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Friday, January 18, 2013

Trade Preferences: Economic Issues and Policy Options

Vivian C. Jones, Coordinator
Specialist in International Trade and Finance

J. F. Hornbeck
Specialist in International Trade and Finance

M. Angeles Villarreal
Specialist in International Trade and Finance

Since 1974, Congress has created multiple trade preference programs designed to foster economic growth, reform, and development in less developed countries. These programs give temporary, non-reciprocal, duty-free U.S. market access to select exports of eligible countries. Congress has repeatedly revised and extended these programs. The112th Congress passed extensions to three trade preference programs: (1) the Generalized System of Preferences (GSP) which expired on December 31, 2010 and was renewed retroactively from that date to July 31, 2013 (P.L. 112-40); (2) the Andean Trade Preference Act (ATPA) for Colombia and Ecuador until July 31, 2013 (P.L. 112-42); and (3) a “third-country fabric” provision in the African Growth and Opportunity Act (AGOA) until September 30, 2015 (P.L. 112-163). Since the GSP and ATPA programs were only extended until the end of July 2013, Congress may consider further renewal of these programs in the first session of the 113th Congress, along with possible trade preference reform options. Three bills in the 112th Congress, S. 105, S. 1244, and H.R. 2387, propose a new trade preference program that would provide duty-free and reduced tariff treatment for certain apparel from the Philippines. Other bills in the 112th Congress proposing preference programs include S. 1443, which would provide trade preferences for selected Asian and South Pacific countries.

Congress established five trade preference programs. The GSP applies to all developing countries worldwide. In addition, there are four regional programs including the ATPA; the Caribbean Basin Economic Recovery Act (CBERA); the Caribbean Trade Partnership Act (CBTPA); the African Growth and Opportunity Act (AGOA); and the Haitian Opportunity through Partnership Encouragement (HOPE) Act. In the second session of the 111
th Congress, legislation was enacted to extend provisions in the CBPTA and HOPE Act through September 30, 2020, in the Haiti Economic Lift Program Act of 2010 (P.L. 111-171).

Unlike free trade agreements, trade preferences are non-reciprocal, meaning that developing countries do not have to provide equivalent trade benefits to the United States. Countries must meet certain eligibility criteria, however, such as providing adequate protection of intellectual property, operating an open market economy under established multilateral trade rules, and adopting internationally recognized worker rights. Trade preferences are permitted by the World Trade Organization (WTO) under the General Agreement on Tariffs and Trade (GATT) “enabling clause,” which allows members to provide more favorable treatment to developing countries. Other developed countries provide similar preference programs. In the WTO Doha Development Agenda (DDA) round of multilateral trade negotiations, both developed and developing WTO members agreed to provide duty-free, quota-free (DFQF) preferential access to least-developed countries, subject to adoption of the agreement.

Evaluations of the benefits of trade preferences have been mixed. Many developing countries have used tariff preferences to enhance their competitiveness in certain industries, particularly apparel. In other countries, preferences are used to export major commodities such as petroleum products, which may be less supportive of long-term economic diversification and development. Meeting the needs of the least developing countries is a core policy issue that continues to drive the debate over the design of preference programs. Consumers and some U.S. industries and workers benefit from the additional trade, others compete directly with it, therefore, perspectives on trade preferences vary despite their overall costs apparently being small. This report discusses the major U.S. trade preference programs, their possible economic effects, stakeholder interests, and legislative options.

Date of Report: January 10, 2013
Number of Pages: 36
Order Number: R41429
Price: $29.95

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