Trade Preferences for Developing Countries and the World Trade Organization (WTO)

Jeanne J. Grimmett
Legislative Attorney

Article I:1 of the General Agreement on Tariffs and Trade 1994 (GATT 1994) requires World Trade Organization (WTO) Members to grant most-favored-nation (MFN) treatment “immediately and unconditionally” to the like products of other Members with respect to tariffs and other trade-related measures. Programs such as the Generalized System of Preferences (GSP), under which developed countries grant preferential tariff rates to developing country goods, are facially inconsistent with this obligation because they accord goods of some countries more favorable tariff treatment than that accorded to like goods of other WTO Members. Because such programs have been viewed as trade-expanding, however, parties to the GATT provided a legal basis for one-way tariff preferences in a 1979 decision known as the Enabling Clause. The Enabling Clause was formally incorporated into the GATT 1994 upon the entry into force of the GATT Uruguay Round agreements on January 1, 1995. In 2004, the WTO Appellate Body ruled that the Clause allows developed countries to offer differing treatment to developing countries in a GSP program, but only if identical treatment is available to all similarly situated beneficiaries.

In addition to GSP programs, some WTO Members may also grant preferences to products of particular groups of countries that are more generous than GSP benefits. In such cases, Members have generally obtained time-limited WTO waivers of GATT Article I:l and, if needed, other GATT obligations. The United States holds temporary WTO waivers for tariff preferences granted to the former Trust Territory of the Pacific Islands and for three regional preference schemes: (1) the Caribbean Basin Economic Recovery Act (CBERA), as amended; (2) the Andean Trade Preference Act (ATPA), as amended, and (3) the African Growth and Opportunity Act (AGOA).

Congress has made the CBERA program permanent and has authorized through September 30, 2020, the expanded tariff benefits contained in the Caribbean Basin Trade Partnership Act and subsequent legislation particular to Haiti. The AGOA program is authorized through September 30, 2015. In December 2009, Congress extended the GSP and Andean trade preference programs to December 31, 2010, continuing an existing denial of benefits to Bolivia. While Congress did not renew the GSP program, it enacted legislation in December 2010 extending Andean trade preferences, as accorded to Colombia and Ecuador, through February 12, 2011. Andean benefits for Peru, which has been a party to a free trade agreement with the United States since February 2009, were terminated as of December 31, 2010, in the same enactment.

In the 112th Congress, H.R. 2832 (Camp), as passed the House and Senate, would extend the GSP program through July 31, 2013, and authorize the retroactive application of duty-free rates and other GSP benefits to entries of goods made after December 31, 2010. H.R. 913 (Aderholt), and S. 433 (Sessions) would extend the GSP program through June 30, 2012, with retroactive application to entries made after December 31, 2010; make certain sleeping bags ineligible for GSP benefits; and extend ATPA benefits to Colombia and Ecuador through June 30, 2012, with the extension effective as of February 12, 2011. S. 380 (Casey) would extend the GSP and ATPA programs to June 30, 2012, with retroactive application to their current expiration dates, and make certain sleeping bags ineligible for GSP benefits, with exceptions for higher-value bags and certain kits. S. 380 (McCain) would extend ATPA benefits to Colombia and Ecuador through November 30, 2012, with retroactive application to entries made after February 12, 2011. H.R. 2387 (McDermott), S. 105 (Ensign), and S. 1244 (Inouye) would extend duty-free benefits to certain apparel items from the Philippines, subject to a Presidential certification requirement and the Philippines’ GSP eligibility.


Date of Report: September 23, 2011
Number of Pages: 12
Order Number: RS22183
Price: $29.95

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Brazil’s WTO Case Against the U.S. Cotton Program

Randy Schnepf
Specialist in Agricultural Policy

The so-called “Brazil cotton case” is a long-running World Trade Organization (WTO) dispute settlement case (DS267) initiated by Brazil—a major cotton export competitor—in 2002 against specific provisions of the U.S. cotton program. In September 2004, a WTO dispute settlement panel found that certain U.S. agricultural support payments and guarantees—including (1) payments to cotton producers under the marketing loan and counter-cyclical programs, and (2) export credit guarantees under the GSM-102 program—were inconsistent with WTO commitments. In 2005, the United States made several changes to both its cotton and GSM-102 programs in an attempt to bring them into compliance with WTO recommendations. However, Brazil argued that the U.S. response was inadequate. A WTO compliance panel ruled in favor of Brazil’s non-compliance charge against the United States in December 2007, and the ruling was upheld on appeal in June 2008.

