Order Code RL33663
Generalized System of Preferences:
Background and Renewal Debate
Updated September 25, 2008
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 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). On February 7, 2008,
House Ways and Means Chairman Rangel introduced H.R. 5264, a bill seeking to
further extend the Generalized System of Preferences and other trade preference
programs, such as the Andean Trade Preference Act (ATPA), until September 30,
2010. As passed by the House on February 27 and the Senate on February 28, the
law extends only the ATPA for an additional ten months, until December 31, 2008
(P.L. 110-191). Therefore, the GSP and ATPA will expire at the end of 2008, unless
renewed by Congress.
In the 109th Congress, renewal of the GSP 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 Round. 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. The Bush Administration favored GSP renewal, but also appeared willing
to continue to review and modify the program in response to congressional concerns.
To that end, during the process of the 2006 annual review, the USTR and other
administration officials examined whether to limit, suspend, or withdraw the
eligibility of 13 major GSP beneficiaries based on certain criteria. No countries lost
overall GSP eligibility as a result of the review, but, as recommended in the
legislation that reauthorized GSP, officials examined all 83 previously granted
waivers of competitive need limits (triggered by import volumes) and withdrew
several of them — including those granting duty-free imports of jewelry from India
and Thailand, and brake parts from Brazil. New waivers granted included one for
hooked rugs from India and one for radial tires from Thailand.

This report presents, first, a brief history, economic rationale, and legal
background leading to the establishment of the GSP. 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Rules of Origin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Annual Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Graduation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
110th Congress Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Renewal Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2007 Annual GSP Review Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Other Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Effectiveness of GSP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Effects on Developing Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Economic Effects on the U.S. Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Stakeholders’ Concerns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
“Special and Differential Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Erosion of Preferential Margins . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Under-Utilization of GSP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Trade as Foreign Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Lower Costs of Imports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Conclusion and Options for Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Allow GSP To Expire . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Scrap GSP in Favor of Free-Trade Agreements or Regional Trading
Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Authorize GSP Only for Least-Developed Countries . . . . . . . . . . . . . . . . . 30
Modify GSP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Restrict Application of Preference . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Expand Application of GSP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
List of Figures
Figure 1. U.S. Imports from GSP Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

List of Tables
Table 1. Dutiable and Duty-Free Tariff Lines in Harmonized Tariff Schedule
by Product Category . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Table 2. Products for Which Competitive Need Limits Were Revoked in the
2006 and 2007 Annual Reviews . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Table 3. GSP Product Imports from Leading BDCs, 2007 . . . . . . . . . . . . . . . . . 32
Table 4. Leading GSP Beneficiaries and Total, 2007 . . . . . . . . . . . . . . . . . . . . . 34
Table 5. GSP Implementation and Extensions, 1975 - 2008 . . . . . . . . . . . . . . . 35
Table 6. Beneficiary Developing Countries and Regions for Purposes of the
Generalized System of Preferences (GSP), and Additional Qualifying
Preference Programs, July 1, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

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
Congress extended the GSP until the end of December 2008. In the 110th
Congress, the House Ways and Means Committee and the Senate Finance Committee
expressed interest in examining the effectiveness of the GSP and other trade
preference programs. The Senate Finance Committee held two hearings (one on May
16, 2007 and one on June 12, 2008) on the effectiveness of trade preference programs
with a view toward extending and reforming the GSP and other preferences.
The December 2006 - enacted GSP extension, along with renewal of certain
other preferential programs, was included in H.R. 6406 (Thomas), 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, a brief 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).

CRS-2
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.”

CRS-3
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% 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.

CRS-4
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].

CRS-5
(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.

CRS-6
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
(continued...)

CRS-7
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
22 (...continued)
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,
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.

CRS-8
exemption from duties.28 The Australian system, for example, is based on a five
percentage point margin of preference. When the Australian General Tariff (GT) is
5% or higher, the amount of the tariff is reduced by 5% for products of beneficiary
countries. When the GT rate is 5% 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, in 2007 the European
Community implemented a regulation 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 World Trade Organization. Committee on Trade and Development. The Generalized
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 provide for “graduation” of 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 5, “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;
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
(Section 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 provides adequate protection of intellectual
property rights;
! 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.

CRS-12
Products
The Trade Act of 1974 authorizes the President to designate articles (except
those 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 specifically 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 about 1,400 additional articles from least-developed BDCs
may receive similar treatment (see Table 1).48 Leading imports in 2007 included
petroleum products, especially crude oil ($8.8 billion); jewelry and jewelry parts
($3.1 billion); automobile and other passenger vehicle parts ($1.1 billion); ferroalloys
($1.0 billion); and rubber tires ($609.0 million).
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.

