Generalized System of Preferences:
Background and Renewal Debate
Vivian C. Jones
Specialist in International Trade and Finance
January 9, 2013
Congressional Research Service
7-5700
www.crs.gov
RL33663
CRS Report for Congress
Pr
epared for Members and Committees of Congress
Generalized System of Preferences: Background and Renewal Debate
Summary
The U.S. Generalized System of Preferences (GSP) program provides non-reciprocal, duty-free
tariff treatment to certain products imported from designated beneficiary developing countries.
The United States, the European Union, and other developed countries have implemented similar
programs since the 1970s in order to promote economic growth in developing countries by
stimulating their exports. The U.S. program was first authorized in Title V of the Trade Act of
1974, and is subject to periodic renewal by Congress. The GSP program was most recently
extended until July 31, 2013, in Section 1 of P.L. 112-40. GSP trade benefits became effective 15
days after the date of enactment (October 21, 2011), on November 5, 2011. P.L. 112-40 also
retroactively extended the GSP program to eligible merchandise that entered the United States
between the expiration date, December 31, 2010, and the date that the GSP renewal entered into
force.
The GSP is one of several U.S. trade preference programs through which the United States seeks
to help developing countries expand their economies. Other U.S. trade preference programs
include the African Growth and Opportunity Act (AGOA), the Andean Trade Preference Act
(ATPA), and the Caribbean Basin Initiative (CBI). The GSP program provides duty-free entry for
over 3,500 products (based on 8-digit U.S. Harmonized Tariff Schedule tariff lines) from 127
designated countries and territories, and duty-free status to an additional 1,500 products from 44
GSP beneficiaries that are additionally designated as least-developed beneficiary developing
countries.
U.S. implementation of the GSP program requires that eligible countries and products conform to
certain criteria. First, to be designated a beneficiary developing country (BDC), developing
countries must be taking steps to grant internationally recognized worker rights and to reduce
trade-distorting investment policies and practices, among other things. Second, at least 35% of the
appraised value of the product must be the “growth, product, or manufacture” of the BDC. Third,
the GSP program also includes certain curbs on product eligibility intended to shield U.S.
manufacturers and workers from harm due to the duty-free treatment. These include specifically
excluding certain “import sensitive” products (e.g., textiles and apparel) from GSP, and placing
limits on the quantity or value of any one product imported under the program. Fourth, GSP
country and product eligibility are subject to an annual review.
The expiration of the GSP in July 2013 means that renewal of the program is likely to be a
legislative issue in the first session of the 113th Congress. In recent years, renewal of trade
preference programs in general, and of the GSP program in particular, has been somewhat
controversial. For example, some Members have reportedly asserted that more “advanced” BDCs,
such as Brazil and India, should not receive benefits under U.S. preference programs, and propose
ending or limiting their benefits in favor of providing a greater share of benefits to eligible least-
developed countries (LDCs). Other Members have proposed expanding preferences to grant duty-
free, quota-free access (DFQF) to all least-developed countries.
This report presents, first, a brief history, economic rationale, and legal background leading to the
establishment of the GSP. Second, the report presents a discussion of U.S. implementation of the
GSP, along with the present debate surrounding its renewal and legislative developments to date.
Third, the report presents an analysis of the U.S. program’s effectiveness and the positions of
various stakeholders. Fourth, implications of the expiration of the U.S. program and possible
options for Congress are discussed.
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Generalized System of Preferences: Background and Renewal Debate
Contents
Introduction ...................................................................................................................................... 1
History and Rationale of the GSP .................................................................................................... 2
Economic Basis ......................................................................................................................... 2
International Legal Framework ................................................................................................. 3
Comparison of International GSP Programs ............................................................................. 6
U.S. Implementation ........................................................................................................................ 8
Beneficiary Countries ................................................................................................................ 8
Reporting Requirements .................................................................................................... 10
Least-Developed Beneficiaries.......................................................................................... 10
Countries Recently Included or Suspended ....................................................................... 10
Products ................................................................................................................................... 11
Competitive Need Limits .................................................................................................. 12
Other Waivers .................................................................................................................... 12
Rules of Origin .................................................................................................................. 13
Annual Review ........................................................................................................................ 13
2011 Annual Review Results............................................................................................. 13
2012 Annual Review ......................................................................................................... 15
Graduation ............................................................................................................................... 15
Legislation ..................................................................................................................................... 16
112th Congress GSP Extension ................................................................................................ 16
Other 112th Congress Legislation ............................................................................................ 16
Effectiveness of GSP ..................................................................................................................... 17
