

β 0 + β1 Ineffectt * LDCi * Treated Pr oduct j + β2CountryYearit
Im portValueijt =+ β3 Pr oductYearjt + β4 Country Pr oductij + ε ijt.

The variable of interest is the triple interaction term, Ineffectt * LDCi * Treated Pr oduct j . Here,
Ineffectt is a dummy variable which switches from 0 to 1 for all partner (exporter) countries andproducts after 2001, i.e., 0 for the period of 1996-2000 and 1 for the period of 2001-2010; LDCi isa dummy variable which takes value 1 if the partner (exporter) is an LDC country and 0 otherwise;
Treated Pr oduct j is a dummy variable which takes value 1 for those products that are treated in thesense previously described and 0 otherwise. Three interactive fixed effects allow for (a) the baselevel of imports of any product from any country ( Country Pr oductij ), (b) the overall imports fromany country in any year ( CountryYearit ), and (c) the overall imports of any product in any year
( Pr oductYearjt ). There is no need to include uninteracted variables because those effects areabsorbed into the three interactive fixed effects. If the DFQF has a positive impact on the imports
from LDCs, a positive coefficient for β1 is observed.
3.2. Data
The tariff data and trade value data used are from WITS (World Integrated Trade Solutions). To do
the analyses at the same product code level for each country, the data are at the HS (Harmonised
System) 6-digit level. Each country has its own tariff schedule for its own tariff lines. For example,
the United States and the European Union use a 10-digit tariff schedule, while Japan has its own 9digit one. Up to the 6-digit level, the codes are identical across countries (thus, the designation

observations, as can be seen in the estimation results (Table 2). The estimation using the entire data
set far exceeds the storage capacity of the statistical software at hand (STATA MP 64 bit). Even forthe country-level estimation, the computer must run for a full 60 days without pause. Statisticalanalyses for the cases of South Korea and China are not done partly because these countries'
initiatives are recent endeavors, but especially because the scope of these countries' initiatives interms of eligible countries and products is limited.
7

DFQF-Review"Harmonised System").The 6-digit level is therefore the most disaggregated code level that stillallows for cross-country comparison. The tariff rates at tariff lines (e.g., 10-digit level in the UnitedStates) are averaged at the HS 6-digit level. The simple average is used for the analyses since theweighted average discards the tariff rate information for the products with no trade record (theweighted average uses trade value as weight). For the purpose of our study, it is imperative toinclude tariff rate information even with no trade record.
3.3. Estimation results
The estimation results are shown in Table 2. Column (1) shows the estimation result for the period
1998-2006 to be comparable with Frazer and Van Biesebroeck (2010). This result indicates that theUnited States’ initiative has had a positive impact on the country’s imports from LDCs. This result
is in line with that of Frazer and Van Biesebroeck (2010). Column (2) shows the result for theUnited States for the period 1996-2011. Here we observe that the positive impact indicated in thecolumn (1) is no longer present. The insignificant impact of the United States’ initiative is not
surprising given the stable difference in the number of zero-tariff lines between GSP and LDC, as
seen in Figure 1. Column (3) shows the case for the European Union. Here the coefficient estimate
is statistically insignificant and very close to zero. This result is at odds with the finding of Davies
and Nilsson (2013). The difference in results might be a product of differing levels of
disaggregation of the data or methodology. While Davies and Nilsson (2013) estimate theconventional gravity model using aggregate country level trade values, our estimation uses data at
the HS 6 digit level with tariff information and the triple-difference estimator. However, we cannot
definitively conclude that the European Union's initiative had little impact because, as shown
inFigure 2,the European Union had already expanded zero tariffs by the middle of the 1990s.
Further analysis is required. Column (4) shows the case of Japan. Here the coefficient estimate is
statistically significant with a negative sign, but still very close to zero. This result is in line withthat of Aoyagi and Ito (2019), a companion paper of this study, which analyses Japan's DFQF
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DFQF-Review