CRS-13
Table 1. Dutiable and Duty-Free Tariff Lines in Harmonized Tariff
Schedule by Product Category
HTS Product
Total
MFN
Duty-free
Duty-free
Additional
Category
Tariff
Duty-free
under GSP
under GSP
Duty-free
Lines in
Tariff
for LDC
under other
Category
Lines
trade
preferences
Animal and plant
1,096
304
282
402
16
products
Prepared food,
741
137
267
200
11
beverages, spirits,
tobacco
Chemicals and
2,211
742
1,021
441
6
plastics
Wood and paper
481
407
60
10
4
products
Textiles, leather,
1,320
257
176
30
223
and footwear
Glassware, precious
388
144
177
51
6
metals and stones,
jewelry
Base metals and
855
491
321
41
2
articles of base
metals
Machinery,
1,893
988
810
85
10
electronics, and
high-tech apparatus
Aircraft, autos, and
240
123
77
40
0
other transportation
Miscellaneous
543
201
186
89 66
manufacturing
Fuels
72
41
7
24
0
Apparel
667
44
22
0
0
Totals
10,507
3,879
3,406
1,413
344
Source: U.S. General Accountability Office.
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, $135 million in 2008, and $140 million in 2009) or if 50% or more of total

CRS-14
U.S. imports of a product entering under 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

All competitive need limits are automatically waived for least-developed and
sub-Saharan African beneficiaries.52 Waivers for BDCs may also be provided (in
some cases automatically) if total U.S. imports of a product from all countries is
small or “de minimis” ($19 million in 2008 and $19.5 million in 2009),53 or if the
GSP-eligible article was not produced in the United States on January 1, 1995
(known as a 504(d) waiver).54
Rules of Origin. Eligible goods must also meet specific 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 the 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%
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
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).
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).

CRS-15
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
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
On May 15, 2008, the USTR announced the beginning of its 2008 Annual GSP
Product and Country Eligibility Practices Review.59 Results of the 2007 review were
published in the Federal Register on July 3, 2008, and are discussed in more detail
below.60
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.61 The last
beneficiaries to graduate from the GSP program were Trinidad and Tobago because
the President determined that they had become “high income” countries.62
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).63
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).
58 19 U.S.C. 1332(g), 19 U.S.C. 2463
59 73 F.R. 28174.
60 Presidential Proclamation 8272 of June 3, 2008, 73 F.R. 38297.
61 19 U.S.C. 2462(e).
62 73 F.R. 38297 at 38298.
63 72 F.R. 459. USTR officially announced the graduation of Bulgaria and Romania on
January 22, 2007 (72 F.R. 2717).

CRS-16
110th Congress Developments
On February 7, 2008, House Ways and Mean Committee Chairman Rangel
introduced H.R. 5264, a bill seeking to extend the GSP, the Andean Trade Preference
Act (ATPA), and the Caribbean Basin Economic Recovery Act (CBERA) until
September 2010. After committee consideration of the measure, the bill was
amended to seek a ten-month extension for the ATPA only (was scheduled to expire
on Friday, February 29), until December 31, 2008. The bill was subsequently
reported out of committee, and passed the House on February 27 under suspension
of the rules, and the Senate by unanimous consent on February 28. The President
signed the bill on February 9, 2008 (became P.L. 110-191).
This summer, the House also passed a one-year extension of the GSP as part of
a as part of a bill also seeking to create a new preference program for the Dominican
Republic’s pants producers in exchange for their use of U.S. pocketing fabric (H.R.
6560, passed House July 29, 2008). The bill is currently awaiting action in the
Senate.
On June 12, 2008, the Senate Finance Committee conducted an oversight
hearing focusing on ways to reform trade preference programs, including the
Generalized System of Preferences. According to committee staff, the hearing was
a first step toward a possible bill seeking to reform trade preference programs.64
Renewal Issues. In previous years that the GSP has been set to expire, its
subsequent renewal has been generally considered non-controversial. In years that it
was not renewed prior to repeal, it was widely expected that Congress would
retroactively renew the preference as it did in the Trade Act of 2002.65 In 2008,
however, as in the case of the previous (December 2006) renewal, the continuation
GSP program is a matter of some debate. In part, some in Congress continue to be
concerned that certain “more advanced” developing countries (such as India and
Brazil) are receiving benefits to the exclusion of more lesser-developed countries.
In addition, some GSP beneficiaries, such as Brazil, India, and Thailand are
perceived by some Members as obstructing a successful conclusion to the Doha
Round of trade talks in the World Trade Organization.
Although the Bush Administration reportedly supports GSP renewal, USTR
efforts have demonstrated a willingness to modify the program to address some of
these congressional concerns. According to the GSP statute, the President has the
authority to revise country eligibility criteria and allowable tariff lines (except for
64 “Senate Finance Mulls Preference Overhaul, May Focus on Poorest,” Washington Trade
Daily
, June 13, 2008.
65 In each instance since 1993 (the last time that the program expired) it was allowed to lapse
and was extended retroactively from the expiration date to the date of enactment. P.L. 107-
210, for example, applied the preference to any goods entering the United States between
September 30, 2001 and August 6, 2002. See Table 5, “GSP Implementation and Extension,
1975 - 2006). The 2006 renewal (until December 2008) was the first time since 1993 that
the program had not been allowed to lapse prior to renewal.