In August 2009, a WTO arbitration panel—assigned to determine the appropriate level of retaliation—announced that Brazil’s trade countermeasures against U.S. goods and services could include two components: (1) a fixed amount of $147.3 million in response to U.S. cotton program payments, and (2) a variable amount based on U.S. GSM-102 program spending. In response to Brazil’s argument that insufficient trade in goods occurred between the two countries, the arbitrators also ruled that Brazil would be entitled to cross-retaliation if the overall retaliation amount exceeded a formula-based variable annual threshold. Cross-retaliation involves countermeasures in sectors outside of the trade in goods, most notably in the area of U.S. copyrights and patents. Based on the arbitrators’ formulas, using 2008 data, Brazil announced in December 2009 that it would impose trade retaliation starting on April 6, 2010, against up to $829.3 million in U.S. goods, including $268.3 million in eligible cross-retaliatory countermeasures.

The threat of sanctions led to intense negotiations between Brazil and the United States to find a mutual agreement and avoid the trade retaliation. In April 2010, the two parties reached a preliminary memorandum of understanding (MOU) spelling out certain actions which, if undertaken by the United States, would lead to suspension of Brazil’s threatened retaliation.

On June 17, 2010, U.S. and Brazilian trade negotiators concluded the Framework for a Mutually Agreed Solution to the Cotton Dispute in the WTO (WT/DS267). The framework agreement— which lays out a number of “steps and discussions”—represents a path forward toward the ultimate goal of reaching a negotiated solution to the dispute, while avoiding WTO-sanctioned trade retaliation by Brazil against U.S. goods and services. As a result, Brazil has suspended trade retaliation pending U.S. compliance with the framework agreement measures. Key aspects of the framework agreement include (1) payment by the United States of a $147.3 million annual fund to a newly created “Brazilian Cotton Institute” to provide technical assistance and capacitybuilding for Brazil’s cotton sector, (2) quarterly discussions on potential limits of trade-distorting U.S. cotton subsidies (recognizing that actual changes will not occur prior to the 2012 farm bill), and (3) near-term modifications to the operation of the GSM-102 program coupled with a semiannual review of whether U.S. GSM-102 program implementation satisfies certain performance benchmarks. A further U.S. commitment, made under the April MOU, includes modification of the animal disease status of the Brazilian state of Santa Catarina to allow products such as pork and live swine exports into the United States. These U.S. commitments are intended to delay any trade retaliation until after the 2012 farm bill, when potential changes to U.S. domestic cotton subsidies will be evaluated.


Date of Report: September 21, 2011
Number of Pages: 46
Order Number: RL32571
Price: $29.95

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Trade Adjustment Assistance (TAA) for Workers

Benjamin Collins
Analyst in Labor Policy

Trade Adjustment Assistance (TAA) for Workers provides support to qualifying workers who have been adversely affected by foreign trade. The two largest components of the TAA program for workers are (1) training assistance for workers who have lost their jobs directly due to increased imports or shifts in production out of the United States, and (2) income support for these workers who have exhausted their unemployment compensation. Certified workers who cannot obtain employment in their local commuting area may also be eligible for job search and relocation allowances. Some workers aged 50 or older are eligible to participate in Alternative Trade Adjustment Assistance (ATAA), a wage supplement program. Both TAA- and ATAAeligible workers can receive a Health Coverage Tax Credit (HCTC), which provides a refundable tax credit to offset a portion of qualified health insurance premiums.

This report provides background on the TAA and ATAA programs, including eligibility criteria, available benefits, and program participation data. It also discusses the temporary changes made to TAA by the Trade and Globalization Adjustment Assistance Act (TGAAA), which was enacted as part of the American Recovery and Reinvestment Act of 2009 (ARRA, P.L. 111-5). This report concludes by discussing recent congressional action on the reauthorization of TAA and its relationship to pending free trade agreements.


Date of Report: September 21, 2011
Number of Pages: 22
Order Number: R42012
Price: $29.95

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U.S. Government Agencies Involved in Export Promotion: Overview and Issues for Congress

Shayerah Ilias, Coordinator
Analyst in International Trade and Finance

Charles E. Hanrahan
Senior Specialist in Agricultural Policy

M. Angeles Villarreal
Specialist in International Trade and Finance

This report provides an overview of the federal government agencies that participate in U.S. export promotion efforts and the issues that they raise for Congress. The recent global economic downturn has renewed congressional debate over the role of the federal government in promoting exports. This debate has been heightened with the Obama Administration’s introduction of the National Export Initiative (NEI) in the 2010 State of the Union Address. Some Members of Congress have placed greater priority on understanding the coordination, budgets, and functions of federal agencies involved in export promotion. Such an understanding may increase congressional oversight of export promotion policy and related legislative activity.