Effects on Developing Countries ............................................................................................. 17
Economic Effects on the U.S. Market ..................................................................................... 19
Stakeholders’ Concerns ........................................................................................................... 20
“Special and Differential Treatment” ................................................................................ 20
Erosion of Preferential Margins ........................................................................................ 21
Under-Utilization of GSP .................................................................................................. 22
Trade as Foreign Assistance .............................................................................................. 22
Conditionality of Preferences ............................................................................................ 23
Lower Costs of Imports ..................................................................................................... 23
Conclusion and Options for Congress ........................................................................................... 24
Allow GSP To Expire .............................................................................................................. 25
Scrap GSP in Favor of Free-Trade Agreements or Regional Trading Arrangements .............. 26
Authorize GSP Only for Least-Developed Countries .............................................................. 26
Modify GSP ............................................................................................................................. 27
Restrict Application of Preferences ................................................................................... 27
Expand Application of GSP .............................................................................................. 28
Figures
Figure 1. U.S. Imports from GSP Countries .................................................................................. 18
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Tables
Table 1. Dutiable and Duty-Free Tariff Lines in Harmonized Tariff Schedule of the
United States by Product Category ............................................................................................. 11
Table A-1. Leading U.S. Product Imports Under GSP, 2010 ......................................................... 29
Table A-2. Leading Product Imports Under GSP, 2011 ................................................................. 30
Table A-3. Leading GSP Beneficiaries and Total, 2010 ................................................................ 32
Table A-4. Leading GSP Beneficiaries, 2011 ................................................................................ 32
Table B-1. GSP Implementation and Renewal, 1974-2013 ........................................................... 34
Table C-1.Beneficiary Developing Countries and Regions for Purposes of the Generalizes
System of Preferences ................................................................................................................ 36
Appendixes
Appendix A. Trade Statistics ......................................................................................................... 29
Appendix B. GSP Implementation and Renewal ........................................................................... 34
Appendix C. GSP Beneficiary Countries ....................................................................................... 36
Contacts
Author Contact Information........................................................................................................... 38
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Generalized System of Preferences: Background and Renewal Debate
Introduction
The Generalized System of Preferences (GSP) program provides preferential tariff treatment to
certain products imported from designated beneficiary developing countries (BDCs). The United
States, the European Union, and other developed countries have implemented such programs
since 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) is subject to periodic
renewal by Congress, and was last extended through July 31, 2013, in P.L. 112-40. The short-term
extension of the GSP program means that program renewal, and possible reform, may continue to
be a legislative issue in the 113th Congress.
The President signed P.L. 112-40 on October 21, 2011, and GSP trade benefits became effective
15 days after that date, or on November 5, 2011. The legislation also extended GSP benefits
retroactively to eligible merchandise that entered the United States between the expiration date,
December 31, 2010, and the date the GSP renewal entered into force. This means that U.S.
importers who imported eligible products during the program’s lapse may retroactively apply to
U.S. Customs and Border Protection (CBP) for tariff refunds on entries of these products.1
In 2012, the President made changes to the status of several countries under GSP. On December
20, 2012, the President determined that St. Kitts and Nevis had become a “high income country”
and terminated its GSP beneficiary status as of January 1, 2014.2 The President made the same
determination on June 29, 2012, with respect to Gibraltar and the Turks and Caicos (also effective
January 1, 2014).3 In the June 29th proclamation, the President also designated Senegal as a least-
developed beneficiary developing country, effective 60 days after the date of the proclamation (or
September 27, 2012).4 On March 26, 2012, President Obama suspended GSP benefits for
Argentina because “it has not acted in good faith in enforcing arbitral awards in favor of United
States citizens or a corporation, partnership, or association that is 50% or more beneficially
owned by United States citizens,” meaning that Argentina was not fulfilling a requirement of GSP
eligibility.5 In the same proclamation, the President also designated the Republic of South Sudan
as a least-developed beneficiary developing country under the GSP.6
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, the report presents a description of U.S. implementation of the GSP program,
along with recent legislative developments and the debate surrounding its renewal. Third, it
provides a brief analysis of the U.S. program’s effectiveness and the positions of various
1 The African Growth and Opportunity Acceleration Act of 2004 (P.L. 108-274) previously extended GSP preferences
for all beneficiary developing sub-Saharan African countries under the African Growth and Opportunity Act (AGOA)
through September 30, 2015. Therefore, even though the GSP program had lapsed, AGOA beneficiaries still continued
to receive GSP preferences.
2 Proclamation 8921 of December 20, 2012, 77 Federal Register 76799, December 28, 2012.
3 Proclamation 8840 of June 29, 2012, 77 Federal Register 39885, July 5, 2012.
4 Ibid.
5 Proclamation 8788 of March 26, 2012, 77 Federal Register 18899, March 29, 2012.
6 Ibid.
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stakeholders. Fourth, the report analyzes implications of GSP expiration and options for
Congress.