CRS-17
statutorily excluded products) without congressional action, and the administration
seems to favor this approach as opposed to comprehensive legislative reform.

2006 Developments. As part of its 2006 annual review of the GSP, the
USTR announced that the TPSC would conduct a more comprehensive evaluation
of the GSP program than it had in previous years in order to find “whether the
Administration’s operation of the program should be changed so that benefits are not
focused on trade from a few countries and developing countries that traditionally
have not been major traders under the program receive benefits.”66 When
announcing the 2006 review, USTR Schwab indicated that the additional review was
due to concerns of some in Congress that “GSP benefits go largely to a few countries,
while many developing countries are not trading much under the program.”67
In that context, all previously granted CNL waivers were individually evaluated,
in addition to the standard practice of examining requests for new CNL waivers. The
TPSC also said that it would also examine the eligibility status of several “middle
income” economies (Argentina, Brazil, Croatia, India, Indonesia, Kazakhstan,
Philippines, Romania, Russia, South Africa, Thailand, Turkey, and Venezuela) based
on (1) their World Bank classification as upper-middle-income economies and (2)
the fact that exports from each of these countries accounted for more than 0.25% of
world goods exports in 2005 as reported by the WTO.68
Although none of the above countries were graduated or otherwise removed
from GSP eligibility as a result of the 2006 review, several competitive need limit
waivers (meaning that these products had been permitted to be imported duty-free
under GSP despite the statutory import thresholds) from these countries were
revoked. For example, effective July 1, 2007, Brazil lost CNL waivers for
ferrozirconium and some motor vehicle parts exports, and India and Thailand lost
CNL waivers for precious metal jewelry articles. See Table 2 for the complete list
of revoked CNL waivers in 2006 and 2007.
Some in Congress objected to the revocation of these CNL waivers, and
legislation was introduced (H.R. 3427, McDermott) to place conditions on revoking
these and other waivers.69
66 Ibid.
67 “Schwab Calls for GSP Extension, Singles Openness to Some Changes,” Inside U.S.
Trade, August 4, 2006.
68 71 F.R. 45079.
69 The bill sought to require that, in order for a CNL waiver to be revoked, the ITC must
determine that its revocation (1) will not reduce the current level of exports from the BDC;
(2) will not materially benefit one or more countries that are not designated as BDCs; and
(3) will not materially benefit one or more countries with a higher volume of exports of the
same product to the United States.

CRS-18
Table 2. Products for Which Competitive Need Limits Were
Revoked in the 2006 and 2007 Annual Reviews
HTS No.
Description
GSP Partner
Total 2006
Share of
Rate of
or 2007
U.S.
Duty (if
Imports
Imports
not GSP)
(millions)
0802.90.94
Kola nuts, fresh or
Cote d’Ivoire
$4.5
86.3%
5 cents/kg
(2006)
dried, shelled
(2006)
1202.20.40
Peanuts (ground-
Argentina
$6.6
100.0%
6.6
(2007)
nuts), not roasted or
(2007)
cents/kg
cooked, shelled,
subject to add. US
note 2 to Ch. 12
2905.11.20
Methanol (Methyl
Venezuela
$263.2
16.2%
5.5%
(2006)
alcohol) other than
(2006)
imported only for
use in producing
synthetic natural gas
(SNG) or for direct
use as fuel
7113.19.29
Gold necklaces and
India
266.4
23.3%
5.5%
(2006)
neck chains (o/than
(2006)
of rope or mixed
links)
7113.19.50
Precious metal
India
$2,211.2
33.2%
5.5%
(2006)
(other than silver)
(2006)
articles of jewelry
and parts, whether
or not plated or clad
with precious metal,
nesoi
7113.19.50
(see above)
Thailand
$700.4
10.5%
5.5%
(2006)
(2006)
7113.19.50
(see above)
Turkey
$232.5
3.7%
5.5%
(2007)
(2007)
7202.93.80
Ferroniobium, nesoi
Brazil
$151.2
91.9%
5%
(2007)
(2007)
7202.99.10
Ferrozirconium
India
$0.5
96.9%
4.2%
(2006)
(2006)
8544.30.00
Insulated ignition
Philippines
$359.0
6.0%
5.0%
(2006)
wiring sets and
(2006)
other wiring sets of
a kind used in
vehicles, aircraft, or
ships

