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Monday, January 24, 2011

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 may continue to be a the focus of congressional attention in the 112th 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.

On December 15, 2010, the House approved H.R. 6517, the Omnibus Trade Act of 2010, which, in part, sought to extend the GSP program through June 30, 2012. On December 22, 2010, the Senate passed an amended version of H.R. 6517 that did not include GSP renewal. The amended version subsequently passed in the House on the same date (P.L. 111-344). Other GSP-related legislation in the 111
th Congress included S. 1141 and H.R. 4101 which sought additional preferences for non-African LDCs. Other bills referring to GSP included H.R. 1969 and companion bill S. 1159, which sought to prohibit GSP authority for Vietnam.

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: January 13, 2011
Number of Pages: 37
Order Number: RL33663
Price: $29.95

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