In 1992, Congress attempted to enhance coordination of U.S. export promotion policy by creating the Trade Promotion Coordinating Committee (TPCC), an interagency task force chaired by the Department of Commerce. The TPCC releases the National Export Strategy (NES), an annual report that serves as an effort to guide federal export promotion policy, goals, and activity.

Executive Order 13534, issued in March 2010, formalized the NEI and established the Export Promotion Cabinet, a higher level coordinating body that is to work with the TPCC to make the NEI operational.

Approximately 20 federal government agencies are involved in supporting U.S. exports directly or indirectly. The TPCC has identified nine of these agencies currently as having budgets for programs or activities directly related to export promotion. They are the Department of Agriculture (USDA), Department of Commerce, Export-Import Bank (Ex-Im Bank), Overseas Private Investment Corporation (OPIC), Small Business Administration (SBA), Department of State, Trade and Development Agency (TDA), Office of the U.S. Trade Representative (USTR), and Department of the Treasury. The USDA has the largest level of export promotion funding, followed by Commerce. Some agencies charge fees for their services.

Federal government agencies perform a wide variety of functions that contribute to export promotion, including providing information, counseling, and export assistance services; funding feasibility studies; financing and insuring U.S. trade; conducting government-to-government advocacy; and negotiating new trade agreements and enforcing existing ones.

The export promotion activities of federal government agencies raise a number of issues for Congress; among the most prominent are the following. 

•         The economic arguments for and against the involvement of the U.S. government in promoting exports in the context of issues such as market failures and foreign governments’ support for their national exports 

•         The effectiveness of interagency export promotion coordination through the TPCC and the newly created Export Promotion Cabinet 

•         The level of U.S. government spending on export promotion; its adequacy and efficiency of use 

•         The extent to which the export promotion activities conducted by federal government agencies may be similar or overlapping

Date of Report: September 14, 2011
Number of Pages: 25
Order Number: R41495
Price: $29.95

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Limiting Central Government Budget Deficits: International Experiences

James K. Jackson
Specialist in International Trade and Finance

The global financial crisis and economic recession spurred national governments to boost fiscal expenditures to stimulate economic growth and to provide capital injections to support their financial sectors. Government measures included asset purchases, direct lending through national treasuries, and government-backed guarantees for financial sector liabilities. The severity and global nature of the economic recession raised the rate of unemployment, increased the cost of stabilizing the financial sector, and limited the number of policy options that were available to national leaders. In turn, the financial crisis negatively affected economic output and contributed to the severity of the economic recession. As a result, the surge in fiscal spending, combined with a loss of revenue, has caused government deficit spending to rise sharply when measured as a share of gross domestic product (GDP) and increased the overall level of public debt. Recent forecasts indicate that budget deficits on the whole likely will stabilize, but are not expected to fall appreciably for some time.

The sharp rise in deficit spending is prompting policymakers to assess various strategies for winding down their stimulus measures and to curtail capital injections without disrupting the nascent economic recovery. The threat of sovereign defaults in Greece and Ireland, followed by potential defaults in Italy, Portugal, and Spain, have prompted a broad range of governments in Europe and elsewhere to develop plans to reduce the government’s budget deficit. This report focuses on how major developed and emerging-market country governments, particularly the G- 20 and Organization for Economic Cooperation and Development (OECD) countries, limit their fiscal deficits. Financial markets support government efforts to reduce deficit spending, because they are concerned over the long-term impact of the budget deficits. At the same time, they are concerned that the loss of spending will slow down the economic recovery and they doubt the conviction of some governments to impose austere budgets in the face of public opposition.

Some central governments are examining such measures as budget rules, or fiscal consolidation, as a way to trim spending and reduce the overall size of their central government debt. Budget rules can be applied in a number of ways, including limiting central government budget deficits to a determined percentage of GDP. To the extent that fiscal consolidation lowers the market rate of interest, such efforts could improve a government’s budget position by lowering borrowing costs and stimulating economic growth. Other strategies include authorizing independent public institutions to spearhead fiscal consolidation efforts and developing medium-term budgetary frameworks for fiscal planning. Fiscal consolidation efforts, however, generally require policymakers to weigh the effects of various policy trade-offs, including the trade-off between adopting stringent, but enforceable, rules-based programs, compared with more flexible, but less effective, principles-based programs that offer policymakers some discretion in applying punitive measures.


Date of Report: September 15, 2011
Number of Pages: 33
Order Number: R41122
Price: $29.95

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