CRS-19
HTS No.
Description
GSP Partner
Total 2006
Share of
Rate of
or 2007
U.S.
Duty (if
Imports
Imports
not GSP)
(millions)
8708.30.50
Pts. and access. of
Brazil
$31.9
6.0%
2.5%
(2006)
motor vehicles of
(2006)
8701, nesoi, and
8702-8705, brakes
and servo-brakes &
parts thereof
9405.50.30
Non-electrical
India
$17.3
79.6%
5.7%
(2006)
lamps and lighting
(2006)
fixtures, of brass
Year in parentheses indicates year in which the CNL waiver for above products was revoked. Value
of imports and import share reflect imports in year of revocation.
Source: Trade Policy Staff Committee, GSP Subcommittee. 2007 Annual Review of GSP. Available
at [http://www.ustr.gov].
2007 Annual GSP Review Results
Results of the 2007 annual review, as published in the Federal Register on July
3, 2008 (Proclamation 8272 of June 30, 2008) were as follows:
! Trinidad and Tobago was “graduated” from the GSP program as of
January 1, 2010 on the basis that it has become a “high income”
country.
! The Republic of Serbia and the Republic of Montenegro (as
separate, independent countries) were designated as beneficiary
developing countries for purposes of the GSP.
! Several existing CNL waivers (may be granted if GSP imports
exceed statutory limits) were revoked, including peanuts from
Argentina, jewelry from Turkey, and ferroniobium from Brazil (see
above).
! Approved CNL waivers included imports of preserved cucumbers
from India, rubber tires from Indonesia, and copper cables from
Turkey.
! Almost 100 products were granted de minimis waivers (provided
when U.S. imports of a product from ALL countries are small or de
minimis
).
! Investigations on country practice issues, such as worker rights
(Bangladesh, Niger, Uzbekistan) and intellectual property violations
(Lebanon, Russia, Uzbekistan, Philippines) were continued beyond
the annual review date, with progress to be reviewed “in [a] specific
timeframe.”
Other Developments. The USTR has also published notices in the Federal
Register soliciting public comments on the possible designation of Azerbaijan (73
F.R. 19909, April 11, 2008), Kosovo (73 F.R. 54637, September 22, 2008) and

CRS-20
Vietnam (73 F.R. 35173, June 20, 2008). No determination has been announced on
these proposals as of this writing.
The Bush Administration is also seeking to expand the coverage of products
from Georgia that receive duty-free access under GSP, along with other trade and
investment initiatives. An expansion of the GSP preference in the manner proposed
would require legislative approval from Congress.70
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.71 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.
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 $313.4 billion in 2007 (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. In 2007, imports under GSP declined slightly to $30.8
billion.

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.
70 White House. “Statement by the President on Georgia.” Press Release, September 3, 2008
[http://www.whitehouse.gov].
71 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-21
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
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. regional preference schemes, such as AGOA.72 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%.73 Therefore, for
individual industries in developing countries, the positive impact of the GSP could
be seen as quite significant.
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
72 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. See also U.S. Government Accountability Office. U.S. Trade Preference
Programs Provide Important Benefits, but a More Integrated Approach Would Better
Ensure Programs Meet Shared Goals
, March 2008, p. 19
73 Ibid.

CRS-22
actually become competitive over time (trade diversion).74 Although the costs of
trade diversion are real, empirical evidence suggests that the overall effects of GSP
are relatively small.75
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 would
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 2007 represented about $30.8 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
revenue losses through forgone tariff receipts would amount to about $3.1 billion if
GSP were extended from 2007 to 2011.76
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,
74 OECD. “Making Open Markets Work for Development.” Policy Brief, October 2005, p.
2.
75 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.
76 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.