initiative at the tariff line level (9 digits). One reason for this result could be a decrease in therelative attractiveness of the Japanese market when compared with those of other developed
countries that have also completed the DFQF initiatives. It may also be the case that the negative
distance effects on trade become stronger when tariffs are reduced in all major destination
countries. Another reason could be Japan's regulations governing the import of several agricultural
products including tubers of konnyaku and beef. The rules of origin, which may increase transaction
costs, might be another reason. Given that the purpose of this paper is to perform a generalevaluation of DFQF initiatives, further investigation of these phenomena is left to future research.
The coefficient estimates for Canada and Australia are statistically significant with a positive sign.
The stronger positive impact observed in Australia as compared with other countries can likely be
attributed to the substantially increased difference in the number of zero tariffs between GSP and
LDC countries as seen in Figure 4.
=== Table 2 ===4. CONCLUSION
This study reviewed the DFQF access initiatives for the LDCs agreed at the WTO meeting in 2005.
After explaining the background of the DFQF initiatives, we summarised the DFQF initiatives ofthe major developed-country members along with the cases of South Korea and China. The
developed member countries began preferential treatment of LDCs in the 1970s and 1980s before
accelerating their initiatives in the early 2000s.Further enhancements were implemented in and after
2005. The initiatives of the European Union, Canada, Australia, and Japan are not selective for
either countries or products while the zero-tariff scheme of the United States is somewhat selective.
The initiatives of South Korea and China are selective with regard to products and/or countries. We
then showed the number of zero tariffs for LDCs given by each DFQF granting country. While theEuropean Union, Canada, Australia, and Japan have achieved almost full zero-tariff coverage of all
tariff lines, the coverage ratio of the United States has reached about 85%. Finally, by conducting
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DFQF-Review

an econometric analysis using the triple difference estimator method, the DFQF programmes ofAustralia and Canada were found to be positively associated with LDC exports to these countries. A
replication of Frazer and Van Biesebroeck (2010) for the case of the United States yielded the same
positive result, but this significance did not hold when the time period was extended to 2011. The
European Union’s initiative is seen to have little impact, while Japan’s initiative has a very small
but significant negative impact. Further topics of investigation could include an examination of thecase of the European Union during the years prior to 1996 and the trade structure of the UnitedStates after 2006.

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REFERENCES
Egger, Hartmut, Egger, Peter, and Greenaway, David,2008. The trade structure effects ofendogenous regional trade agreements, Journal of International Economics 74 (2008) 278–298
Davies Elwynand Nilsson Lars, 2013. A Comparative Analysis of EU and US Trade Preferences for
the LDCs and the AGOA Beneficiaries.
Frazer, Garth, Van Biesebroeck, Johannes, 2010. Trade and Growth Under the African Growth andOpportunity Act, The Review of Economics and Statistics, February 2010, 92(1): 128–144
Head, Keith and Mayer, Thierry, 2013. "Gravity Equations: Workhorse, Toolkit, and Cookbook", in
Handbook of International Economics

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Table 1. Generalised System of Preference for LDCs of some major countries
Country(Group)UnitedStates

Effective date

Initiative nameEligible countries

From 1970s andsubstantiallyenhanced in 2000
by AGOA

African Growth andOpportunity
Act(AGOA) from 2000

Eligibility for apparelproducts varies acrosscountries.

Since AGOA is only for Africancountries, LDCs in other parts of
the world are not covered by thisinitiative.

European
Union

From 1970s andsubstantiallyenhanced in 2001
by EBA

Everything But Arms
Arrangement

34
Africancountries
eligible at the time ofinitiation of the act.
Currently 37 to 39
Africancountries
eligible.
Eligiblecountries change overrelatively short period oftime, such as 2-3 years.
All LDCs

All products except
arms

GSP beneficiary countries will bechanged in January 2014.
Countries which have grown to a
relatively high level of income
will be excluded from the list sothat LDCs can enjoy benefits.

Australia

From 1970s andsubstantiallyenhancedfrom2003
Started in 1974,
steadily increased
its
product
coverage

All LDCs

All products

General Preferential
Tariff for LDCs

All LDCs

All products

GSP for LDCs

All LDCs

All products(Especially after 2000,
product coverage

CanadaJapan

Started in
gradually

1980,

12

Eligible products

Recent topics / Remarks

Change in eligible countries in June
2014: 72 countries including
BRICs and other middle-income
countries will be excluded from
GSP beneficiary countries.

DFQF-Review

South
Korea

increased productcoverageStarted in 2000

Duty-free treatment
for LDCs

All LDCs

China

Started in 2006, Duty-free treatment At the time of thegradually
for LDCs
initiationin 2006, 26
increased
LDC were eligible. In
2013, 37 LDCs arecountry/productcoverage.
eligible.
Source: Author's elaboration from WTO webpages and each government’s websites

13

has
been
increased)
At the time of theinitiation in 2000,
covers 80 productcodes at HS 6-digit
level. Following the
Hong
Kong
declaration,itincreased coverage to
75% of all tariff lines.
Currently
4800
product codes out of
about 8000 productcodes at HS 8-digit
level are eligible.

