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Tuesday, June 8, 2010

Generalized System of Preferences: Background and Renewal Debate

Vivian C. Jones  
Specialist in International Trade and Finance

The U.S. Generalized System of Preferences (GSP) program provides non-reciprocal, duty-free tariff treatment to certain products imported from designated beneficiary developing countries (BDCs). The United States, the European Union, and other developed countries have implemented similar programs since the 1970s in order to promote economic growth in developing countries by stimulating their exports. The U.S. program was first authorized in Title V of the Trade Act of 1974, and was most recently extended until December 31, 2010, in P.L. 111-124 for all GSP beneficiary countries not covered by the African Growth and Opportunity Act (AGOA). Since GSP will expire at the end of 2010, this and other trade preference programs could continue to be a the focus of congressional attention in the 111th Congress. 

The GSP is one of several trade preference programs that provide non-reciprocal, duty-free access to goods from developing and least-developed beneficiary countries. Other U.S. trade preference programs include the African Growth and Opportunity Act (AGOA), the Andean Trade Preference Act (ATPA), and the Caribbean Basin Initiative (CBI). 

In recent years, renewal of trade preferences programs in general, and of the GSP program in particular, has been somewhat controversial in Congress. Some Members have expressed the view that some of the more advanced BDCs, such as Brazil and India, continue to receive benefits even while they actively contribute to the impasse in multilateral World Trade Organization (WTO) Doha Development Agenda (DDA) talks. Some Members have also questioned whether more "advanced" developing countries should be receiving benefits under unilateral preference programs at all, and propose ending or limiting their benefits in favor of providing a greater share of benefits to least-developed countries (LDCs). Other Members have proposed granting dutyfree, quota-free access (DFQF) to developing countries under the African Growth and Opportunity Act (who are also GSP beneficiaries), which could potentially also be extended to other GSP countries. 

GSP legislation in the 111th Congress include S. 1141 and H.R. 4101 which seek additional preferences for non-African LDCs. Other pieces of legislation referring to GSP include H.R. 1969 and companion bill S. 1159, which would seek to prohibit GSP authority for Vietnam. Some favor comprehensive reform of the GSP and other trade preference programs. One of the groups representing this view is a loose coalition of business and non-profit trade groups. Their plan calls for replacing all existing trade preference programs with a comprehensive, unified program that would offer two tiers of benefits, one for more "advanced" developing countries, and a second, more generous, level providing DFQF access to least-developed countries. 

This report presents, first, a brief history, economic rationale, and legal background leading to the establishment of the GSP. A brief comparison of GSP programs worldwide, especially as they compare to the U.S. system, is also presented. Second, the report presents a discussion of U.S. implementation of the GSP, along with the present debate surrounding its renewal and legislative developments to date. Third, an analysis of the U.S. program's effectiveness and the positions of various stakeholders is presented. Fourth, implications of the expiration of the U.S. program and possible options for Congress are discussed. 

Date of Report: May 27, 2010
Number of Pages: 36
Order Number: RL33663
Price: $29.95

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