CRS-23
“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.77 Third, U.S.
producers may petition the USTR that GSP treatment granted to eligible articles be
withdrawn.78 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.79 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.
“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.80 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.81 Some of these
77 19 U.S.C. 2463(c).
78 15 C.F.R. 2007.0(b).
79 In some product categories, imports under GSP account for 25% or more of total U.S.
imports, including leather (45% of all U.S. leather imports), jewelry and jewelry parts
(43%), ferroalloys (36%), copper wire (25%), and aluminum (25%).
80 Women in International Trade (WIIT) Event. The Value of Attending a World Trade
Organization Ministerial Conference, January 20, 2006.
81 “Sen. Grassley Warns Brazil, India, on GSP; Stops Short of Predicting Graduation,”
(continued...)

CRS-24
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.82 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.”83
Erosion of Preferential Margins. Developing countries have expressed
concern about the overall progressive erosion84 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.85 Some economists point out that if multilateral rounds of tariff
reductions continue, the preference may disappear completely unless GSP tariff
headings are expanded to include more “import-sensitive” products.86
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.87 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
81 (...continued)
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.
82 Washington International Trade Association (WITA) event. “The 2006 Congressional
Trade Agenda,” February 15, 2006.
83 “Rangel Bill Would Extend Trade Benefits for Developing Countries,” Press Release,
March 30, 2006.
84 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% ad valorem. Some GSP-eligible jewelry items have tariffs
as high as 13.5%.
85 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%, in the EU 26%, in
Japan 34%, and in the United States, 50%. (Hereinafter, OECD study).
86 Sanchez Arnau, p. 282.
87 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.

CRS-25
populations), a better approach might be to “assist them in addressing the constraints
that really underlie their sluggish trade and growth performance.”88
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.89 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.90
Some observers have also suggested that the GSP may not be used by some
countries due to (1) unfamiliarity with the program, or because some BDC
governments do a poor job of promoting the existence of available opportunities
under the preference, (2) the lack of available infrastructure (for example,
undeveloped or damaged roads and ports that impede the efforts to get goods into the
international market), or (3) a combination of both.91 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
than intergovernmental aid and other means of assistance.92 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
88 OECD study, p. 27.
89 “USTR Considers Withholding Trade Benefits from India, Brazil in Wake of WTO
Debacle,” International Trade Daily, August 9, 2006.
90 Comments of various industry representatives, District of Columbia Bar International
Section meeting on GSP, September 21, 2006.
91 2008 GAO Report, pp.33-35.
92 September 21, 2006 DC Bar meeting.

CRS-26
with international political leverage that can be used to preserve U.S. foreign and
commercial interests.93
However, some beneficiary countries actively object to these “country practice”
provisions and regard them as penalties. Some countries (such as Brazil and India)
that have been targeted for eligibility review in the past perceive that such action
indicates that they are being penalized for advocating for their own national
development goals in multilateral talks.94
Moreover, some 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. 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.95 This
domestic opposition may indicate that, at times, the conditionality of the preferences
is of limited usefulness. According to USTR, however, U.S. officials work with
beneficiary countries during country practice reviews to actively address compliance
issues prior to removing the country from eligibility. Between 2001 and 2006, one
country was removed from eligibility for GSP because of intellectual property rights
concerns but was reinstated a few years later after taking steps to resolve the
problem.96
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.”97 Industry
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.98
93 The Coalition for GSP. The U.S. Generalized System of Preferences Program: An Integral
Part of the U.S. Economy
. January 1997, p. 3.
94 September 6, 2006 public comment letter to USTR from ActionAid International USA,
[http://www.ustr.gov].
95 “Grassley Throws Up Obstacle to Trade-Preference Renewal.” Congress Daily,
September 18, 2006.
96 United States Goverment Accountability Office. U.S. Trade Preference Programs: An
Overview of Use by Beneficiaries and U.S. Administrative Reviews
. GAO-07-1209,
September 2007, p.4.
97 “U.S. Retailers, Importers Push for GSP Renewal Despite Opposition,” Inside U.S. Trade,
May 5, 2006.
98 Discussion with officials of the Joint Industry Group, August 18, 2006.

CRS-27
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.99 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% 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% of U.S. imports.100
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, meaning that Congress may
consider its extension (and that of other trade preference programs set to expire)
during the second session of the 110th Congress. 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, 2015.101 The extension in the 109th Congress represented the first time
since 1984 that the program had been extended without a lapse (see Table 5).
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
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.
99 19 U.S.C. 2463(c).
100 “Administration Decides to Keep Russian GSP Benefits for Titanium,” Inside U.S. Trade,
July 9, 2004.
101 19 U.S.C. 2466b, as amended by section 7 of the AGOA Acceleration Act of 2004 (P.L.
108-274).