DFQF-Review

Figure 1. Time series of the number of zero-tariff lines: United States

USA
12000

10000

Number of tariff lines

Total number of tariff lines
8000

Zero tariff lines for MFN

6000

Zero tariff lines for GSP
Zero tariff lines for LDC

4000

Zero tariff lines for AGOA
2000
Zero tariff lines for AGOA
plus

0

Year

Source: Authors’ computation from the tariff data at tariff lines of WITS

Figure 2. Time series of the number of zero-tariff lines: European Union

EU
18000
16000

Number of tariff lines

14000
12000
10000

Total number of tariff lines
Zero tariff lines for MFN

8000

Zero tariff lines for GSP
6000

Zero tariff lines for LDC

4000
2000
0

1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
Year

Source: Authors’ computation from the tariff data at tariff lines of WITS

Figure 3. Time series of the number of zero-tariff lines: Japan
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DFQF-Review

Japan
10000
9000

Number of tariff lines

8000
7000
6000
Total number of tariff lines

5000

Zero tariff lines for MFN

4000

Zero tariff lines for GSP

3000

Zero tariff lines for LDC

2000
1000
0

Year

Source: Authors’ computation from the tariff data at tariff lines of WITS

Figure 4. Time series of the number of zero-tariff lines: Australia

Australia
7000

6000

Number of tariff lines

5000

4000
Total number of tariff lines
Zero tariff lines for MFN

3000

Zero tariff lines for GSP
Zero tariff lines for LDC

2000

1000

1991
1993
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011

0
Year

Source: Authors’ computation from the tariff data at tariff lines of WITS

Figure 5. Time series of the number of zero-tariff lines: Canada
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DFQF-Review

Canada10000
9000

Number of tariff lines

8000
7000
6000
Total number of tariff lines

5000

Zero tariff lines for MFN

4000

Zero tariff lines for GSP

3000

Zero tariff lines for LDC

2000
1000

1989
1993
1995
1996
1997
1998
1999
2000
2001
2003
2004
2005
2006
2007
2008
2009
2010

0
Year

Source: Authors’ computation from the tariff data at tariff lines of WITS

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Table 2: Triple Difference Estimator

Ineffect_LDC_TreatedR-squared
Number ofobservations(1)
United States(Year 1998-2006
as in FVB)
0.0127**(4.71)
0.928
3974104(2)
United States(Year 1996-2011)(3)
European Union(Year 1996-2011)

(4)
Japan
(Year 1996-2011)(5)
Canada(Year 1996-2011)(6)
Australia(Year 1996-2011)-0.00290(-1.28)0.912
7189705-0.0000853(-0.02)0.877
11964965-0.00316*(-2.23)0.933
63904290.0220**(4.64)
0.911
7856674

0.100**(54.61)0.915
4533562t statistics in parentheses+ p< 0.10, * p< 0.05, ** p< 0.01
Country-Year fixed effects, Product-Year fixed effects, and Country-Product fixed effects

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DFQF-Review

AppendixHong Kong Ministerial Declaration texts on DFQF initiative
Annex F: Special and Differential Treatment
36) Decision on Measures in Favour of Least-Developed Countries
We agree that developed-country Members shall, and developing-country Members declaring
themselves in a position to do so should:(a)(i) Provide duty-free and quota-free market access on a lasting basis, for all products originatingfrom all LDCs by 2008 or no later than the start of the implementation period in a manner that
ensures stability, security and predictability.
(ii) Members facing difficulties at this time to provide market access as set out above shall provide
duty-free and quota-free market access for at least 97 per cent of products originating from LDCs,
defined at the tariff line level, by 2008 or no later than the start of the implementation period. In
addition, these Members shall take steps to progressively achieve compliance with the obligations
set out above, taking into account the impact on other developing countries at similar levels ofdevelopment, and, as appropriate, by incrementally building on the initial list of covered products.
(iii) Developing-country Members shall be permitted to phase in their commitments and shall enjoy
appropriate flexibility in coverage.
List of LDC countries
AngolaBangladesh
Benin
BhutanBurkina Faso
BurundiCambodia
Central African Republic
Chad
Union of Comoros
Democratic Republic of Congo
Djibouti Commonwealth of Dominica
Equatorial Guinea
Eritrea
Ethiopia
GambiaGuineaGuinea-Bissau
Haiti
Kiribati
Laos
LesothoLiberia
Madagascar
MalawiMali
Mauritania
Mozambique
Myanmar
Nepal
Niger
RwandaSamoa
Sao Tome and Principe
SenegalSierra Leone
Solomon Islands
Somalia
Sudan
Tanzania
Timor Leste
Togo
TuvaluUgandaVanuatu
Yemen
Zambia18