Order Code RL33663
Generalized System of Preferences:
Background and Renewal Debate
Updated May 22, 2007
Vivian C. Jones
Specialist in International Trade and Finance
Foreign Affairs, Defense, and Trade Division

Generalized System of Preferences:
Background and Renewal Debate
Summary
The Generalized System of Preferences (GSP) provides duty-free tariff
treatment to certain products imported from designated developing countries. The
United States, the European Union, and other developed countries implemented such
programs in the in the 1970s in order to promote economic growth in developing
countries by stimulating their exports. The U.S. program (as established by Title V
of the Trade Act of 1974) was extended until December 31, 2008, in section 8002 of
P.L. 109-432 for all GSP beneficiary countries not covered by the African Growth
and Opportunity Acceleration Act of 2004 (P.L.108-274, extended GSP benefits for
AGOA beneficiary countries through September 30, 2015).
In the 109th Congress, renewal of the preference was somewhat controversial,
owing, in part, to concerns of some that some of the more advanced beneficiary
developing countries (such as India and Brazil) were contributing to the impasse in
multilateral trade talks in the World Trade Organization (WTO) Doha Development
Agenda (DDA). Compromise language worked out between the House and Senate
extended the GSP for two years for all countries, while directing that the President
“should” revoke “competitive need limitation” waivers for products from certain
countries, based on the criteria specified.
Because Congress extended the GSP until December 2008, its further extension
will continue to be a legislative issue in the 110th Congress. In addition, the House
Ways and Means Committee and the Senate Finance Committee have each expressed
interest in examining the effectiveness of the GSP and other trade preference
programs.
The Bush Administration favored GSP renewal, but also appears willing to
continue to review and modify the program in order to respond to congressional
concerns. To that end, the USTR and other administration officials are examining
whether to limit, suspend, or withdraw the eligibility of 13 major GSP beneficiaries
based on certain criteria. As recommended in the GSP renewal language, the USTR
is also reviewing all 83 current waivers of automatic competitive need limits
(triggered by import volumes) to see if any waivers should be withdrawn. In
addition, petitions for new waivers are being considered as part of the annual 2006
review of the GSP program.
This report presents, first, a brief history, economic rationale, and legal
background leading to the establishment of the Generalized System of Preferences.
A brief comparison of GSP programs worldwide, especially as they compare to the
U.S. system, is also presented. Second, the U.S. implementation of the GSP is
discussed, 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 are presented. Fourth, possible implications of the
expiration of the U.S. program and other possible options for Congress are discussed.
This report will be updated as events warrant.

Contents
History and Rationale of the GSP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Economic Basis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
International Legal Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Comparison of International GSP Programs . . . . . . . . . . . . . . . . . . . . . . . . . 7
U.S. Implementation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Beneficiary Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Reporting Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Least-Developed Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Competitive Need Limits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Rules of Origin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Annual Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Graduation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
109th Congress Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Effectiveness of GSP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Effects on Developing Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Economic Effects on the U.S. Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Stakeholders’ Concerns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
“Special and Differential Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Erosion of Preferential Margins . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Under-Utilization of GSP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Trade as Foreign Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Lower Costs of Imports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Conclusion and Options for Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Allow GSP To Expire . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Scrap GSP in Favor of Free-Trade Agreements or
Regional Trading Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Authorize GSP Only for Least-Developed Countries . . . . . . . . . . . . . . . . . 28
Modify GSP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Restrict Application of Preference . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Expand Application of GSP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
List of Figures
Figure 1. U.S. Imports from GSP Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

List of Tables
Table 1. GSP Product Imports from Leading BDCs, 2006 . . . . . . . . . . . . . . . . . 31
Table 2. Leading GSP Beneficiaries and Total, 2006 . . . . . . . . . . . . . . . . . . . . . 32
Table 3. GSP Implementation and Extensions, 1975-2006 . . . . . . . . . . . . . . . . 33
Table 4. Beneficiary Developing Countries and Regions for Purposes of
the Generalized System of Preferences . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

Generalized System of Preferences:
Background and Renewal Debate
The Generalized System of Preferences (GSP) provides preferential tariff
treatment to certain products imported from designated developing countries. The
United States, the European Union, and other developed countries implemented such
programs in the 1970s in order to promote economic growth in developing countries
by stimulating their exports.
The U.S. program (as established by Title V of the Trade Act of 1974) was
extended through December 31, 2008, in section 8002 of P.L. 109-432. The African
Growth and Opportunity Acceleration Act of 2004 (P.L.108-274) had previously
extended GSP preferences for all beneficiary developing sub-Saharan African
countries under the African Growth and Opportunity Act (AGOA) through
September 30, 2015.1
Since Congress extended the GSP until the end of December 2008, its extension
beyond that date will likely be a legislative issue in the second session of the 110th
Congress. In addition, both the House Ways and Means Committee and the Senate
Finance Committee have expressed interest in examining the effectiveness of the
GSP and other trade preference programs. The Senate Finance Committee held a
hearing on the effectiveness of all trade preference programs, including GSP, on
May 16, 2007.
The recently enacted GSP extension, along with renewal of certain other
preferential programs, was included in H.R. 6406 (Thomas, introduced on December
7, 2006), a tariff and trade bill introduced in the post-election session of the 109th
Congress. The bill, as approved by the House, was appended to the engrossment of
the House amendment of the Senate amendment to H.R. 6111 (see Title VIII). House
and Senate compromise legislation extended the GSP for two years for all countries,
while directing that the President “should” revoke “competitive need limitation”
waivers that have been in effect for five years or more if imports under the waiver
reached certain thresholds during the preceding calendar year.
This report presents, first, a brief history, economic rationale, and legal
framework behind establishment of the Generalized System of Preferences, and a
brief comparison of GSP programs worldwide. Second, a description of U.S.
implementation of the GSP program is presented, along with recent legislative
developments and the debate surrounding its renewal. Third, an analysis of the U.S.
program’s effectiveness and the positions of various stakeholders are discussed.
1 19 U.S.C. 2466b, as amended by section 7 of the AGOA Acceleration Act of 2004 (P.L.
108-274).

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Fourth, possible implications of GSP expiration and other options for Congress are
mentioned.
History and Rationale of the GSP
The basic principle behind the GSP is to provide certain goods originating in
developing countries with preferential market access (usually in the form of lower
tariff rates or duty-free status) to developed country markets in order to spur
economic growth. The program was first adopted internationally in 1968 by the
United Nations Conference on Trade and Development (UNCTAD) at the UNCTAD
II Conference.2
Economic Basis
The GSP was established based on an economic theory that preferential tariff
rates in developed country markets could promote export-driven industry growth in
developing countries. It was believed that this, in turn, would help to free
beneficiaries from heavy dependence on trade in primary products, whose slow long-
term growth and price instability contributed to chronic trade deficits.3 It was
thought that only the larger markets of industrialized trading partners were large
enough to provide enough economic stimulus to attain these goals.4
Some economists also mention that the Generalized System of Preferences was
established, in part, as a means of reconciling two widely divergent economic
perspectives of trade equity that arose during early negotiations on the General
Agreement on Tariffs and Trade (GATT).5 Industrialized, developed nations argued
that the most-favored-nation principle6 should be the fundamental principle
governing multilateral trade, while lesser-developed countries believed that equal
treatment of unequal trading partners did not constitute equity and called for “special
2 U.N. Conference on Trade and Development, “About GSP,” at [http://www.unctad.org].
In addition to the United States, the European Union and 11 other industrialized countries
— Australia, Belarus, Bulgaria, Canada, Japan, New Zealand, Norway, Switzerland, and
the Russian Federation — currently have GSP programs.
3 OECD Secretary-General. The Generalized System of Preferences: Review of the First
Decade
. Organization of Economic Cooperation and Development, 1983, p. 9 (hereinafter
OECD GSP Review).
4 Ibid.
5 Sapir, A. and L. Lundberg, “The U.S. Generalized System of Preferences and its Impacts,”
in R. Baldwin and A. Krueger (eds.) The Structure and Evolution of Recent U.S. Trade
Policy, Chicago: The University of Chicago Press, 1984.
6 The most-favored-nation principle means that countries must treat imports from other
trading partners on the same basis as that given to the most favored other nation. Therefore,
with certain exceptions (including GSP, regional trading arrangements, and free trade
agreements), every country gets the lowest tariff that any country gets, and reductions in
tariffs to one country are provided also to others. The term “most-favored-nation” has been
changed in U.S. law to “normal trade relations.”

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and differential treatment” for developing countries. GSP schemes thus became one
of the means of offering a form of special treatment that developing nations sought
while allaying the fears of developed countries that tariff “disarmament” might
create serious disruptions in their domestic markets.7
Due to differences in developed countries’ economic structures and tariff
programs — as well as different domestic industries and products each wanted to
shield from such competition — it proved difficult to create one unified system of
identical tariff concessions. Therefore, the GSP became a system of individual
national schemes based on common goals and principles — each with a view toward
providing developing countries with generally equivalent opportunities for export
growth.8 As a result, the preference-granting countries implemented various
individual schemes of temporary, generalized, non-reciprocal, non-discriminatory
preferences under which tariffs were lowered or eliminated on certain imports from
developing countries.
As a condition for providing such tariff preferences, GSP preference-granting
countries reserved the right to (1) exclude certain countries; (2) determine product
coverage; (3) determine rules of origin governing the preference; (4) determine the
duration of the scheme; (5) reduce any preferential margins accruing to developing
countries by continuing to lower or remove tariffs as a result of multilateral
negotiations; (6) prevent the concentration of benefits among a few countries; and (7)
include safeguard mechanisms or “escape” clauses.9
Although GSP programs were intended to be temporary, an international legal
framework under the GATT (as discussed below) was developed to allow these
programs to continue. Additionally, many developed countries have also decided to
grant additional market access, through GSP or other preferential programs, to
products of countries they designate as least-developed countries (LDCs). At the
sixth World Trade Organization (WTO) Ministerial Conference in Hong Kong in
December 2005, developed country WTO members and “developing country
members declaring themselves in a position to do so” agreed to deepen this
commitment by providing “duty-free and quota-free market [DFQF] access on a
lasting basis, for all products originating from all least developed countries by 2008
or no later than the start of the implementation period in a manner that ensures
stability, security and predictability.”10 Members “facing difficulties” with providing
such access would be permitted to exempt 3 percent of all tariff lines, provided they
take steps to achieve the goal of total duty- and quota-free access by incrementally
building on the list of covered products.11 Since DDA talks have been suspended,
this duty-free/quota-free offer is in jeopardy.
7 OECD GSP Review, p. 11.
8 Ibid., p. 10.
9 Wall, David. “Problems with Preferences.” International Affairs, vol. 47, October 1971,
p. 95.
10 World Trade Organization. Ministerial Declaration, Annex F. December 18, 2005,
WT/MIN(05)/DEC.
11 Ibid.