CRS-28
Allow GSP To Expire
The GSP statute will automatically expire for all beneficiary developing
countries on December 31, 2008,102 except for all beneficiary sub-Saharan African
countries, for which the preference is authorized through September 30, 2015.103 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.104 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.”105
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
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.106
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
102 19 U.S.C. 2465.
103 19 U.S.C. 2466b, as amended by section 7 of the AGOA Acceleration Act of 2004 (P.L.
108-274).
104 “Thomas Urges USTR to Shift from Lagging Doha Round Completing FTAs,” Inside
U.S. Trade
, April 7, 2006.
105 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
106 15 C.F.R. 2007.0(b).

CRS-29
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,107 are both
least-developed GSP beneficiaries. Other BDCs or regions with a significant
percentage of U.S. trade entering under the GSP in 2006 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.
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 agreement.108 Indeed, some countries
such as South Africa and other countries in the South African Customs Union
(SACU) have been unsuccessful in negotiating FTAs with the United States due to
107 See 66 F.R. 49059.
108 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-30
their 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.
! 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

CRS-31
operations (currently 35%)109 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).110
! 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
foreign components can be included as part of the 35% domestic
content.111
! Eliminate competitive need limitations or raise the thresholds that
trigger them.
! Ensure uniform application of country practice requirements, or
eliminate them.
109 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% (as to value) of U.S. origin (19
U.S.C. 2466a(b)(2)).
110 19 U.S.C. 2463(c).
111 GAO Report, p. 55.

CRS-32
Table 3. GSP Product Imports from Leading BDCs, 2007
MFN
Value of Imports
Country
HTS
Description
Tariff Rate
Under GSP
Petroleum oils and oils from
$6,445,874,925
10.5
Angola
27090020
bituminous minerals, crude, testing
cents/bbl
25 degrees A.P.I. or more
Petroleum oils and oils from
$325,972,329
5.25
Angola
27090010
bituminous minerals, crude, testing
cents/bbl
under 25 degrees A.P.I.
Distillate and residual fuel oil
$128,966,671
(including blends) derived from
5.25
Angola
27101905
petroleum or oils from bituminous
cents/bbl
minerals, testing under 25 degrees
A.P.I.
Naphthas (exc. motor fuel/mtr fuel
$22,983,363
10.5
blend. stock) fr petroleum oils &
Angola
27101125 cents/bbl
bitumin minerals (o/than crude) or
preps 70%+ by wt. fr petroleum oils
Marine propulsion compression-
$45,000
Angola
84081000 2.5%
ignition internal-combustion piston
engines
Other parts, nesi, suitable for use
$32,757
Angola
85030095 3%
solely or principally with the
machines in heading 8501 or 8502
$104,313
Angola All Other GSP (8 additional tariff lines)
Angola Total GSP
$6,923,979,358
Precious metal (o/than silver) articles
$1,085,429,686
of jewelry and parts thereo, whether
India
71131950 5.5%
or not plated or clad with precious
metal,nesoi
Gold necklaces and neck chains
$260,985,675
India
71131929 5.5%
(o/than of rope or mixed links)
Wind-powered electric generating
$109,429,188
India
85023100 2.5%
sets
Hand-hooked carpets and other
$103,308,377
textile floor coverings, tufted,
India
57031020 6%
whether or not made up, of wool or
fine animal hair
Silver articles of jewelry and parts
$87,680,414
India
71131150 5%
thereof, nesoi, valued over $18 per
dozen pieces or parts
India All Other GSP (1878 additional tariff lines)
$3,087,683,016
India Total GSP
$4,734,516,356
Precious metal (o/than silver) articles
$303,273,565
of jewelry and parts thereo, whether
Thailand
71131950 5.5%
or not plated or clad with precious
metal,nesoi

