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Monday, March 7, 2011

Trade Preferences: Economic Issues and Policy Options

Vivian C. Jones, Coordinator
Specialist in International Trade and Finance

J. F. Hornbeck
Specialist in International Trade and Finance

M. Angeles Villarreal
Specialist in International Trade and Finance

Since 1974, Congress has created multiple trade preference programs designed to foster economic growth, reform, and development in less developed countries. These programs give temporary, non-reciprocal, duty-free U.S. market access to select exports of eligible countries. Congress has repeatedly revised and extended these programs. Congress may consider three major items related to trade preferences in the 112th Congress: (1) renewal of the Generalized System of Preferences (GSP, expired on December 31, 2010); (2) extension of the Andean Trade Preference Act (ATPA) beyond February 12, 2011, and (3) possible reform of preference programs based on comprehensive reviews in hearings held in the 111th Congress.

Congress established five trade preference programs. The GSP applies to all developing countries worldwide. In addition, there are four regional programs including the ATPA, the Caribbean Basin Economic Recovery Act (CBERA); the Caribbean Trade Partnership Act (CBTPA), the African Growth and Opportunity Act (AGOA), and the Haitian Opportunity through Partnership Encouragement (HOPE) Act. Both the GSP and the ATPA are scheduled to expire on December 31, 2010.

Unlike free trade agreements, trade preferences are non-reciprocal, meaning that developing countries do not have to provide equivalent trade benefits to the United States. Countries must meet certain eligibility criteria, however, such as adopting internationally recognized worker rights, providing adequate protection of intellectual property, and operating an open market economy under established multilateral trade rules. In the 111
th Congress, the House Ways and Means and Senate Finance Committees held hearings on the operation and impact of these programs. In the first session, Congress extended the GSP and ATPA for one year, ending December 31, 2010 (P.L. 111-124). In the second session, it extended provisions in the CBPTA and HOPE Act through September 30, 2020 in the Haiti Economic Lift Program Act of 2010 (P.L. 111-171). Congress also extended the ATPA until February 12, 2011 (P.L. 111-344). In the 112th Congress, S. 105 proposes duty-free and reduced tariff treatment for certain apparel from the Philippines. In the 112th Congress, S. 308 seeks to extend the ATPA and GSP until June 30, 2012.

Trade preferences are permitted by the World Trade Organization (WTO) under the General Agreement on Tariffs and Trade (GATT) “enabling clause,” which allows members to provide more favorable treatment to developing countries. Other developed countries provide similar preferences. In the WTO Doha Development Agenda (DDA) round of multilateral trade negotiations, both developed and developing WTO members agreed to provide duty-free, quotafree (DFQF) preferential access to least-developed countries, subject to adoption of the agreement.

Evaluations of the benefits of trade preferences have been mixed. Many developing countries have used tariff preferences to enhance their competitiveness in certain industries, particularly apparel. In other countries, preferences are used to export major commodities such as petroleum products, which may be less supportive of long-term economic diversification and development. Meeting the needs of the least developing countries is a core policy issue that continues to drive the debate over the design of preference programs. Consumers and some U.S. industries and workers benefit from the additional trade, others compete directly with it, so perspectives on trade preferences vary despite their overall costs apparently being small. This report discusses the major U.S. trade preference programs, their possible economic effects, stakeholder interests, and legislative options.

Date of Report: February 24, 2011
Number of Pages: 38
Order Number: R41429
Price: $29.95

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