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 to developed-country markets in the form of lower tariff
rates (or as in the U.S. case, duty-free status) in order to spur economic growth in the poorer
countries. The program was first adopted internationally in 1968 by the United Nations
Conference on Trade and Development (UNCTAD) at the UNCTAD II Conference.7
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.8 It was thought that only the markets of industrialized trading partners were large enough
to provide enough economic stimulus to attain these goals.9
Some economists also mention that the GSP 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).10 Industrialized, developed nations
argued that the most-favored-nation principle11 should be the fundamental principle governing
multilateral trade, while less-developed countries believed that equal treatment of unequal trading
partners did not constitute equity, and called for “special 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.12
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
7 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 developed countries—Australia, Belarus, Bulgaria, Canada, Japan, New
Zealand, Norway, Switzerland, and the Russian Federation—currently have GSP programs.
8 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).
9 Ibid.
10 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.
11 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.”
12 OECD GSP Review, p. 11.
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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.13 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; (7) include safeguard mechanisms or “escape” clauses; and (8) place caps on the
volume of duty-free trade entering under their programs.14
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.”15 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.16 Since multilateral negotiations in the WTO Doha Development Agenda
(DDA) have been suspended, this duty-free/quota-free offer seems to be in jeopardy, at least on a
multilateral basis.
International Legal Framework17
Because it is a preference program, by its very nature, the GSP posed a problem under the
General Agreement on Tariffs and Trade (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.
13 Ibid., p. 10.
14 Wall, David. “Problems with Preferences,” International Affairs, vol. 47, October 1971, p. 95.
15 World Trade Organization, Ministerial Declaration, Annex F. December 18, 2005, WT/MIN(05)/DEC.
16 Ibid.
17 This section was written by Jeanne J. 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 World Trade Organization
(WTO), by Daniel T. Shedd, Jane M. Smith, and Brandon J. Murrill.
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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.18 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 10 years.19 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.20 The Clause states that notwithstanding GATT Article I,
“contracting parties may accord differential and more favorable 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;
(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”).21 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.”
18 Edmond McGovern, International Trade Regulation ¶ 9.212 (updated 1999). 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).
19 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.
20 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)(hereinafter Enabling Clause), available
at http://www.wto.org/gatt_docs/English/SULPDF/90970166.pdf
21 Id. ¶ 2, n.3.
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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.22
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 certain
level of economic development.23 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 favorable 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.24 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.25
The Enabling Clause was incorporated into the GATT 1994 upon the entry into force of the
Uruguay Round agreements on January 1, 1995.26 In 1999, the WTO General Council adopted a
22 Id. ¶ 4, n.1.
23 Note also notification requirements under ¶ 4 of the Enabling Clause, discussed in the text. 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.
24 Enabling Clause, supra note 15, at ¶ 2, n.2.
25 CRS Report RS22183, Trade Preferences for Developing Countries and the World Trade Organization (WTO),
supra note 12, at 3. On May 27, 2009, the WTO General Council approved U.S. requests for waiver renewals for two
non-GSP preference programs and an initial waiver for a third program, this being the final WTO action needed for the
waivers to enter into effect. The waiver renewals cover the Caribbean Basin Economic Recovery Act (as amended by
the United States-Caribbean Trade Partnership Act) and the Andean Trade Preference Act (as amended by the Andean
Trade Promotion and Drug Eradication Act), each through December 31, 2014. Earlier waivers for these programs had
expired in 2005 and 2001, respectively. The new waiver covers the African Growth and Opportunity Act through
September 30, 2015. Some WTO Members (e.g., China and Pakistan), had expressed concerns regarding U.S.
treatment of textiles in these programs, while Paraguay objected to the U.S. request in part because of its exclusion
from the Andean preference scheme.
26 Agreement Establishing the World Trade Organization, Annex 1A, General Agreement on Tariffs and Trade 1994, ¶
(continued...)
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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 (LDCs),
designated as such by the United Nations, without being required to extend the same tariff rates to
like products of any other Member.”27 Along with setting out various standards and notification
and procedural requirements, the waiver, at paragraph 6, 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. The waiver was recently extended until June 30, 2019.28
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.29 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.”30
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.31 Generally, each preference-
granting country extends to qualifying developing countries (as determined by each benefactor)
an exemption from duties (reduced tariffs or duty-free access) on most manufactured products
and certain “non-sensitive” agricultural products. Product coverage and the type of preferential
treatment offered vary widely.32
(...continued)
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 AB Report).
27 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/DDFDocuments/t/WT/L/304.DOC; 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).
28 Preferential Tariff Treatment for Least-Developed Countries; Decision on Extension of Waiver, WT/L/759 (May 29,
2009)(adopted May 27, 2009).
29 EC Preferences AB Report, supra note 21.
30 Id. at ¶¶ 162-165. For further discussion of the Appellate Body report, see CRS Report RS22183, Trade Preferences
for Developing Countries and the World Trade Organization (WTO), supra note 12, at 4-5.