CRS-33
MFN
Value of Imports
Country
HTS
Description
Tariff Rate
Under GSP
Silver articles of jewelry and parts
$279,225,589
Thailand
71131150 5%
thereof, nesoi, valued over $18 per
dozen pieces or parts
New pneumatic radial tires, of
$192,021,536
Thailand
40112010 4%
rubber, of a kind used on buses or
trucks
Insulated ignition wiring sets and
$111,749,408
Thailand
85443000 5%
other wiring sets of a kind used in
vehicles, aircraft or ships
Food preparations not elsewhere
$92,263,248
Thailand
21069099 6.4%
specified or included, not canned or
frozen
Thailand All Other GSP (1146 additional tariff lines)
$2,841,873,170
Thailand Total GSP
$3,820,406,516
Brazil
72029380 5%
Ferroniobium, nesoi
$150,468,996
Doors of wood, other than French
$97,297,376
Brazil
44182080 4.8%
doors
Refined copper cathodes and sections
$92,496,568
Brazil
74031100 1%
of cathodes
Builders’ joinery and carpentry of
$84,445,460
Brazil
44189046 3.2%
wood, nesoi
AC motors nesi, multi-phase, of an
$80,218,266
Brazil
85015380 2.8%
output exceeding 150 kW
Brazil All Other GSP (1391 additional tariff lines)
$2,921,911,225
Brazil Total GSP
$3,426,837,891
Plywood sheets n/o 6 mm thick, with
$158,646,527
specified tropical wood outer ply,
Indonesia
44123140 8%
with face ply nesoi, not surface-
covered beyond clear/transparent
New pneumatic radial tires, of
$148,938,720
rubber, of a kind used on motor cars
Indonesia
40111010 4%
(including station wagons and racing
cars)
Fatty substances of animal or
$144,667,698
Indonesia
38249040 4.6%
vegetable origin and mixtures
thereof, nesoi
Insulated ignition wiring sets and
$123,430,336
Indonesia
85443000 5%
other wiring sets of a kind used in
vehicles, aircraft or ships
Aluminum alloy, plates/sheets/strip,
$120,444,937
Indonesia
76061230 3%
w/thick. o/0.2mm, rectangular (incl.
sq), not clad
Indonesia All Other GSP (710 additional tariff lines)
$1,546,717,310
Indonesia Total GSP
$2,242,845,528
Source: USITC Trade Dataweb, [http://dataweb.usitc.gov].
Note: Imports for consumption, actual U.S. dollars. Tariff rates are ad valorem unless otherwise
specified.

CRS-34
Table 4. Leading GSP Beneficiaries and Total, 2007
Beneficiary
Total Imports
GSP Duty-Free Imports
Rank
Developing
($ millions)
($ millions)
Country
1
Angola
$12,211
$6,924
2
India
$23,857
$4,735
3
Thailand
$22,685
$3,820
4
Brazil
$25,018
$3,427
5
Indonesia
$14,411
$2,243
6
Equatorial Guinea
$1,683
$1,313
7
South Africa
$9,132
$1,190
8
Philippines
$9,397
$1,165
9
Turkey
$4,616
$1,128
10
Argentina
$4,258
$666
Imports from Top 10
$127,268
$26,611
Beneficiaries
Total Imports from all
$313,405
$30,831
Beneficiaries
Source: U.S. International Trade Commission Dataweb, at [http://dataweb.usitc.gov].

CRS-35
Table 5. GSP Implementation and Extensions, 1975 - 2008
Public Law
Effective Date
Date Expired
Notes
P.L. 93-618, Title V,
January 2, 1975
January 2, 1985
Statute originally
Trade Act of 1974
enacted.
P.L. 98-573, Title V,
October 30,
July 4, 1993
Substantially amended
Trade and Tariff Act of
1984
and restated.
1984
P.L. 103-66, Section
August 10,
September 30,
Extended retroactively
13802
1993
1994
from July 5, 1993 to
(in Omnibus Budget
August 10, 1993. Also
Reconciliation Act,
struck out reference to
1993)
“Union of Soviet
Socialist Republics”
P.L. 103-465, Section
December 8,
July 31, 1995
Extended retroactively
601 Uruguay Round
1994
from September 30,
Agreements Act
1994 to December 8,
1994. No other
amendments to
provision.
P.L. 104-188, Subtitle
October 1,
May 31, 1997
Substantially amended
J, section 1952
1996 (for GSP
and restated. Extended
GSP Renewal Act of
renewal only)
retroactively from
1996 (in Small
August 1, 1995 to
Business Job Protection
October 1, 1996.
Act of 1996)
P.L. 105-34, Subtitle H,
August 5, 1997
June 30, 1998
Extended retroactively
section 981
from May 31, 1997 to
(in Taxpayer Relief Act
August 5, 1997. No
of 1997)
other amendments to
provision.
P.L. 105-277, Subtitle
October 21,
June 30, 1999
Extended retroactively
B, section 101
1998
from July 1, 1998 to
(in Omnibus
October 21, 1998. No
Consolidated and
other amendments to
Emergency
provision.
Supplemental
Appropriations, 1999)
P.L. 106-170, section
December 17,
September 30,
Extended retroactively
508,
1999
2001
from July 1, 1999 to
(in Ticket to Work and
December 17, 1999.
Work Incentives Act of
No other amendments
1999)
to provision.