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International Legal Framework12
Because it is a preference program, by its very nature, the GSP posed a problem
under the GATT in that the granting of preferences would be facially inconsistent
with the fundamental obligation placed on GATT Parties in GATT Article I:1 to
grant most-favored-nation (MFN) tariff treatment to the products of all other GATT
Parties. As noted, however, preference programs were viewed as vehicles of trade
liberalization and economic development for developing countries. Thus, GATT
Parties accommodated them in a series of joint actions.
In 1965, the GATT Parties added Part IV to the General Agreement, an
amendment that recognizes the special economic needs of developing countries and
asserts the principle of non-reciprocity. Under this principle, developed countries
forego the receipt of reciprocal benefits for their negotiated commitments to reduce
or eliminate tariffs and restrictions on the trade of less developed contracting
parties.13 Because of the underlying MFN issue, GATT Parties in 1971 adopted a
waiver of Article I for GSP programs, which allowed developed contracting parties
to accord more favorable tariff treatment to the products of developing countries for
ten years.14 The GSP was described in the decision as a “system of generalized, non-
reciprocal and non-discriminatory preferences beneficial to the developing
countries.”
At the end of the Tokyo Round of Multilateral Trade Negotiations in 1979,
developing countries secured adoption of the Enabling Clause, a permanent deviation
from MFN by joint decision of the GATT Contracting Parties.15 The Clause states
that notwithstanding GATT Article I, “contracting parties may accord differential and
more favourable treatment to developing countries, without according such treatment
to other contracting parties” (¶1) and applies this exception to:
(a) Preferential tariff treatment accorded by developed contracting parties to
products originating in developing countries in accordance with the Generalized
System of Preferences;
12 This section was written by Jeanne Grimmett, Legislative Attorney, American Law
Division. For further discussion of trade preference programs in light of obligations under
the General Agreement on Tariffs and Trade (GATT), see CRS Report RS22183, Trade
Preferences for Developing Countries and the WTO
, by Jeanne J. Grimmett [hereinafter
CRS Report RS22183].
13 Edmond McGovern, International Trade Regulation ¶ 9.212 (updated 1999)[hereinafter
McGovern]. Part IV is generally viewed as non-binding, though some have argued
otherwise with regard to certain of its provisions. Id.; John H. Jackson, William J. Davey
& Alan O. Sykes, Jr., Legal Problems of International Economic Relations 1171 (4th ed.
2002).
14 GATT, Generalized System of Preferences; Decision of 25 June 1971, L/3545 (June 28,
1971), available at [http://www.wto.org/gatt_docs/English/SULPDF/90840258.pdf].
15 GATT, Differential and More Favourable Treatment, Reciprocity and Fuller Participation
of Developing Countries; Decision of 28 November 1979, L/4903 (December 3,
1979)(footnotes omitted), available at [http://www.wto.org/gatt_docs/English/SULPDF/
90970166.pdf] [hereinafter Enabling Clause].

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(b) Differential and more favorable treatment with respect to the provisions of
the General Agreement concerning non-tariff measures governed by the
provisions of instruments multilaterally negotiated under the auspices of the
GATT;
(c) Regional or global arrangements entered into amongst less-developed
contracting parties for the mutual reductions or elimination of tariffs and, in
accordance with criteria or conditions which may be prescribed by the
CONTRACTING PARTIES for the mutual reduction or elimination of non-tariff
measures, on products imported from one another;
(d) Special treatment on the least developed among the developing countries in
the context of any general or specific measures in favour of developing countries
(¶ 2).
To describe the GSP, the Clause refers to the above-quoted description in the 1971
waiver, i.e., a “system of generalized, non-reciprocal and non-discriminatory
preferences beneficial to the developing countries.”16 Among other things, the
Clause further provides, at ¶ 3(c), that any differential and more favorable treatment
provided under the Clause “shall in the case of such treatment accorded by developed
contracting parties to developing countries be designed and, if necessary, modified,
to respond positively to the development, financial and trade needs of developing
countries.”
In addition, if a GATT Party (now WTO Member) who has instituted a GSP
program subsequently takes action “to introduce modification or withdrawal of the
differential treatment so provided,” the Member is required to notify and consult with
other WTO Members. Specifically, ¶ 4(a) requires the acting Member to notify
WTO Members as a whole and to “furnish them with all the information they may
deem appropriate relating to such action.” Further, under ¶ 4(b), the Member must
“afford adequate opportunity for prompt consultations at the request of any interested
contracting party with respect to any difficulty or matter that may arise.” If requested
by any such interested party, WTO Members must as a whole consult with all WTO
Members concerned over the issue at hand with the aim of reaching a solution that
is satisfactory to all such Members. This requirement does not affect any Member’s
rights under the GATT.17
Paragraph 7 of the Clause provides that the less-developed WTO Members
“expect that their capacity to make contributions or negotiated concessions or take
other mutually agreed action under the provisions and procedures of the General
Agreement would improve with their progressive development of their economies
and improvement in their trade situation and they would accordingly expect to
participate more fully in the framework of rights and obligations under the General
Agreement.” This paragraph is generally considered to support the “graduation”of
a beneficiary country out of a grantor’s GSP program by the grantor, either entirely
or with respect to particular products, once the beneficiary country has attained a
16 Id. at ¶ 2, note 3.
17 Id. at ¶ 4, note 1.

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certain level of economic development.18 The Enabling Clause does not contain
express criteria or procedures for graduation, however, leaving grantor countries to
establish criteria on a unilateral basis.
The Enabling Clause also states that it “would remain open for the
CONTRACTING PARTIES to consider on an ad hoc basis under the GATT provisions
for joint action any proposals for differential and more favourable treatment not
falling within the scope of this paragraph,” that is, a program that does not fit within
one of the four categories described above.19 This provision suggests the use of
GATT waivers for more ambitious programs; in practice, waivers have been adopted
for a variety of such programs, including several U.S. non-GSP tariff preferences.20
The Enabling Clause was incorporated into the GATT 1994 upon the entry into
force of the Uruguay Round agreements on January 1, 1995.21 In 1999, the WTO
General Council adopted a decision, captioned “Preferential Tariff Treatment for
Least-Developed Countries,” which waived GATT Article I:1 until June 30, 2009,
“to the extent necessary to allow developing country Members to provide preferential
tariff treatment to products of least-developed countries, designated as such by the
United Nations, without being required to extend the same tariff rates to like products
of any other Member.”22 Along with setting out various standards and notification
18 Note also ¶ 4 of the Enabling Clause requiring grantors to notify GATT parties in the
event of modification or withdrawal of GSP benefits. See generally Simon Lester, The
Asian Newly Industrialized Countries to Graduate from Europe’s GSP Tariffs
, 36 Harv. Int’l
L. J. 220 (1995); Gregory O. Lunt, Graduation and the GATT: The Problem of the NICs, 31
Colum. J. Transnat’l L. 611 (1994); Robert E. Hudec, GATT and the Developing Countries,
1992 Colum. Bus. L. Rev. 67.
19 Enabling Clause, supra note 15, at ¶ 2, note 2.
20 CRS Report RS22183, supra note 12, at 3-4. The United States has pending waiver
requests for the Caribbean Basin Economic Recovery Act, as amended by the United States-
Caribbean Trade Partnership Act (through September 30, 2008), the Andean Trade
Preference Act, as amended by the Andean Trade Promotion and Drug Eradication Act
(through December 31, 2006), and the African Growth and Opportunity Act (through
September 30, 2015). Some WTO Members, e.g., China and Pakistan, have expressed
concerns regarding U.S. treatment of textiles in these programs, while Paraguay has objected
to the U.S. request in part because of its exclusion from the Andean preference scheme. See
Goods Council approves waiver for EC’s trade preference scheme for the Western Balkans
,
WTO News Item, July 18, 2006, at [http://www.wto.org/english/news_e/news06_e/
gc_july06_e.htm]; Minutes of the Meeting of the Council for Trade in Goods, May 9, 2006,
at 3-11, G/C/M/84 (June 29, 2006); Minutes of the Meeting of the Council for Trade in
Goods
, March 10, 2006, at 3-13, G/C/M/83 (May 1, 2006).
21 Agreement Establishing the World Trade Organization, Annex 1A, General Agreement
on Tariffs and Trade 1994, ¶ 1(b)(iv); see Appellate Body Report, European Communities
— Conditions for the Granting of Tariff Preferences to Developing Countries
, ¶ 90.3,
WT/DS246/AB/R (April 7, 2004)[hereinafter EC Preferences Appellate Body Report].
22 Preferential Tariff Treatment for Least-Developed Countries; Decision on Waiver,
WT/L/304 (June 17, 1999) (adopted June 15, 1999), at [http://docsonline.wto.org/ DDF
Documents/t/WT/L/304.DOC][hereinafter 1999 LDC Waiver]; see also discussion in WTO
Committee on Trade and Development, Note on the Meeting of 2 March 1999, at 2-6,
(continued...)

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and procedural requirements, the waiver also provides that it “does not affect in any
way and is without prejudice to rights of Members in their actions pursuant to” the
Enabling Clause.”23
In addition, in a WTO dispute proceeding brought by India challenging special
GSP benefits maintained by the European Communities (EC), European
Communities — Conditions for the Granting of Tariff Preferences to Developing
Countries
(WT/DS246), the WTO Appellate Body addressed the issue of the extent
to which a granting country may accord such benefits within a GSP program to
countries meeting a separate set of criteria. The dispute stemmed from an EC
Regulation which awarded tariff preferences to a closed group of 12 beneficiary
countries on the condition that they combat illicit drug production (Drug
Arrangements). India claimed that the Drug Arrangements were inconsistent with
GATT Article I:1 and could not be justified by the Enabling Clause. In its 2004
report, the Appellate Body ruled that developed countries may grant preferences
beyond those provided in their GSP to countries with particular needs, but only if
identical treatment is available to all similarly situated GSP beneficiaries.24 Among
other things, the Appellate Body cited ¶ 3(c) of the Enabling Clause, providing that
any differential and more favorable treatment provided under the Clause “shall ... be
designed and, if necessary modified to respond positively to the development,
financial and trade needs of developing countries.”25
Comparison of International GSP Programs
One economist has referred to the Generalized System of Preferences as a non-
homogeneous set of national schemes sharing certain common characteristics.26
Generally, each preference-granting country extends to qualifying beneficiary
developing countries (as determined by each benefactor) an exemption from duties
(either reduced tariffs or duty-free access) on most manufactured products and certain
“non-sensitive” agricultural products, although product coverage and preferential
treatment vary widely.27
Although most GSP schemes (including the U.S. program) admit eligible
products duty-free, some countries provide tariff reductions, rather than complete
exemption from duties.28 The Australian system, for example, is based on a five
22 (...continued)
WT/COMTD/M/24 (April 27, 1999).
23 1999 LDC Waiver, supra note 22, at ¶ 6.
24 EC Preferences Appellate Body Report, supra note 21. For further discussion of the
Appellate Body report, see CRS Report RS22183, supra note 12, at 4-6.
25 EC Preferences Appellate Body Report, supra note 21, at ¶¶ 162-165.
26 Sanchez Arnau, Juan C. The Generalized System of Preferences and the World Trade
Organization
. London: Cameron May, Ltd., 2002, p. 187.
27 Ibid.
28 World Trade Organization. Committee on Trade and Development. The Generalized
(continued...)

