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Tuesday, January 22, 2013

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. 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 is subject to periodic renewal by Congress. The GSP program was most recently extended until July 31, 2013, in Section 1 of P.L. 112-40. GSP trade benefits became effective 15 days after the date of enactment (October 21, 2011), on November 5, 2011. P.L. 112-40 also retroactively extended the GSP program 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.

The GSP is one of several U.S. trade preference programs through which the United States seeks to help developing countries expand their economies. 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 over 3,500 products (based on 8-digit U.S. Harmonized Tariff Schedule tariff lines) from 127 designated countries and territories, and duty-free status to an additional 1,500 products from 44 GSP beneficiaries that are additionally designated as least-developed beneficiary developing countries.

U.S. implementation of the GSP program requires that eligible countries and products conform to certain criteria. First, to be designated a beneficiary developing country (BDC), developing countries must be taking steps to grant internationally recognized worker rights and to reduce trade-distorting investment policies and practices, among other things. Second, at least 35% of the appraised value of the product must be the “growth, product, or manufacture” of the BDC. Third, the GSP program also includes certain curbs on product eligibility intended to shield U.S. manufacturers and workers from harm due to the duty-free treatment. These include specifically excluding certain “import sensitive” products (e.g., textiles and apparel) from GSP, and placing limits on the quantity or value of any one product imported under the program. Fourth, GSP country and product eligibility are subject to an annual review.

The expiration of the GSP in July 2013 means that renewal of the program is likely to be a legislative issue in the first session of the 113
th Congress. In recent years, renewal of trade preference programs in general, and of the GSP program in particular, has been somewhat controversial. For example, some Members have reportedly asserted that more “advanced” BDCs, such as Brazil and India, should not receive benefits under U.S. preference programs, and propose ending or limiting their benefits in favor of providing a greater share of benefits to eligible leastdeveloped countries (LDCs). Other Members have proposed expanding preferences to grant dutyfree, quota-free access (DFQF) 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, the report presents an analysis of the U.S. program’s effectiveness and the positions of various stakeholders. Fourth, implications of the expiration of the U.S. program and possible options for Congress are discussed.

Date of Report: January 9, 2013
Number of Pages: 42
Order Number: RL33663
Price: $29.95

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