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Wednesday, August 29, 2012

Potential Trade Effects of Adding Vietnam to the Generalized System of Preferences Program

Vivian C. Jones
Specialist in International Trade and Finance

Michael F. Martin
Specialist in Asian Affairs

In May 2008, Vietnam formally requested to be added to the U.S. Generalized System of Preferences (GSP) program as a “developing country.” On June 20, 2008, the office of the U.S. Trade Representative (USTR) announced that it was initiating a formal review of Vietnam’s eligibility for GSP benefits and would accept public comments on the application until August 4, 2008. Vietnam has already been accepted into several other developed-country GSP programs around the world, including Canada, the European Union (EU), and Japan.

The GSP statute provides the President with the authority to designate any country a beneficiary developing country, provided the country complies with various trade and investment policies and labor conditions. Congress does not need to act to approve GSP status for Vietnam. The President is, however, required to notify Congress of his intention. The inclusion of Vietnam into the GSP program is generally viewed as another step in the development of closer bilateral relations.

Most of the public comments submitted to the USTR were supportive of approving Vietnam’s application. However, there were some issues raised that could cause problems in accepting Vietnam into the GSP program—in particular, Vietnam’s record on workers’ rights. A preliminary assessment conducted by the GSP Subcommittee of the Trade Policy Staff Committee (TPSC), an interagency group chaired by the USTR, reportedly contained reservations about Vietnam’s record on worker rights. In addition, Vietnam’s record on human rights may also have an impact on its application, even though the President is not legally required to consider this issue when evaluating Vietnam’s application.

If accepted into the GSP program, up to 3,400 different types of exports from Vietnam could potentially enter into the United States duty-free. While Vietnam’s leading exports to the United States—knitted and non-knitted clothing—are deemed “import sensitive” and therefore excluded from GSP eligibility, some of its fastest growing exports are eligible for duty-free status under the GSP. These exports include electrical machinery, fruits, and coffee preparations. Imports of these commodities would likely increase if Vietnam is granted beneficiary developing country (BDC) status. This could lead to an increase in the U.S. bilateral trade deficit with Vietnam and a shift in the mix of U.S. imports from Vietnam. It might also foster a relocation of some assembly operations from China to Vietnam, thereby reducing the U.S. bilateral trade deficit with China.

The Generalized System of Preferences program was renewed on October 21, 2011, with the passage of P.L. 112-40, extending the program until July 31, 2013.

Date of Report: August 14, 2012
Number of Pages: 17
Order Number: RL34702
Price: $29.95

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