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percentage point margin of preference. When the Australian General Tariff (GT) is
5 percent or higher, the amount of the tariff is reduced by 5 percent for products of
beneficiary countries. When the GT rate is 5 percent or less, the preferential rate is
zero.29
In the WTO, developing country status is generally based on self-determination.
However, with regard to GSP, each preference-granting country establishes particular
criteria and conditions for defining and identifying developing country beneficiaries.
Consequently, the list of beneficiaries and exceptions may vary greatly between
countries. If political changes have taken place in a beneficiary country, the country
might be excluded from GSP programs in some countries (such as the United States)
but not in others. Most countries exclude countries if they have entered into another
kind of commercial arrangement (e.g. a free trade agreement) with any other GSP-
granting developed country.
In terms of additional GSP product coverage for LDCs, the European
Community program, which offers duty-free access or reduced tariffs for “everything
but arms,”30 is currently perhaps the most inclusive. GSP-granting countries may
also have incentive-based programs that provide enhanced benefits for beneficiary
countries that meet certain additional criteria. For example, the European
Community recently implemented a preference that grants additional GSP benefits
to those countries that have demonstrated their commitment to sustainable
development and internationally recognized worker rights.31
Each preference-granting nation also has safeguards in place to ensure that any
significant increases in imports of a certain product do not adversely affect the
receiving country’s domestic market. Generally, these restrictions take the form of
quantitative limits on goods entering under GSP. Under Japan’s system, for
example, imports of certain products under the preference are limited by quantity or
value (whichever is applicable) on a first-come, first-served basis as administered on
a monthly (or daily, as indicated) basis. For other products, import ceilings and
maximum country amounts are set by prior allotment.32
28 (...continued)
System of Preferences: A Preliminary Analysis of the GSP Schemes in the Quad. WTO
Document WT/COMTD/W/93, October 5, 2001.
29 United Nations Conference on Trade and Development. Generalized System of
Preferences on the Scheme of Australia. UNCTAD Technical Cooperation Project on
Market Access, Trade Laws and Preferences, June 2000 (INT/97/A06), p. 5.
[http://www.unctad.org/en/docs/itcdtsbmisc56_en.pdf].
30 European Communities. See Council Regulation (EC) N/ 980/2005 of 27 June 2005
applying a scheme of generalized tariff preferences (published in Official Journal of the
European Communities (OJ) L 169, 30.6.2005, p. 1.
31 Ibid.
32 World Trade Organization. Committee on Trade and Development. Notification by Japan
June 21, 2000, WT/COMTD/N/2/Add.9.

CRS-9
Each GSP benefactor also has criteria for graduation — the point at which
beneficiaries no longer qualify for benefits because they have reached a certain level
of development. Most preference-granting countries require mandatory graduation
based on a certain level of income per capita based on World Bank calculations.
Some programs also “graduate” certain GSP recipients with respect to individual
products or sectors of the economy.
U.S. Implementation
Congress authorized the U.S. Generalized System of Preferences scheme in
Title V of the Trade Act of 1974 (P.L. 93-618), as amended.33 It authorizes the
President to grant duty-free treatment under the GSP for any eligible product from
any beneficiary developing country (BDC) or least-developed beneficiary developing
country, provides the President with economic criteria in deciding whether to take
any such action,34 and also specifies certain criteria for designating eligible countries
and products.
Based on the statutory requirements which countries must meet — and continue
to practice — while participating in the program, the U.S. GSP program might be
characterized as a foreign policy tool as well as an international trade device.
Although GSP benefits are non-reciprocal, certain criteria speak to important U.S.
commercial interests, such as ensuring “equitable and reasonable” access in the
beneficiaries’ market to U.S. products, protecting intellectual property rights, and
preventing the seizure of property belonging to U.S. citizens or businesses. In
addition, since certain “import sensitive” products are excluded from eligibility and
quantitative/value limitations apply to any eligible imports, the economic costs of the
preference are quite small.
Beneficiary Countries
When designating beneficiary developing countries, the President is directed to
take into account certain mandatory and discretionary criteria. The law prohibits
(with certain exceptions) the President from extending GSP treatment to certain
countries, as follows:
! other industrial countries;
! Communist countries, unless they are a WTO member, a member of
the International Monetary Fund and receive Normal Trade
Relations (NTR) treatment;
33 Trade Act of 1974, P.L. 93-618, Title V, as amended, 19 U.S.C. 2461-2467. The GSP
Program was reauthorized and amended by the Trade and Tariff Act of 1984 (P.L. 98-573),
and again by Subtitle J (the GSP Renewal Act of 1996) of P.L. 104-188. Six laws have
authorized GSP with relatively minor modifications, most recently through December 31,
2006 (PL. 107-210). See Table 3, “GSP Implementation and Extension, 1975-2002.”
34 19 U.S.C. 2461.

CRS-10
! countries that collude with other countries to withhold supplies or
resources from international trade or raise the price of goods in a
way that could cause serious disruption to the world economy;
! countries that provide preferential treatment to the products of
another developed country in a manner likely to have an adverse
impact on U.S. commerce;
! countries that nationalize or expropriate the property of U.S.
citizens, or otherwise infringe on U.S. citizens’ property rights
(including failure to recognize or enforce arbitral awards in favor of
U.S. citizens or corporations);
! countries that grant sanctuary from prosecution to any individual or
group that has committed an act of international terrorism, or has not
taken steps to support U.S. efforts against terrorism;
Mandatory criteria also require that beneficiary countries:
! have taken or be taking steps to grant internationally recognized
worker rights (including collective bargaining, freedom from
compulsory labor), minimum age for employment of children, and
acceptable working conditions with respect to minimum wages,
hours of work, occupational safety and health); and
! implement any commitments they make to eliminate the worst forms
of child labor.35
The President is also directed to consider certain discretionary criteria, such as
the following:
! the country’s desire to be designated a beneficiary developing
country for purposes of the U.S. program;
! the level of economic development of the country;
! whether or not other developed countries are extending similar
preferential tariff treatment;
! its commitment to a liberal trade policy;
! the extent to which it provides adequate protection of intellectual
property rights;
35 19 U.S.C. 2462(b). The most recent amendments required the support of U.S. efforts
against terrorism and expanded the definition of internationally recognized worker rights
(sec. 4102 of P.L. 107-210). See also United States Trade Representative. U.S. Generalized
System of Preferences Guidebook
, January 2006, p. 19. (Hereinafter, USTR Guidebook.)

CRS-11
! the extent to which it has taken action to reduce trade-distorting
investment policies and practices; and
! whether or not it has taken steps to grant internationally recognized
worker rights.36
The law authorizes the President, based on the required and discretionary factors
mentioned above, to withdraw, suspend or limit GSP treatment for any beneficiary
developing country at any time.37
Reporting Requirements. The President must advise Congress of any
changes in beneficiary developing country status, as necessary.38 The President must
also submit an annual report to Congress on the status of internationally recognized
worker rights within each BDC, including findings of the Secretary of Labor with
respect to the beneficiary country’s implementation of its international commitments
to eliminate the worst forms of child labor.39
Least-Developed Beneficiaries. The President is also authorized by statute
to designate any BDC as a least-developed beneficiary, based on an assessment of the
conditions and factors previously mentioned.40 Therefore, although factors such as
per capita income level, economic stability, and quality of life indicators (on which
the United Nations-designated list of LDCs is based) are taken into account,41 the
U.S. administration also assesses the level of compliance with other GSP statutory
requirements and comments from the public before identifying a country as “least-
developed” for purposes of the GSP.42

As requested by the WTO, the Bush Administration has formally notified its
trading partners of all the domestic legislative and regulatory steps necessary in order
to comply with the duty-free/quota-free access (DFQF) provision agreed to at the
Hong Kong Ministerial. However, the United States also advised other WTO
members that implementation of the initiative is contingent on successful completion
of negotiations in the Doha Development Agenda.43
36 19 U.S.C. 2462(c). Ibid., p. 20.
37 19 U.S.C. 2462(d).
38 19 U.S.C. 2462(d)(3).
39 19 U.S.C. 2464.
40 19 U.S.C. 2462(a)(2).
41 19 U.S.C. 2462(c)(2).
42 See 71 F.R. 43543.
43 World Trade Organization. Committee on Trade and Development. “Duty-Free, Quota-
Free Access for Least-Developed Countries.” Communication from the United States, May
16, 2006. WT/COMTD/W/149.

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Products
The Trade Act of 1974 authorizes the President to designate articles (except
those specifically designated “import sensitive” in the statute) as eligible for duty-free
treatment under the GSP after receiving advice from the International Trade
Commission.44 “Import sensitive” products excluded from preferential treatment
include textiles and apparel; certain watches; footwear and other accessories; certain
electronics, steel, and glass products; and certain agricultural products subject to
tariff-rate quotas.45 The lists of eligible products and the list of beneficiary
developing countries are reviewed and revised annually by the GSP Subcommittee.46
Any modifications to these lists usually take effect on July 1 of the following
calendar year.47
In terms of product coverage, more than 3,400 products are currently eligible for
duty-free treatment, and 1,400 additional articles from least-developed BDCs may
receive similar treatment.48 Leading imports in 2005 included petroleum products,
especially crude oil ($5.7 billion); jewelry and jewelry parts ($3.4 billion);
automobile and other passenger vehicle parts ($1.43 billion); ferroalloys ($669.0
million); and rubber tires ($629.3 million).
Competitive Need Limits. The law establishes “competitive need limits”
(CNLs) that require the President to automatically suspend GSP treatment if imports
of a product from a single country reach a specified threshold value ($130 million in
2007) or if 50% or more of total U.S. imports of a product entering the preference
come from a single country.49
CNL waivers for products imported from BDCs may be granted on the basis of
certain criteria. In deciding whether to grant a waiver, the President must (1) receive
advice from the International Trade Commission as to whether a U.S. domestic
industry could be adversely affected by the waiver, (2) determine that the waiver is
in the U.S. economic interest, and (3) publish the determination in the Federal
Register.50 The President is also required to give “great weight” to the extent to
which the BDC opens its markets and resources the United States, provides
internationally recognized worker rights, and protects intellectual property rights.51
44 19 U.S.C. 2463(a)(1).
45 19 U.S.C. 2463(b).
46 The GSP Subcommittee is a sub-group of the Trade Policy Staff Committee, given
jurisdiction over designating beneficiary countries and covered products in the GSP program
in Executive Order 11846, 40 F.R. 14291, as amended.
47 USTR Guidebook, p. 8.
48 USTR Guidebook, p. 6.
49 19 U.S.C. 2463(c)(2)(A). USTR Guidebook, p. 10.
50 19 U.S.C. 2463(d).
51 19 U.S.C. 2463(d)(2).

