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Monday, September 17, 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 June 29, 2012, President Obama determined that Gibraltar, and the Turks and Caicos Islands had become “high income” countries, and terminated their designation as beneficiary developing countries for purposes of the GSP. The President also designated Senegal as a least-developed beneficiary developing country under the GSP. On March 26, 2012, The President 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.” Also in the March 26 proclamation, the President designated the Republic of South Sudan as a least-developed beneficiary developing country under the GSP.

The GSP is one of several U.S. trade preference programs that provide unilateral duty-free access to the U.S. market for certain goods from eligible 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 provides duty-free entry for 3,511 products (based on 8-digit U.S. Harmonized Tariff Schedule tariff lines) from 128 designated countries and territories, and duty-free status to an additional 1,464 products from 43 GSP beneficiaries that are additionally designated as leastdeveloped 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 receive 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: September 5, 2012
Number of Pages: 42
Order Number: RL33663
Price: $29.95

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