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Institute for Workplace Studies----------------- Professor Samuel B. Bacharach
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Cornell University
16 East 34th Street, 4th floor---------------------- Stuart Basefsky
New York, NY 10016 -------------------------------Director, IWS News Bureau
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Congressional Research Service (CRS)

 

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

September 24, 2010

http://opencrs.com/document/R41429/2010-09-24/download/1013/

[full-text, 38 pages]

 

Summary

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

conducts regular oversight of these programs, repeatedly revising and extending them. Two major

issues face the 111th Congress: (1) the expiration of two preference programs by December 31,

2010; and (2) possible legislative action on broader reform of the preference programs based on

comprehensive reviews in hearings held in both the House and the Senate earlier in this Congress.

Congress established five trade preference programs. The Generalized System of Preferences

(GSP) applies to developing countries as a whole. In addition, there are four regional programs

established in the Andean Trade Preference Act (APTA), 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. Both the GSP and the ATPA are scheduled to expire on December 31, 2010.

 

Unlike free trade agreements, trade preferences are unilateral, so developing countries do not

have to provide reciprocal trade benefits to the United States. To qualify for tariff preferences,

however, they must meet certain eligibility criteria, which vary by program. Examples include

adopting internationally recognized worker rights, providing adequate protection of intellectual

property rights, and operating an open market economy under established multilateral trade rules.

In the 111th Congress, the House Ways and Means and Senate Finance Committees have held

hearings on the operation and impact of these programs. In the first session, Congress

legislatively extended the GSP and ATPA for a one-year, ending December 31, 2010 (P.L. 111-

124). In the second session, it has extended provisions in the CBPTA and HOPE Act through

September 30, 2020 in the Haiti Economic Lift Program Act of 2010 (P.L. 111-171). Other bills

introduced include H.R. 1837 and S. 1665, which would extend ATPA to additional countries; and

S. 1141 and S. 4101, which would expand product coverage for certain least-developed countries.

 

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 such as Canada,

Japan, the European Union (EU), and Australia provide similar preferences. 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 (D

FQF) 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, so 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.

 

Contents

Background ...............................................................................................................................1

Generalized System of Preferences (GSP) .............................................................................2

Regional Programs................................................................................................................3

The Caribbean.................................................................................................................3

Andean Trade Preference Act (ATPA) .............................................................................4

African Growth and Opportunity Act (AGOA) ................................................................5

Preference Programs and the WTO..............................................................................................6

Stakeholder Perspectives .............................................................................................................7

Economic Issues .........................................................................................................................8

Program Effectiveness—Use of U.S. Trade Preferences ........................................................8

Developing Country Economic Effects................................................................................12

Comparative Advantage and Development ..........................................................................13

Export Diversification.........................................................................................................14

Preference Erosion..............................................................................................................14

Country Usage Concentration..............................................................................................15

Eligibility Issues .................................................................................................................15

Effects on the U.S. Market ..................................................................................................16

Legislative Options for Congress...............................................................................................17

Renewal Period...................................................................................................................18

Harmonization ....................................................................................................................19

Country Coverage ...............................................................................................................19

Eligibility Criteria ...............................................................................................................21

Product Coverage................................................................................................................21

Outlook....................................................................................................................................22

Figures

Figure 1. Imports Entering Under Preference Programs, 2000-2009.............................................9

Figure 2. Preference Programs as a Percentage of All U.S. Imports, 2008 ..................................10

Figure 3. Foreign Investment Flows to Preference Receiving Countries, 2000-2009 .................. 11

Tables

Table 1. Imports by Preference Program....................................................................................10

Table A-1. Eligible Countries by Preference Program................................................................24

Table A-2. Major U.S. Imports by Preference Program..............................................................29

Appendixes

Appendix. Eligible Countries and Products Imported by Preference Program............................24

________________________________________________________________________

This information is provided to subscribers, friends, faculty, students and alumni of the School of Industrial & Labor Relations (ILR). It is a service of the Institute for Workplace Studies (IWS) in New York City. Stuart Basefsky is responsible for the selection of the contents which is intended to keep researchers, companies, workers, and governments aware of the latest information related to ILR disciplines as it becomes available for the purposes of research, understanding and debate. The content does not reflect the opinions or positions of Cornell University, the School of Industrial & Labor Relations, or that of Mr. Basefsky and should not be construed as such. The service is unique in that it provides the original source documentation, via links, behind the news and research of the day. Use of the information provided is unrestricted. However, it is requested that users acknowledge that the information was found via the IWS Documented News Service.

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Stuart Basefsky                   
Director, IWS News Bureau                
Institute for Workplace Studies 
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16 E. 34th Street, 4th Floor             
New York, NY 10016                        
                                   
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