CRS-13

All competitive need limits are automatically waived for least-developed and
sub-Saharan African beneficiaries.52 Waivers may also be provided (in some cases
automatically) if total U.S. imports of a product from all countries is small or “de
minimis
” ($17.5 million in 2005),53 or if the GSP-eligible article was not produced
in the United States on January 1, 1995.54
Rules of Origin. Eligible goods must also meet certain domestic content or
“rules of origin” requirements in order to qualify for GSP status. According to the
statute, duty-free entry is only allowed if the article is imported directly from the
beneficiary country into the United States. In addition, at least 35% of the appraised
value of an eligible product must be the “growth, product or manufacture” of a
beneficiary developing country, as defined by the sum of (1) the cost or value of
materials produced in the beneficiary developing country (or any two or more
beneficiary countries that are members of the same association or countries and are
treated as one country for purposes of the U.S. law) plus (2) the direct costs of
processing in the country.55 Any inputs from third countries must be “substantially
transformed” into new and different constituent materials if they are to be considered
part of the 35 percent domestic content rule.56
Annual Review
The U.S. GSP program is subject to annual review by the GSP Subcommittee
of the Trade Policy Staff Committee (TPSC), a body chaired by the Office of the U.S.
Trade Representative (USTR), and including representatives from the Departments
of Agriculture, Commerce, Interior, Labor, State, and the Treasury.57 The GSP
Subcommittee (also responsible for making initial country eligibility
recommendations) considers and makes recommendations to the President
concerning the continued eligibility of countries to receive benefits. The GSP
subcommittee also resolves questions regarding BDC’s observance of country
practices (such as worker rights, or protection of intellectual property rights);
investigates petitions to add or remove items from the list of eligible products; and
considers which products should be removed on the basis that they are “sufficiently
competitive” or “import sensitive.” In preparation for the annual review, the USTR
52 19 U.S.C. 2462(c)(2)(D). USTR Guidebook, p. 11.
53 19 U.S.C. 2463(c)(2)(F).
54 19 U.S.C. 2463(c)(2)(E).
55 19 U.S.C. 2463(a).
56 19 U.S.C. 2463(a)(2) and (3).
57 Regulations for implementation of the GSP program were issued by the Office of the
United States Trade Representatives at 15 C.F.R. Part 2007. Provisions for the GSP Annual
Review are set out at 15 C.F.R. § 2007.2(c)-(h). Results of the most recent (2005) annual
review of products entering under GSP were announced on July 5, 2006 (71 F.R. 38190).
Results of the 2005 annual review are available on the USTR website at [http://www.ustr.
gov/Trade_Development/Preference_Programs/GSP/Section_Index.html].

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may also seek an investigation by the International Trade Commission (ITC) for the
purpose of providing advice concerning any possible modifications to the GSP.58
The TPSC initiated the 2006 Annual Review on October 6, 2005, and
announced a second phase on August 8, 2006.59 On January 17, 2007, the USTR
announced that the GSP Subcommittee had received petitions for CNL waivers in
connection with the 2006 review, and requested public comment.60 The 2006 Annual
review, still ongoing as of this writing, is somewhat unique, because the TPSC is also
evaluating whether GSP benefits for certain countries (or their CNL waivers) should
be revoked because their receipt of benefits no longer seems to meet the goals of the
GSP program. This additional evaluation is owing, in part, to concerns expressed by
some in Congress, as well as competitiveness guidance provided by Congress in the
December 2006 GSP extension language.61
Graduation
The President may remove a beneficiary developing country from GSP
eligibility because the country is determined to be sufficiently competitive or
developed that it no longer requires GSP benefits. The President may graduate a BDC
completely, or may do so with respect to the country’s individual products or
industries. Mandatory country graduation occurs when (1) the BDC is determined
to be a “high income country” (as defined by official International Bank for
Reconstruction and Development statistics), or (2) as a result of a review of the
BDC’s advances in economic development and trade competitiveness.62 The last
beneficiaries to graduate from the GSP program were Antigua and Barbuda, Bahrain,
and Barbados because the President determined that they had become “high income”
countries.63
Countries also become ineligible for GSP benefits if they formally enter into a
bilateral trading relationship with the United States or other developed country.
Bulgaria and Romania were the last countries to become ineligible for this reason,
“effective for each of the countries when it becomes a European Member State” as
of January 1, 2007 (Presidential Proclamation 8098, December 29, 2007).64
58 19 U.S.C. 1332(g), 19 U.S.C. 2463
59 70 F.R. 58502 and 71 F.R. 45079, respectively.
60 72 F.R. 2033. The list of petitions is posted on the USTR website at [http://www.ustr.gov/
assets/Trade_Development/Preference_Programs/GSP/asset_upload_file19_10292.pdf].
61 U.S. Congress. Senate. Committee on Finance. Hearing. U.S. Preference Programs: Do
They Work?
, Statement of Meredith Broadbent, Assistant USTR for Industry, Market
Access, and Communications, May 16, 2007.
62 19 U.S.C. 2462(e).
63 69 F.R. 10131.
64 72 F.R. 459. USTR officially announced the graduation of Bulgaria and Romania on
January 22, 2007 (72 F.R. 2717).

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109th Congress Developments
In previous years that the GSP was set to expire, its subsequent renewal was
generally considered non-controversial. Even when the preference was allowed to
lapse, it was widely expected that Congress would retroactively renew the preference
as it did in the Trade Act of 2002.65 In 2006, however, renewal of the program was
a matter of some debate and speculation.
As early as January 2006, then-Senate Finance Committee Chairman Chuck
Grassley commented that renewal of GSP was “not a foregone conclusion” and that
its extension was likely to be tied to the United States receiving certain reciprocal
benefits as part of a successful conclusion of the Doha Round of trade talks.66 In his
opening statement at the hearing for USTR nominee Susan Schwab in May 2006,
Senator Grassley repeated these concerns, mentioning especially India and Brazil,
two major beneficiaries of the GSP that he perceived as “two of the countries most
responsible for holding up the Doha negotiations.”67 On that basis, he warned that
he might oppose GSP renewal as a result of their obstruction, or make sure that
eligibility requirements are tightened so that more advanced developing countries,
such as India and Brazil, are removed from the program.68 Finance Committee staff
mentioned that the chairman might be in favor of renewing the program for least-
developed beneficiaries, however.69 On September 19, 2006, Then-Senate
Agriculture Committee Chairman Saxby Chambliss also called for USTR Schwab
to consider revising the GSP program to exclude advanced developing countries such
as Brazil and India.70
Then-House Ways and Means Committee Chairman Bill Thomas introduced a
bill (H.R. 6406) on December 7, 2006, seeking to renew the GSP program for two
years.71 The bill language, reached in compromise with the Senate, amended the
statute to direct that not later than July 1 of each year, the President “should” revoke
any existing CNL waiver that has been in effect for five years or more, if a
beneficiary country has exported a quantity of the article that (1) has an appraised
65 In each instance since 1993 (the last that the program has expired, it has been allowed to
lapse and has been extended retroactively from the expiration date to the date of enactment.
P.L. 107-210 applied the preference to any goods entering between September 30, 2001, and
August 6, 2002. See Table 3, “GSP Implementation and Extension, 1975-2002.”
66 “Sen. Grassley Warns of Expiration of Unilateral Trade Preference Programs,”
International Trade Daily, January 26, 2006.
67 Senate. Committee on Finance. Hearing on the Nomination of Susan C. Schwab to be
United States Trade Representative. Opening Statement of Senator Chuck Grassley. May
16, 2006.
68 Ibid.
69 Conversation with Senate Finance staff, April 26, 2006.
70 Senate. Committee on Agriculture. Letter from Chairman Saxby Chambliss to U.S. Trade
Representative Susan Schwab, September 19, 2006.
71 House. Committee on Ways and Means. Summary of H.R. 6406, on the committee’s
website at [http://www.waysandmeans/house/gov].

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value in the previous calendar year that exceeds 150% of an annually-set trade cap,
or (2) exceeds 75% of the value of total U.S. imports of that product.72
Ways and Means Committee staff indicated that these limitations were based
on ensuring that (1) all BDCs are given an equitable portion of trade preferences
accruing from the United States and (2) BDCs share similar goals with regard to
trade liberalization.73 Passage of the measure was delayed, largely because certain
Members in support of the U.S. textile industry were concerned about a provision
also included in the bill that would allow Haiti, as well as African countries, to
import yarn from third countries and then sell duty-free apparel made with this yarn
to the United States.74
Others in Congress, including then-House Ways and Means Ranking Member
Charles Rangel and then-Senate Finance Committee Ranking Member Max Baucus
introduced legislation to extend the GSP and other preferential programs for a short-
term extension of the GSP while Congress continued to deliberate and hold hearings
on possible amendments on it and other preferential tariff programs.
USTR Schwab publicly called for GSP renewal, but also signaled that the Bush
Administration was willing to make modifications to the program to address
congressional concerns. In early August, the USTR requested public comments
“relating to whether the Administration’s operation of the program should be
changed so that benefits are not focused on a few countries and that developing
countries that have not been major traders under the program receive benefits.”75 To
that end, the TPSC announced its plan to review whether to limit, suspend, or
withdraw the eligibility of some major beneficiaries, including Argentina, Brazil,
Croatia, India, Indonesia, Kazakhstan, Philippines, Romania, Russia, South Africa,
Thailand, Turkey, and Venezuela on the grounds that in 2005 (1) the total value of
U.S. imports under GSP for each of these countries exceeded $100 million or (2) is
classified by the World Bank as an upper-middle-income economy or accounted for
more than 0.25% of world goods exports.76 The committee is also reviewing all 83
existing competitive need limitation waivers to see if any of them should be
withdrawn due to changed circumstances.77
According to the GSP statute, the President has the authority to revise country
eligibility criteria and allowable tariff lines (except for statutorily excluded products)
without congressional action. The administration stated that its favored approach
was to graduate individual industry sectors within countries (as opposed to entire
72 Section 8001 of P.L. 109-432.
73 Comments at meeting of International Section of the District of Columbia Bar
Association, September 21, 2006.
74 Van Dongen, Rachael, “Rankled by Trade Measure, North Carolina Lawmakers Delay
House Action,” CQ Today, September 25, 2006.
75 71 F.R. 45079.
76 71 F.R. 45079.
77 Ibid.