CRS-36
Public Law
Effective Date
Date Expired
Notes
P.L. 107-210, Division
August 6, 2002
December 31,
Extended retroactively
D, Title XLI
2006
from September 30,
Trade Act of 2002
2001 to 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,
December 31,
Extended before
2006
2008
program lapse.

CRS-37
Table 6. Beneficiary Developing Countries and Regions for Purposes of the
Generalized System of Preferences (GSP), and Additional Qualifying Preference
Programs, July 1, 2008
Afghanistan A+
Guyana E
Seychelles
Albania
Haiti A+ E
Sierra Leone A+
Algeria
India
Solomon Islands
Angola A+
Indonesia
Somalia A+
Argentina
Iraq
South Africa
Armenia
Jamaica E
Sri Lanka
Bangladesh A+
Jordan
Suriname
Belize E
Kazakhstan
Swaziland
BeninA+
Kenya
Tanzania A+
BhutanA+
Kiribati A+
Thailand
Bolivia J
Kyrgyzstan
Togo A+
Bosnia and Hercegovina
Lebanon
Tonga
Botswana
Lesotho A+
Trinidad and Tobago E
Brazil
Liberia A+
Tunisia
Burkina Faso A+
Macedonia, Former Yugoslav

Turkey
Burundi A+
Republic of
Tuvalu A+
Cambodia A+
Madagascar A+
Uganda A+
Cameroon
Malawi A+
Ukraine
Cape Verde A+
Mali A+
Uruguay
Central African Republic A+
Mauritania A+
Uzbekistan
Chad A+
Mauritius
Vanuatu A+
Colombia J
Moldova
Venezuela
Comoros A+
Mongolia
Republic of Yemen A+
Congo (Brazzaville)
Mozambique A+
Zambia A+
Congo (Kinshasa) A+
Namibia
Zimbabwe
Costa Rica E
Nepal A+
Cote d’Ivoire
Niger A+
Croatia
Nigeria
Djibouti A+
Oman
Dominica E
Pakistan
East Timor
Panama E
Ecuador J
Papua New Guinea
Egypt
Paraguay
Equatorial Guinea A+
Peru J
Eritrea
Philippines
Ethiopia A+
Russia
Fiji
Rwanda A+
Gabon
St. Kitts and Nevis E
Gambia, The A+
Saint Lucia E
Georgia
Saint Vincent and the Grenadines E
Ghana
Samoa A+
Grenada E
Sao Tome and Principe A+
Guinea A+
Senegal
Guinea-Bissau A+
Serbia and Montenegro
Source: Harmonized Tariff Schedule of the United States (2008).
A+ 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)

CRS-38
Non-Independent Countries and Territories
Anguilla
Gibraltar
Saint Helena
British Indian Ocean Territory
Heard Island and McDonald Islands
Tokelau
Christmas Island (Australia)
Montserrat
Turks and Caicos Islands
Cocos (Keeling) Islands
Niue
Virgin Islands, British
Cook Islands
Norfolk Island
Wallis and Fortuna
Falkland Islands (Islas Malvinas)
Pitcairn Islands
West Bank and Gaza Strip
Source: Harmonized Tariff Schedule of the United States, 2008
Associations of Countries (treated as one country)
Member Countries of the Cartagena Agreement
Qualifying Member Countries of the Southern
(Andean Group)
Africa Development Community (SADC)
Bolivia
Botswana
Colombia
Mauritius
Ecuador
Tanzania
Peru
Qualifying Member Countries of the South Asian
Member Countries of the West African Economic
Association for Regional Cooperation (SAARC)
and Monetary Union (WAEMU)
Bangladesh
Benin
Bhutan
Burkina Faso
India
Cote d’Ivoire
Nepal
Guinea-Bissau
Pakistan
Mali
Sri Lanka
Niger
Senegal
Qualifying Member Countries of the Caribbean
Togo
Common Market (CARICOM)
Belize
Qualifying Member Countries of the Association of
Dominica
South East Asian Nations (ASEAN)
Grenada
Cambodia
Guyana
Indonesia
Jamaica
Philippines
Montserrat
Thailand
St. Kitts and Nevis
Saint Lucia
Saint Vincent and the Grenadines
Source: Harmonized Tariff Schedule of the United States, 2008.