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Congressional Research Service (CRS)

 

Generalized System of Preferences: Background and Renewal Debate

Vivian C. Jones, Specialist in International Trade and Finance

December 16, 2014

http://www.fas.org/sgp/crs/misc/RL33663.pdf

[full-text, 37 pages]

 

Summary

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. 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, and has not been

renewed. Imports under the GSP program in 2012 (last full year of GSP implementation)

amounted to about $19.9 billion—about 6% of all imports from GSP countries, and about 1% of

total U.S. imports.

 

The expiration of GSP means that renewal of the program may continue to be a legislative issue

in the 114th Congress. In recent years, GSP renewal has been somewhat controversial. In the 113th

Congress, controversy arose over the funding provisions in Senate bill S. 1331 seeking to renew

GSP. Other GSP legislation introduced in the 113th Congress included H.R. 2709, H.R. 2139, and

H.R. 1682.

 

The GSP program 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 are regionally focused, and 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 122 BDCs, and duty-free status to an additional 1,500 products

from 43 GSP beneficiaries that are additionally designated as least-developed beneficiary

developing countries (LDBDCs).

 

U.S. implementation of GSP requires that developing countries meet certain criteria to be eligible

for the program. For example, countries must not have seized ownership or control of the assets

of U.S. citizens or have harmed U.S. investors in other specified ways. Eligible countries must

also be taking steps to maintain internationally recognized worker rights among other things. GSP

rules of origin require that at least 35% of the appraised value of the product be the “growth,

product, or manufacture” of the BDC. Third, the GSP program includes certain curbs on product

eligibility intended to shield U.S. manufacturers and workers from potential adverse impact due

to the duty-free treatment. These include specific exclusion of certain “import sensitive” products

(e.g., textiles and apparel), and limits on the quantity or value of any one product imported from

any one country under the program (products from least-developed beneficiaries are not subject

to this restriction). Fourth, GSP country and product eligibility are subject to annual review.

 

This report presents, first, recent developments and 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. 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.

 

Contents

Introduction ...................................................................................................................................... 1

Countries Recently Suspended from or Included in GSP .......................................................... 1

113th Congress Legislation ........................................................................................................ 2

History, Rationale, and Comparison of GSP Programs ................................................................... 3

Economic and Political Basis .................................................................................................... 3

GATT/WTO Framework ........................................................................................................... 4

Enabling Clause................................................................................................................... 5

Additional Commitment to LDCs ....................................................................................... 5

Comparison of International GSP Programs ............................................................................. 6

EU GSP Changes................................................................................................................. 7

Future Canada Changes ....................................................................................................... 8

United States GSP Implementation .................................................................................................. 8

Eligible Countries ...................................................................................................................... 9

Reporting Requirements .................................................................................................... 11

Least-Developed Beneficiaries.......................................................................................... 11

Country Graduation from GSP .......................................................................................... 11

Countries Potentially Eligible for GSP ............................................................................. 12

Eligible Products ..................................................................................................................... 13

Rules of Origin .................................................................................................................. 13

Competitive Need Limits and Waivers .............................................................................. 13

De Minimis CNL Waivers ................................................................................................. 14

Waivers for Articles not Produced in the United States on January 1, 1995 ..................... 14

Annual Reviews....................................................................................................................... 15

2012 Annual Review Results ............................................................................................ 15

Pending 2013 Review........................................................................................................ 15

Effectiveness of the U.S. GSP Program ......................................................................................... 15

Effects on Developing Countries ............................................................................................. 16

Economic Effects on the U.S. Market ..................................................................................... 18

Stakeholders’ Concerns .................................................................................................................. 19

“Special and Differential Treatment” ...................................................................................... 19

Erosion of Preferential Margins .............................................................................................. 20

Under-Utilization of GSP ........................................................................................................ 21

Trade as Foreign Assistance .................................................................................................... 21

Conditionality of Preferences .................................................................................................. 22

Lower Costs of Imports ........................................................................................................... 22

Conclusion and Options for Congress ........................................................................................... 23

Suspend GSP ........................................................................................................................... 23

Negotiate Free-Trade Agreements with GSP Countries .......................................................... 23

Authorize GSP Only for Least-Developed Countries .............................................................. 24

Reform GSP............................................................................................................................. 24

Expand Application of GSP .............................................................................................. 25

Restrict Application of Preferences ................................................................................... 25

 

Figures

Figure 1. U.S. Imports from GSP Countries, 1996 - 2012 ............................................................. 16

 

Tables

Table A-1. Leading U.S. GSP Product Imports, 2012 ................................................................... 26

Table A-2. Leading GSP Beneficiaries and Total, 2012 ................................................................ 27

Table B-1. GSP Implementation and Renewal, 1974-2013 ........................................................... 29

Table C-1.Beneficiary Developing Countries and Regions for Purposes of the Generalizes System of Preferences ................ 31

 

Appendixes

Appendix A. Leading U.S. GSP Product Imports .......................................................................... 26

Appendix B. GSP Implementation and Renewal ........................................................................... 29

Appendix C. GSP Beneficiary Countries ....................................................................................... 31

 

Contacts

Author Contact Information........................................................................................................... 33

 

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