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countries) from receiving GSP benefits.78 However, when announcing the second
phase of the review in early August 2006, USTR Schwab’s remarks indicated that the
administration was responding to congressional concern by stating “one of the
concerns that Congress has raised is that GSP benefits go largely to a few countries,
while many developing countries are not trading much under the program. We want
to ensure that we are operating the program as Congress intended.”79 Some industry
officials reportedly saw this review as the USTR’s way of “controlling the situation”
by showing Congress that it already had the ability to make radical changes to the
program, thus attempting to forestall additional reform legislation.80
Legislation
H.R. 6406 (Thomas, introduced December 7, 2006) sought to renew the GSP
program for two years. The bill also sought to amend the GSP statute by giving the
President discretion, after a six-month period, to revoke CNL waivers under certain
conditions. H.R. 6406, as approved by the House by a vote of 212-184, was
appended to the engrossment of the House amendment of the Senate amendment to
H.R. 6111 (see Title VIII).81 H.R. 6111 was passed in the Senate by unanimous
consent on December 7, 2006, and signed by the President on December 20, 2006
(became P.L.109-432).
H.R. 6346 (Thomas, introduced December 5, 2006) sought to renew the GSP
program for two years. The bill also sought amend the GSP statute by limiting the
application of CNL waivers as of January 1, 2007, for certain countries and products.
S. 3933 (Inhofe, introduced September 25, 2006), sought to renew the GSP for
three years. The measure also sought to amend the factors affecting country
designation to include “the country’s position and level of cooperation with the
United States in multilateral trade negotiations.”
H.R. 6142, Title II (Thomas, introduced September 20, 2006), sought to renew
the GSP program for two years. The bill would also have prohibited the application
of CNL waivers as of January 1, 2007 for certain products and countries. The bill
also sought to extend for two years a fabric provision in AGOA that allows sub-
Saharan beneficiaries to use fabric from third countries in their duty-free exports to
the United States, as well as extend similar benefits to Haiti.
78 “Schwab Calls for GSP Extension, Signals Openness to Some Changes,” Inside U.S.
Trade
, August 4, 2006. The USTR probably referred to a larger number of countries, rather
than India and Brazil alone because, in order to be compliant with U.S. obligations under
the GATT, the same criteria for graduating countries from the GSP preference must be
applied to all countries.
79 U.S. Trade Representative. “Administration to Review Whether to Continue Trade
Benefits under the GSP Program,” Press Release, August 7, 2006, [http://www.ustr.gov].
80 “Schwab Calls for GSP Extension, Signals Openness to Some Changes,” Inside U.S.
Trade
, August 4, 2006.
81 Pursuant to section 2 of H.Res. 1100, the rule providing for its consideration.

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H.R. 6076 (Rangel, introduced September 15, 2006), the Emergency Trade
Program Extension Act of 2006, and its companion bill, S. 3904 (Baucus, introduced
the same day) seek to extend the GSP program, the Andean Trade preference, and
preferential treatment of apparel articles from AGOA countries for two years. The
bills also would require hearings in the relevant House and Senate committees on the
future and efficacy of trade preference programs, as well as their compatibility with
U.S. WTO obligations.
H.R. 5070 (Rangel, introduced March 30, 2006), the Trade Preference
Extension and Expansion Act of 2006, sought to renew the GSP program for one year
(until December 31, 2007) and implement the duty-free quota-free initiative with
respect to certain textiles, apparel, and agricultural products.
S. 191 (Smith, introduced January 31, 2005), the Tariff Relief Assistance for
Developing Economies (TRADE) Act, and its companion bill H.R. 886 (Kolbe,
introduced February 17, 2005) sought to extend AGOA-type benefits to Asian and
Pacific least-developed countries. It would have, subject to an import sensitivity test
by the ITC, include as eligible for duty-free access watches, import-sensitive
electronic, steel, and glass articles; footwear; handbags; and luggage. It would also
have provided duty-free and quota-free benefits for textiles and apparel similar to the
benefits provided by AGOA. The 15 countries designated to receive benefits were
Afghanistan, Bhutan, Bangladesh, Cambodia, East Timor, Samoa, Solomon Islands,
Sri Lanka, Tuvalu, Vanuatu, Yemen, Kiribati, Laos, Maldives, and Nepal.
Effectiveness of GSP
The statutory goals of the GSP are, in part, to (1) promote the development of
developing countries, (2) promote trade, rather than aid, as a more efficient way of
promoting economic development, (3) stimulate U.S. exports in developing country
markets, and (4) promote trade liberalization in developing countries.82 It is difficult
to assess whether or not the program has achieved these goals, however, because the
GSP is only one of many such foreign aid initiatives employed by the United States
to assist poorer countries. Economic success within countries is also related to
internal factors, such as stability, wise policy decisions, availability of infrastructure
to foster industry, and legal/financial frameworks that encourage foreign investment.
What follows, therefore, are general comments, rather than hard data, about the
impact of GSP on developing countries, and possible economic effects on the U.S.
market. The positions of various stakeholders regarding the value of the program are
also discussed.
82 P.L. 98-573, section 501(b), 19 U.S.C. 2461 note. Additional factors are to allow for
differences in developing countries; help developing countries generate foreign exchange
reserves, further integrate developing countries into the international trading system; and
encourage developing countries to eliminate trade barriers, guard intellectual property rights,
provide worker rights; and address concerns of the United States with regard to adverse
affects on U.S. producers and workers and compliance with GATT obligations.

CRS-19
Effects on Developing Countries

In the last ten years, total U.S. imports from BDCs have increased dramatically,
from $107.8 billion in 1996 to $278.0 billion in 2005 (see Figure 1). This may
indicate, in very general terms, that the GSP and other preferential programs have
helped create some export-driven growth in developing countries. Total exports
entering under the preference have also increased markedly, from $11.6 billion in
1996 to $32.6 billion in 2006. However, the percentage of goods entering the United
States under the GSP program, relative to total U.S. imports from BDCs, has
remained relatively flat — at around 10%. This may be due, in part, to the presence
of the automatic competitive need limits (absent CNL waivers) on GSP-eligible
products, and mandatory graduation of countries from the program.
Another indicator of the GSP’s impact on developing countries is the utilization
rate of the preference. At first glance, it seems that only a few beneficiary developing
countries use GSP to a great extent. However, as one study pointed out, the apparent
lack of utilization masks the fact that many GSP-eligible goods may also be imported
duty-free under other U.S. preference schemes, such as AGOA. The study also
illustrated that, for certain industries in BDCs, the positive impact of GSP is quite
significant. For example, for all agricultural commodities eligible for GSP treatment,
the GSP utilization rate was approximately 58 percent.83 Therefore, for individual
industries in developing countries, the positive impact of the GSP might be seen as
quite significant.
Figure 1. U.S. Imports from GSP Countries
300
Source: ITC Trade Dataweb
250
Total U.S. Imports from
GSP Countries
200
150
100
50
Total U.S. Imports Entering
under GSP
0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
83 Organization for Economic Cooperation and Development (OECD). Agriculture and
Food
. Preferential Trading Arrangements in Agricultural and Food Markets The Case of the
European Union and the United States: United States Preference Schemes. Volume 2005,
No. 1, p. 81.

CRS-20
Many developing countries with a natural competitive advantage in certain
products use trade preferences such as the GSP to gain a foothold in the international
market. For example, India and Thailand have well-established jewelry industries,
and Argentina enjoys an advantage in certain leather goods that are imported under
the preference. Exporters in these industries have been able to expand their
international reach through GSP programs. On the other hand, some countries may
be encouraged by preferential programs to develop industry sectors where they will
never be able to compete, thus diverting resources from other industries that might
actually become competitive over time (trade diversion).84 Although the costs of
trade diversion are real, empirical evidence suggests that the overall effects of GSP
are relatively small.85
The lack of reciprocity in the GSP program could also result in long-term costs
for beneficiary countries. In multilateral trade negotiations, such as the DDA,
countries may engage in reciprocal tariff reductions, meaning that all parties agree
to reduce their tariffs. By avoiding such reciprocal concessions, some developing
countries may have tended to keep in place protectionist trade policies that may, in
fact, impede their long-term growth. Moreover, these preferences can become an
impediment to negotiations as developing countries seek ways of maintaining their
preferences from eroding.
For this reason, many economists prefer multilateral, nondiscriminatory tariff
cuts because preferential tariff programs, such as the GSP, can lead to inefficient
production and trade patterns. When tariffs are reduced across-the-board, rather than
in a preferential manner, countries tend to produce and export on the basis of their
comparative advantage — thus exporting products that they produce relatively
efficiently and importing products that others produce relatively efficiently.
However, while some developing country producers (especially those whose products
do not qualify under GSP) may benefit from multilateral tariff reductions, other
industries may be hurt because their margin of preference under GSP is reduced.
Economic Effects on the U.S. Market
Overall effects of the GSP on the U.S. economy are relatively small. Imports
under the program in 2006 represented about $32.6 billion, in comparison to total
U.S. imports of $1.9 trillion. In addition, the rate of increase of imports entering
under GSP in the past ten years is relatively flat (see Figure 1), indicating that there
may be little impact on the U.S. market as a whole by extending the preference. In
federal budgetary terms, the Congressional Budget Office (CBO) estimated that
84 OECD. “Making Open Markets Work for Development.” Policy Brief, October 2005, p.
2.
85 Laird, Samuel and Andre Sapir. Tariff Preferences. In Finger, J. Michael and Andrzej
Olechowski, eds. The Uruguay Round: A Handbook on the Multilateral Trade Negotiations.
Washington, World Bank, 1987, p. 105.

