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Tuesday, April 24, 2012

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 July 31, 2013, in Section 1 of P.L. 112-40. The President signed the legislation extending the GSP on October 21, 2011, and GSP trade benefits became effective 15 days after that date, or on November 5, 2011. The GSP program was also retroactively extended to eligible merchandise that entered the United States between the expiration date, December 31, 2010, and the date that the GSP renewal entered into force. Therefore, importers of GSP-eligible products may seek reimbursement for tariffs paid during the lapse of GSP coverage.

On March 26, 2012, President Obama suspended GSP benefits for Argentina because “it has not acted in good faith in enforcing arbitral awards in favor of United States citizens or a corporation, partnership, or association that is 50 percent or more beneficially owned by United States citizens.” In the same proclamation, the President also designated the Republic of South Sudan as a least-developed beneficiary developing country under the GSP.

The GSP is one of several trade preference programs that provide similar trade benefits 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). The GSP program, as well as other trade preference programs, was established based on an economic theory that preferential tariff rates in developed country markets could promote export-driven industry growth in developing countries. It was believed that this, in turn, would help to free beneficiaries from heavy dependence on trade in primary products, whose slow long-term growth and price instability contributed to chronic trade deficits. In 2010, the GSP provided preferential duty-free entry for about 3,400 products from 129 designated beneficiaries, and an additional 1,400 products from those beneficiaries designated as least-developed beneficiary developing countries.

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 reportedly expressed the view that some of the more “advanced” BDCs, such as Brazil and India, should not be receiving benefits under unilateral preference programs, 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 duty-free, quota-free access (DFQF) to developing countries under the African Growth and Opportunity Act (who are also GSP beneficiaries), or to all least-developed countries.

This report presents, first, a brief history, economic rationale, and legal background leading to the establishment of the GSP. 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: April
9, 2012
Number of Pages:
Order Number: R
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