CRS-21
revenue losses through forgone tariff receipts would amount to about $3.1 billion if
GSP were extended from 2007 to 2011.86
U.S. producers of import-competing products are largely protected from severe
economic impact. First, certain products, such as textiles and apparel, are designated
“import sensitive” and therefore ineligible for duty-free treatment. Second,
“competitive need limits” (discussed in more detail above) are triggered when
imports of a product from a single country reach a specified threshold value or when
50% of total U.S. imports of a product come from a single country.87 Third, U.S.
producers may petition the USTR that GSP treatment granted to eligible articles be
withdrawn.88 The fact that, as illustrated in Figure 1, the dollar amount of imports
entering under GSP has remained fairly level for at least the past 10 years may also
indicate that the GSP has little impact on most domestic producers.
Many U.S. manufacturers and importers benefit from the lower cost of
consumer goods and raw materials imported under the GSP program. U.S. demand
for certain individual products, such as jewelry, leather, and aluminum, is quite
significant.89 However, it is difficult to gauge, other than anecdotally, the overall
impact of the GSP program on the U.S. market when compared to similar imports
from other countries that do not receive the preference. It is possible that some
merchandise entering under the GSP could be competitive even without the
preference, but it is also possible that the duty-free status is the primary factor that
makes imports from these countries more attractive.
Stakeholders’ Concerns
Supporters of the GSP include beneficiary developing country governments and
exporters, U.S. importers, and some U.S. manufacturers who use inputs entering
under GSP in downstream products. Some policymakers favor GSP renewal
because they believe it is an important development and foreign policy tool. Those
who oppose the program include U.S. producers who manufacture competing
products, and some in Congress who favor more reciprocal approaches to trade
policy. What follows is a thematic approach to the major topics of discussion in the
GSP renewal debate.
86 Congressional Budget Office. The Budget and Economic Outlook: Fiscal Years 2007 to
2016
, Table 4.10., “Effects of Extending Tax Provisions Scheduled to Expire Before 2016.”
CBO estimates that revenue losses would be %0.3 billion in FY2006, $0.6 billion in FY2007
and 0.7 billion in 2008 and 2009. Estimates are based on the assumption that the quantity
of imports under the preference will increase over the term, but do not take into account any
possible lowering of tariffs or reductions in value of imports.
87 19 U.S.C. 2463(c).
88 15 C.F.R. 2007.0(b).
89 In some product categories, imports under GSP account for 25 percent or more of total
U.S. imports, including leather (45 percent of all U.S. leather imports), jewelry and jewelry
parts (43 percent), ferroalloys (36 percent), copper wire (25 percent), and aluminum (25
percent).

CRS-22
“Special and Differential Treatment.” Developing countries have long
maintained that “special and differential treatment,” such as that provided by the
GSP, is an important assurance of access to U.S. and other developed country
markets in the midst of increasing globalization.90 Many of these countries have built
industries (or segments of industries) based on receiving certain tariff preferences.
Those who oppose automatic renewal of GSP have expressed the desire to see
some “reciprocity” and “appreciation” on the part of BDCs — in the form of offers
of improved market access — in return for renewal of the program.91 Some of these
policy makers favor continued progress in bilateral or multilateral negotiations in
lieu of extending automatic, nonreciprocal benefits such as the GSP. Others have
also charged some of the more advanced BDCs for obstructing multilateral trade
talks, especially in the WTO Doha Round.
Some observers have stated that many in Congress are becoming more skeptical
about the efficacy of any further trade concessions as they hear from constituents
about lost jobs and other domestic hardships attributed to global competition.92 Other
Members believe that extension and expansion of these programs “will send a signal
to developing countries that we will stand with them as they grow.”93
Erosion of Preferential Margins. Developing countries have expressed
concern about the overall progressive erosion94 of preferential margins as a result of
across-the-board tariff negotiations within the context of multilateral trade
negotiations such as the Doha Round. In 1997, a study prepared by the Organization
for Economic Cooperation and Development (OECD) found that the degree of
erosion of preferences resulting from Uruguay Round (1986-1994) tariff concessions
by the Quad countries (Canada, European Union, Japan, United States) was indeed
significant.95 Some economists point out that if multilateral rounds of tariff
90 Women in International Trade (WIIT) Event. The Value of Attending a World Trade
Organization Ministerial Conference, January 20, 2006.
91 “Sen. Grassley Warns Brazil, India, on GSP; Stops Short of Predicting Graduation,”
Inside U.S. Trade, May 19, 2006. “Thomas Urges USTR to Shift from Lagging Doha Round
to Completing FTAs.” Inside U.S. Trade, April 7, 2006.
92 Washington International Trade Association (WITA) event. “The 2006 Congressional
Trade Agenda,” February 15, 2006.
93 “Rangel Bill Would Extend Trade Benefits for Developing Countries,” Press Release,
March 30, 2006.
94 While overall multilateral preferences may be eroding, the tariff benefits for individual
items is still quite significant. For example, the U.S. tariff on flashlights (eligible for duty-
free access for all BDCs) is 12.5 percent ad valorem. Some GSP-eligible jewelry items have
tariffs as high as 13.5 percent.
95 Organization for International Cooperation and Development. Market Access for the
Least-Developed Countries: Where are the Obstacles?
Published by World Trade
Organization, WT/LDC/HL/19*, October 21, 1997, Table 12, p. 47. The study estimated
that in 1997, the loss in the Canadian market was approximately 71 percent, in the EU 26
percent, in Japan 34 percent, and in the United States, 50 percent. (Hereinafter, OECD
(continued...)

CRS-23
reductions continue, the preference may disappear completely unless GSP tariff
headings are expanded to include more “import-sensitive” products.96
Other economists say that preference erosion could be more than outweighed
by the benefits of increased market access, even for developing countries, brought
about by multilateral trade liberalization.97 These economists say that, rather than
continuing GSP and other preferential programs (either through inertia or concern
that removing them would be seen as “acting against” the world’s poorest
populations), a better approach might be to “assist them in addressing the constraints
that really underlie their sluggish trade and growth performance.”98
Under-Utilization of GSP. Some who oppose the program say that the
proportionately small amount of trade entering under the GSP means that the
program is under used, and therefore can be easily eliminated. Some supporters
agree that this is especially true for many least-developed country beneficiaries, who
historically are not large users of the preference.
Some in Congress favor graduating some of the more advanced BDCs, thinking
that this would leave more room for other countries, especially LDCs, to take greater
advantage of the program.99 However, some U.S. business interests have indicated
that, absent GSP eligibility, importers are likely to seek out the best alternative source
for the goods — which would probably be China.100
Some observers have also suggested that the GSP may not be used by some
countries due to unfamiliarity with the program, or because some BDC governments
do a poor job of promoting the existence of available opportunities under the
preference.101 Such problems could be addressed through U.S. trade capacity
building efforts.
Trade as Foreign Assistance. The GSP program is supported by many
observers who believe that it is an effective, low-cost means of providing economic
help to developing countries. They maintain that encouraging trade by private
companies through the GSP stimulates economic development much more effectively
95 (...continued)
study).
96 Sanchez Arnau, p. 282.
97 Baldwin, R.E. and Murray, T. “MFN Tariff Reductions and Developing Country Trade
Benefits Under the GSP,” Economic Journal 87:345, March 1977, p. 46.
98 OECD study, p. 27.
99 “USTR Considers Withholding Trade Benefits from India, Brazil in Wake of WTO
Debacle,” International Trade Daily, August 9, 2006.
100 Comments of various industry representatives, District of Columbia Bar International
Section meeting on GSP, September 21, 2006.
101 GAO Report, p. 61.

CRS-24
than intergovernmental aid and other means of assistance.102 Economic development
assistance through trade is a long-standing element of U.S. policy, and other trade
promotion programs such as the AGOA and the Caribbean Basin Trade Partnership
Act (CBTPA) are also based on this premise. However, no other U.S. preference
program is more broadly based or encompasses as many countries as the GSP.
Conditionality of Preferences. Additionally, some supporters of the GSP
and other non-reciprocal preferences believe that the conditions (such as worker
rights, intellectual property requirements, or drug eradication) incumbent on
developing countries if they are to qualify for GSP status provide the United States
with international political leverage that can be used to preserve U.S. foreign and
commercial interests.103
However, some beneficiary countries actively object to these “country practice”
provisions and regard them as penalties.104 Some countries (such as Brazil and India)
currently targeted for eligibility review perceive that such action indicates that they
are being penalized for advocating for their own national development goals in
multilateral talks.105
Moreover, intellectual property industry representatives, worker rights groups,
and other constituencies in the United States sometimes oppose, in their view, the
U.S. administration’s allegedly inconsistent enforcement of these provisions.106 For
example, one lobbying group expressed that they were “shocked and dumbfounded”
that the GSP is being annually renewed for such countries as Brazil, Venezuela, and
Russia in spite of intellectual property rights violations.107 This domestic opposition
may indicate that, at times, the conditionality of the preferences is of limited
usefulness.
Lower Costs of Imports. U.S. importers of goods who import components,
parts, or materials duty-free under the GSP maintain that the preference results in
lower costs for these intermediate goods which, in turn, can be passed on to
consumers. In a May 1, 2006 letter to the House Ways and Means and Senate
Finance committees, a coalition of importers and retailers warned that if the GSP was
allowed to expire, or if its benefits were reduced, it “would impose a costly hardship
on not only beneficiary countries but their American customers as well.”108 Industry
102 Ibid.
103 The Coalition for GSP. The U.S. Generalized System of Preferences Program: An
Integral Part of the U.S. Economy
. January 1997, p. 3.
104 GAO Report, p. 100.
105 September 6, 2006 public comment letter to USTR from ActionAid International USA,
[http://www.ustr.gov].
106 See GAO Report, Chapter 5, p. 97 ff.
107 “Grassley Throws Up Obstacle to Trade-Preference Renewal.” Congress Daily,
September 18, 2006.
108 “U.S. Retailers, Importers Push for GSP Renewal Despite Opposition,” Inside U.S.
(continued...)

CRS-25
representatives mentioned that smaller domestic manufacturers who regularly import
inputs under the preference may be especially affected by a lapse or expiration of the
program because they are less able to adjust to the increased costs that would
result.109
On the other hand, even though most U.S. producers are shielded by the
automatic safeguards triggered by increased imports under the GSP, some U.S.
manufacturers and workers might be adversely affected by the program due to CNL
waivers.110 For example, in 2004, three U.S. producers of titanium complained that
the Bush Administration refused to terminate duty-free market access for wrought
titanium (ordinarily subject to a 15 percent duty assessment), despite a petition asking
the government not to waive the import limits. Russian imports of titanium were
allowed to continue to enter duty-free under the Presidential waiver even though its
sales made up more than 60 percent of U.S. imports.111
Conclusion and Options for Congress
The U.S. program (as established by Title V of the Trade Act of 1974) was
extended for all countries (for which it had not previously been extended) through
December 31, 2008, in section 8002 of P.L. 109-432. The African Growth and
Opportunity Acceleration Act of 2004 (P.L.108-274) had previously authorized an
extension of GSP preferences for all beneficiary developing sub-Saharan African
countries under the African Growth and Opportunity Act (AGOA) through
September 30, 2015.112 The extension in the 109th Congress represented the first time
since 1984 that the program had been extended without a lapse (see Table 3).
In the 110th Congress, the House Ways and Means Trade Subcommittee has
included an evaluation of effectiveness of the GSP and other trade preference
programs in its oversight plan, and the House Ways and Means and Senate Finance
Committees have each expressed an interest in evaluating program effectiveness. In
addition, since Congress extended the GSP until December 2008, renewal beyond
that date is likely to be a legislative issue for the second session.
Several options are available to Congress with respect to the treatment of the
GSP program. As explained more fully below, Congress could allow the GSP
program to expire, support reciprocal tariff and market access benefits through free
trade agreements, renew the GSP for least-developed beneficiaries only, renew the
108 (...continued)
Trade, May 5, 2006.
109 Discussion with officials of the Joint Industry Group, August 18, 2006.
110 19 U.S.C. 2463(c).
111 “Administration Decides to Keep Russian GSP Benefits for Titanium,” Inside U.S. Trade,
July 9, 2004.
112 19 U.S.C. 2466b, as amended by section 7 of the AGOA Acceleration Act of 2004 (P.L.
108-274).

CRS-26
existing program for all beneficiaries without major amendments, or extend the
program in a modified form. Although the GSP is a unilateral and non-reciprocal
tariff preference, any changes to the program would need to be considered in light of
the requirements of the WTO Enabling Clause, as it has been interpreted by the WTO
Appellate Body. At a minimum, the United States would need to notify and possibly
consult with other WTO Members regarding any withdrawal or modification of GSP
benefits, as required by ¶ 4 of the Clause. The United States could also pursue a
WTO waiver were any modifications of the GSP program considered not to comport
fully with U.S. WTO obligations.
Allow GSP To Expire
The GSP statute will automatically expire for all beneficiary developing
countries on December 31, 2008,113 except for all beneficiary sub-Saharan African
countries, for which the preference is authorized through September 30, 2015.114 No
legislative action would be required to pursue this option.
Before the preference was renewed in 2006, some believed that if the GSP was
not renewed, it might spur positive movement in the WTO Doha Development
Agenda. This position was presented by then-House Ways and Means Chairman Bill
Thomas and then-Senate Finance Committee Chairman Chuck Grassley.115 A similar
position was also advocated in early 2002 when, while testifying on intellectual
property issues, then-USTR Robert B. Zoellick mentioned that “the threat of loss of
GSP ... benefits has proven to be an effective point of leverage with some of our
trading partners.”116 Since India and Brazil (major recipients of GSP preferences and
two of the primary advocates for developing nations in the WTO talks) faced
expiration of the preference, some asserted that they might have been moved closer
to the U.S. position in the negotiations. Due to the ongoing USTR review and the
bill language suggesting certain criteria for limiting CNL waivers, these countries
could still lose these waivers for some (or all) products, or be graduated from the
GSP program despite its extension.
On the other hand, country graduation, limitations on CNL waivers, or other
modifications to the GSP program could also weaken the hand of U.S. negotiators
in the DDA because it could no longer be used as an incentive for participation.
Many developing nations already perceive the United States as generally unwilling
to accept multilateral efforts to grant additional “special and differential treatment”
for developing country WTO members (an important DDA goal) unless more
reciprocal concessions for improved market access are made for U.S. products. As
a result, GSP expiration could cause the negotiating positions of developing countries
113 19 U.S.C. 2465.
114 19 U.S.C. 2466b, as amended by section 7 of the AGOA Acceleration Act of 2004 (P.L.
108-274).
115 “Thomas Urges USTR to Shift from Lagging Doha Round Completing FTAs,” Inside
U.S. Trade
, April 7, 2006.
116 U.S. Senate, Committee on Foreign Relations. “Examining the Theft of American
Intellectual Property at Home and Abroad.” Hearing, February 12, 2002, S. Hrg. 107-457

CRS-27
to harden, rather than soften, as they seek to make up for these lost benefits through
the negotiations.
The United States could also lose substantial leverage in addressing important
trade-related foreign policy and development concerns that beneficiary nations must
accept prior to BDC designation. Furthermore, interested parties may now file
petitions requesting the USTR to review the GSP status of BDCs based on these
statutory criteria (e.g. worker rights practices). If the program were no longer in
effect, these avenues of encouraging certain developing country practices would no
longer be available.117
Some domestic manufacturers, such as the U.S. automobile industry, may be
adversely impacted by GSP expiration or modification, at least in the short term, due
to dependence on duty-free (thus lower-cost) manufacturing inputs imported under
the preference. Smaller businesses could be disproportionately affected because they
are less able to adjust to increased costs of factors of production. On the other hand,
some U.S. manufacturers of import-competing products might, at least marginally,
benefit.
Some least-developed GSP recipients could be harmed substantially by GSP
expiration or other legislative changes. For example, Equatorial Guinea (91% of its
exports, mostly petroleum products, enter under GSP in 2006) and Angola (59% of
its exports to the United States entered under GSP in 2006), both sub-Saharan
African countries not designated recipients under the AGOA preference,118 are both
least-developed GSP beneficiaries. Other BDCs or regions with a significant
percentage of U.S. trade entering under the GSP in 2005 included Yemen (least-
developed, about 87%), the West Bank (about 29%), Zimbabwe (66%), Armenia
(60%), Paraguay (48%), Mozambique (least-developed, 70%), and Niue (70%) and
Togo (64%).
Scrap GSP in Favor of Free-Trade Agreements or Regional
Trading Arrangements

Some in Congress have suggested that the GSP should be abandoned in favor
of free trade agreements (FTAs) or regional trading arrangements (RTAs) that would
provide the United States with reciprocal benefits. Such arrangements could provide
additional markets for U.S. exports, as well as stimulate the growth of industries in
developing-country trading partners. Thus, U.S. exporters, as well as importers,
could benefit from reciprocal tariff concessions. Since these tariff concessions under
these agreements would probably apply to many more goods and industries than are
covered by the existing GSP program, they might increase the likelihood of across-
the-board economic stimulation in the developing country trading partner. In
addition, absent a favorable conclusion to the DDA negotiations, FTAs and RTAs
could also be used as a way to lead countries toward further multilateral trade
liberalization.
117 15 C.F.R. 2007.0(b).
118 See 66 F.R. 49059.

CRS-28
However, such reciprocal agreements could actually harm import-competing
U.S. manufacturers more than unilateral preferences under the GSP, because
automatic safeguards written into the statute, such as competitive need limitations,
might no longer apply. Any such agreement could also involve a greater number of
U.S. tariff concessions, thus certain import-sensitive items ineligible for GSP status
could also be on the table. On the other hand, other U.S. manufacturers might benefit
from the increased market access that an FTA or RTA would provide.
Some developing countries could also be put at a greater disadvantage in an
FTA or RTA because they are ill-equipped to implement the additional standards that
accompany a comprehensive U.S. free trade agreement119 Indeed, some countries
such as South Africa and other countries in the South African Customs Union
(SACU) have failed to reach FTAs with the United States due to inability to reach
these standards. In addition, since the GSP is the largest U.S. preferential trading
program, some developing countries that currently receive GSP benefits could easily
be left out of such agreements, either because their markets are of little commercial
value to U.S. interests, or because time constraints involved in the negotiating
process do not make it worthwhile for U.S. negotiators to include them.
Authorize GSP Only for Least-Developed Countries
Some in Congress favor modifying the GSP so that it applies only with respect
to least-developed BDCs. Since many African least-developed beneficiaries will
continue to receive the GSP preference until mid-2015 under AGOA, an LDC-only
GSP extension would apply only to the following countries: Afghanistan,
Bangladesh, Bhutan, Comoros, Cambodia, Central African Republic, Comoros,
Congo (Kinshasa), Equatorial Guinea, Haiti, Kiribati, Mauritania, Nepal, Samoa,
Somalia, Togo, Tuvalu, Vanuatu, and Yemen.
Of these countries, only six (Afghanistan, Congo [Kinshasa], Equatorial Guinea,
Samoa, Somalia, and Yemen) export goods that account for more than 10% of total
U.S. imports under the program. Therefore, if the preference were extended to LDCs
only (absent any other modifications), these countries, at least initially, would be the
primary recipients to benefit.
Modify GSP
Another possible approach for Congress would be to modify the Generalized
System of Preferences scheme as it applies to all beneficiary developing countries,
including least-developed countries.
Restrict Application of Preference. The following is a list of possible
approaches if Congress desired to extend, but further restrict, imports under the GSP:
! Refine statutory criteria for GSP treatment. For example, make the
existing discretionary criteria mandatory requirements.
119 Vamvakidis, Ahtanasios. “Regional Trade Agreements or Broad Liberalization: Which
Path Leads to Faster Growth?” IMF Staff Papers, Vol. 46:1, March 1999, p. 42.

CRS-29
! Strengthen the requirement that benefits under the preference may
(or must) be terminated for non-compliance with mandatory or
discretionary criteria. Add additional criteria to include movement
toward sustainable development or environmental preservation.
! Reconsider criteria for graduation of countries from GSP, or
strengthen the provision that allows graduation of individual
industries within beneficiary countries. For example, the President
could be required to grant BDC status only if a country (1) complies
with all mandatory requirements and (2) has a per-capita income
below a certain level.
! Modify the rules of origin requirement for qualifying products to
require that a greater percentage of the direct costs of processing
operations (currently 35%)120 originate in beneficiary developing
countries.
! Lower the threshold at which the President may (or must) withdraw,
suspend, or limit the application of duty-free treatment of certain
products (competitive need limitation).121
! Require the President to more frequently and actively monitor
(currently an annual process) the economic progress of beneficiary
countries, as well as compliance with mandatory and discretionary
criteria.
! Weed out countries considered “unfriendly” to U.S. interests, such
as Venezuela, India, and Brazil.
Expand Application of GSP. Were Congress to expand or enhance
application of the GSP, the following options could be exercised:
! Expand the list of tariff lines permitted duty-free access. Allow
some “import sensitive” products (in which developing countries
often have a competitive advantage) to receive preferential access.
! Improve rule of origin requirements to provide more predictability.
Current rules provide no measurable definition of “substantial
transformation,” therefore, U.S. officials often make eligibility
decisions on a case-by-case basis; therefore BDCs sometimes have
no predictable way of knowing before shipment whether certain
120 19 U.S.C. 2463(a)(2)(A)(ii)(II). The statute further specifies that a product may be made
in one BDC or any two or more such countries that are members of the same association of
countries and are treated as one under section 19 U.S.C. 2467(2). For beneficiary countries
under AGOA, this percentage may also include up to 15 percent (as to value) of U.S. origin
(19 U.S.C. 2466a(b)(2)).
121 19 U.S.C. 2463(c).

CRS-30
foreign components can be included as part of the 35 percent
domestic content.122
! Eliminate competitive need limitations or raise the thresholds that
trigger them.
! Ensure uniform application of country practice requirements, or
eliminate them.

122 GAO Report, p. 55.

CRS-31
Appendix
Table 1. GSP Product Imports from Leading BDCs, 2006
Country
HTS
MFN
Description
Value of
Code
Tariff
Imports under
Rate
GSP
Angola
2709002090
10.5 Crude Petroleum Testing 25 Degrees Api or
$6,655,167,460
cents/bbl More
Angola
2710190530
5.25 No 6-type Fuel Oil under 25 Degrees Api Havg
$96,496,845
cents/bbl Saybolt Universal Viscosity at 37.8 Degrees
Centigrade of More than 125 Seconds
Angola
2710190535
5.25 Heavy Fuel Oils under 25 Degrees Api Havg
$19,107,248
cents/bbl Saybolt Universal Viscosity at 37.8 Degrees
Centigrade of More than 125 Seconds, Nesoi
Angola
2710112500
10.5 Naphthas, Except Motor Fuel or Motor Fuel
$3,268,675
cents/bbl Blending Stock
Angola
8481100090
2.0% Pressure-Reducing Valves, Nesoi
$114,298
Angola
9015900060
NA Parts and Accessories of Other Geophysical
$101,619
Instruments and Appliances
Angola
All Other GSP
$0
India
7113195000
5.5% Gold or Platinum Jewelry, Whether Plated,
$2,197,263,162
Clad or Not, Nesoi
India
8502310000
2.5% Other Electric Generating Sets, Wind-Powered
$212,077,052
India
3907600010
6.5% Polyethylene Terephthalate, Bottle Grade
$102,468,980
Resins
India
5703102000
6.0% Text Carpets, Tufted, of Wool or Fah, Hand-
$97,751,211
Hooked
India
7113192900
5.5% Gold Necklaces and Neck Chains Nesoi
$88,082,567
India
All Other GSP
$2,980,309,292
Thailand
7113195000
5.5% Gold or Platinum Jewelry, Whether Plated,
$677,782,711
Clad or Not, Nesoi
Thailand
7113115000
5.0% Silver Jewelry, Articles a Pts Incl Pr Mtl Pltd
$211,734,669
Silvr Val Ov $18 per Dozen Pieces or Parts
Thailand
4011201015
4.0% New Pneumatic Tires, of Rubber, Radial, Used
$158,495,450
on Bus/Truck, on Highway, Except Light Truck
Thailand
8528122800
NA Reception Appar for Tv, Non-Hi Def, Color,
$153,550,961
Single Picture Tube, Direct View, Display
Exceeding 35.56cm. Incorporating Video
Record or Reproduce Apparatus
Thailand
4414000000
3.9% Wooden Frames for Paintings, Photographs,
$75,838,783
Mirrors or Similar Objects
Thailand
All Other GSP
$2,974,925,730
Brazil
7408116000
3.0% Refined Copper Wire with a Maximum Cross-
$177,909,329
Sectional Dimension Over 6mm but Not Over
9.5mm
Brazil
4418904590
3.2% Builders’ Joinery and Carpentry of Wood Nesoi
$140,935,577

CRS-32
Country
HTS
MFN
Description
Value of
Code
Tariff
Imports under
Rate
GSP
Brazil
8708395050
2.5% Brakes and Servo-Brakes and Parts, Nesoi, of
$130,399,733
the Motor Vehicles of Headings 8701 to 8705
Brazil
7403110000
1.0% Refined Copper Cathodes and Sections of
$123,522,244
Cathodes
Brazil
7202938000
5.0% Ferroniobium, Nesoi
$91,564,028
Brazil
All Other GSP
$3,073,364,795
Indonesia
8525408050
NA Camcorders, Not 8mm
$95,909,376
Indonesia
4412134060
NA Plywood with At Least 1 Outer Ply of Special
$83,974,501
Tropical Wood, Less than 6mm Thick, Not
Surface Covered, Nesoi
Indonesia
7606123090
3.0% Aluminum Plates Sheets a Strip Rect Inc Sq
$83,968,086
Alloy Not Clad with a Thickness of 6.3 Mm or
Less, Nesoi
Indonesia
7113195000
5.5% Gold or Platinum Jewelry, Whether Plated,
$82,347,617
Clad or Not, Nesoi
Indonesia
3907600050
6.5% Polyethylene Terephthalate, Nesoi
$74,040,710
Indonesia
All Other GSP
$1,525,453,896
Source: USITC Trade Dataweb, [http://dataweb.usitc.gov].
Note: Imports for consumption, actual U.S. dollars. Tariff rates are ad valorem unless otherwise specified.
Table 2. Leading GSP Beneficiaries and Total, 2006
Beneficiary Developing
Total Imports
GSP Duty-Free Imports
Rank
Country
($ millions)
($ millions)
1
Angola
11,514
6,774
2
India
21,674
5,678
3
Thailand
22,345
4,252
4
Brazil
26,169
3,738
5
Indonesia
13,268
1,946
6
Equatorial Guinea
1,718
1,559
7
Philippines
9,697
1,141
8
Turkey
5,387
1,126
9
South Africa
7,497
1,066
10
Venezuela
36,283
685
Imports from Top 10 Beneficiaries
155,552
27,965
Total Imports from all Beneficiaries
310,494
32,575
Source: U.S. International Trade Commission Dataweb, at [http://dataweb.usitc.gov].

CRS-33
Table 3. GSP Implementation and Extensions, 1975-2006
Public Law
Effective Date
Date Expired
Notes
P.L. 93-618, Title V,
January 2, 1975
January 2, 1985
Statute originally enacted.
Trade Act of 1974
P.L. 98-573, Title V,
October 30, 1984
July 4, 1993
Substantially amended and
Trade and Tariff Act of 1984
restated.
P.L. 103-66, Section 13802
August 10, 1993
September 30, 1994
Extended retroactively from
(in Omnibus Budget
July 5, 1993 to August 10,
Reconciliation Act, 1993)
1993. Also struck out
reference to “Union of Soviet
Socialist Republics”
P.L. 103-465, Section 601
December 8, 1994
July 31, 1995
Extended retroactively from
Uruguay Round Agreements
September 30, 1994 to
Act
December 8, 1994. No other
amendments to provision.
P.L. 104-188, Subtitle J,
October 1, 1996 (for
May 31, 1997
Substantially amended and
section 1952
GSP renewal only)
restated. Extended
GSP Renewal Act of 1996 (in
retroactively from August 1,
Small Business Job Protection
1995 to October 1, 1996.
Act of 1996)
P.L. 105-34, Subtitle H,
August 5, 1997
June 30, 1998
Extended retroactively from
section 981
May 31, 1997 to August 5,
(in Taxpayer Relief Act of
1997. No other amendments
1997)
to provision.
P.L. 105-277, Subtitle B,
October 21, 1998
June 30, 1999
Extended retroactively from
section 101
July 1, 1998 to October 21,
(in Omnibus Consolidated and
1998. No other amendments
Emergency Supplemental
to provision.
Appropriations, 1999)
P.L. 106-170, section 508,
December 17, 1999
September 30, 2001
Extended retroactively from
(in Ticket to Work and Work
July 1, 1999 to December 17,
Incentives Act of 1999)
1999. No other amendments
to provision.
P.L. 107-210, Division D,
August 6, 2002
December 31, 2006
Extended retroactively from
Title XLI
September 30, 2001 to
Trade Act of 2002
August 6, 2002. Amended to
(1) include requirement that
BDCs take steps to support
efforts of United States to
combat terrorism and (2)
further define the term
“internationally recognized
worker rights.”
P.L. 109-432, Title VIII
December 31, 2006
December 31, 2008
Extended before program
lapse.

CRS-34
Table 4. Beneficiary Developing Countries and Regions for
Purposes of the Generalized System of Preferences
(as of April 6, 2007)
Independent Countries
Afghanistan +
Georgia
Russia
Albania
Ghana G
Rwanda + G
Algeria
Grenada E
St. Kitts and Nevis E
Angola + G
Guinea + G
Saint Lucia E
Argentina
Guinea-Bissau + G
Saint Vincent and the
Grenadines E
Armenia
Guyana E
Samoa +
Bangladesh +
Haiti + E
Sao Tome and Principe + G
Belize E India
Senegal
G
Benin G
Indonesia
Serbia and Montenegro
Bhutan +
Iraq
Seychelles G
Bolivia J
Jamaica E
Sierra Leone + G
Bosnia and Hercegovina
Jordan
Solomon Islands
Botswana G
Kazakhstan
Somalia +
Brazil
Kenya G
South Africa G
Burkina Faso + G
Kiribati +
Sri Lanka
Burundi + G
Kyrgyzstan
Suriname
Cambodia+
Lebanon
Swaziland G
Cameroon G
Lesotho + G
Tanzania +
Cape Verde + G
Liberia + G
Thailand
Central African Republic +
Macedonia, Former Yugoslav
Togo +
Republic of
Chad +G
Madagascar + G
Tonga
Colombia J
Malawi + G
Trinidad and Tobago
Comoros +
Mali + G
Tunisia
Congo (Brazzaville) G
Mauritania + Turkey
Congo (Kinshasa) +
Mauritius G
Tuvalu +
Costa Rica E
Moldova
Uganda + G
Cote d’Ivoire
Mongolia
Ukraine
Croatia
Mozambique + G
Uruguay
Djibouti + G
Namibia G
Uzbekistan
Dominica E
Nepal +
Vanuatu +
East Timor +
Niger + G
Venezuela
Equador J
Nigeria G
Yemen, Republic of +
Egypt
Oman
Zambia + G
Equatorial Guinea +
Pakistan
Zimbabwe
Eritrea
Panama E
Ethiopia + G
Papua New Guinea
Fiji
Paraguay
Gabon PeruJ
Gambia, The + G
Philippines

CRS-35
Non-Independent Countries and Territories
Anguilla
Heard Island and McDonald
Turks and Caicos Islands
Islands
British Indian Ocean
Montserrat E
Virgin Islands, British E
Territory
Christmas Island (Australia) Niue
Wallis and Futuna
Cocos (Keeling) Islands
Norfolk
West Bank and Gaza Strip
Cook Islands
Pitcairn Islands
Western Sahara
Falkland Islands (Islas
Saint Helena
Malvinas)
Gibraltar
Tokelau
Associations of Countries (treated as one country)
Member Countries of the
Qualifying Member Countries of
Member Countries of the
Cartagena Agreement
the Association of South East
Caribbean Common
(Andean Group)
Asian Nations
Market (CARICOM)
Bolivia
Cambodia
Currently qualifying:
Colombia
Indonesia
Belize
Ecuador
Philippines
Dominica
Peru
Thailand
Grenada
Venezuela
Guyana
Jamaica
Montserrat
St. Kitts and Nevis
Saint Lucia
Saint Vincent and the
Grenadines
Trinidad and Tobago
Member Countries of the
Qualifying Member Countries of Qualifying Member
West African Economic
the Southern Africa
Countries of the South
and Monetary Union
Development Community
Asian Association for
Benin
(SADC)
Regional Cooperation
Burkina Faso
Botswana
(SAARC)
Cote d’Ivoire
Mauritius
Bangladesh
Guinea-Bissau
Tanzania
Bhutan
Mali
India
Niger
Pakistan
Senegal
Sri Lanka
Togo
Source: Harmonized Tariff Schedule of the United States.
+ GSP - Least-Developed Beneficiary Developing Country
J Beneficiary Country of Andean Trade Preference (ATPA)
E Beneficiary Country of Caribbean Basin Economic Trade Partnership Act (CBTPA)
G Beneficiary Country of African Growth and Opportunity Act (AGOA)