31 Sanchez Arnau, Juan C. The Generalized System of Preferences and the World Trade Organization. London:
Cameron May, Ltd., 2002, p. 187.
32 Ibid.
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Although most GSP schemes (including the U.S. program) admit all eligible products duty-free,
some countries provide tariff reductions, rather than complete exemption from duties.33 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.34
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 or economic changes have taken
place in a beneficiary country, it might be excluded from GSP programs in some countries (such
as the United States) but not in others. Most countries, including the United States, also 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 for “everything but arms,”35 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.36
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.37 The United States quantitatively limits
imports under the GSP program by placing “competitive need limit” (CNL) thresholds on the
quantity or value of commodities entering duty-free, as discussed in more detail below.
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-
33 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.
34 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.
35 European Communities, GSP Council Regulation (EC) No. 2501/2001. See also Council Regulation (EC) No
732/2008 of 22 July 2008 applying a scheme of generalised tariff preferences for the period from 1 January 2009 to 31
December 2011 and amending Regulations (EC) No 552/97, (EC) No 1933/2006 and Commission Regulations (EC)
No 1100/2006 and (EC) No 964/2007. Published in Official Journal of the European Communities, (OJ) OJ L 211 of 6
August 2008. The “Everything but Arms” provision applies to all goods except arms and munitions and white sugar
(from October 1, 2009 to September 2012, sugar importers “shall undertake to purchase such products at a minimum
price not lower than 90% of the reference price.”). See Council Regulation (EC) No 2501/2001.
36 Ibid.
37 World Trade Organization, Committee on Trade and Development. Notification by Japan, June 21, 2000,
WT/COMTD/N/2/Add.9.
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granting countries require mandatory graduation based on a certain level of income per capita
based on World Bank calculations. Some programs, such as the European Union’s, also
specifically provide for graduation of certain GSP recipients with respect to individual sectors of
the economy.
U.S. Implementation
Congress first authorized the U.S. Generalized System of Preferences scheme in Title V of the
Trade Act of 1974 (P.L. 93-618), as amended.38 P.L. 93-618 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 (LDBDC), provides the
President with economic criteria in deciding whether to take any such action, and also specifies
certain criteria for designating eligible countries and products.39
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 program. 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 BDCs and LDBDCs, 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:40
• other industrial countries (Australia, Canada, European Union member states,
Iceland, Japan, Monaco, New Zealand, Norway, and Switzerland are specifically
excluded);
• communist countries, unless they are a WTO member, a member of the
International Monetary Fund and receive Normal Trade Relations (NTR)
treatment; must also not be “dominated or controlled by international
communism;”
• 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;
38 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. Ten laws have authorized GSP with relatively minor modifications, most recently through July 31, 2013 (P.L.
112-40). See Table B-1.
39 19 U.S.C. § 2461.
40 19 U.S.C. § 2462.
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• countries that provide preferential treatment to the products of another developed
country in a manner likely to have an significant adverse impact on U.S.
commerce;
• countries that have nationalized or expropriated the property of U.S. citizens, or
otherwise infringe on U.S. citizens’ property rights, including patents,
trademarks, or copyrights; countries that have taken steps to repudiate or nullify
existing contracts or agreements of U.S. citizens (or corporations, partnerships, or
associations that are 50% or more owned by U.S. citizens) in a way that would
nationalize or seize ownership or control of the property; or countries that have
imposed or enforced taxes or other restrictive conditions on measures on the
property of U.S. citizens; unless the President determines that compensation is
being made, good faith negotiations are in progress, or a dispute has been handed
over to arbitration in the Convention for the Settlement of Investment Disputes or
another forum;
• countries that have failed to act in good faith in recognizing as binding or in
enforcing arbitral awards in favor of U.S. citizens (or corporations, partnerships,
or associations that are 50% or more owned by U.S. citizens); and
• 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 their commitments to eliminate the worst forms of child labor.41
The President is also directed to consider certain discretionary criteria (“factors affecting country
designation”), such as the following:
• the country’s expressed 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 to the country;
• its commitment to a liberal trade policy;
• the extent to which it provides adequate protection of intellectual property rights;
41 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, December 2011, p. 19 (hereinafter
USTR Guidebook).
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• the extent to which it has taken action to reduce trade-distorting investment
policies and practices, and to reduce or eliminate barriers to trade in services; and
• whether or not it has taken steps to grant internationally recognized worker
rights.42
The law further 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.43
Reporting Requirements
The President must advise Congress of any changes in beneficiary developing country status, as
necessary.44 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.45
Least-Developed Beneficiaries
The President is also authorized by statute to designate any BDC as a least-developed beneficiary
(LDBDC), based on an assessment of the conditions and factors previously mentioned.46
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,47 the U.S.
administration also assesses the level of compliance with other GSP statutory requirements and
comments from the public (as requested in the Federal Register) before identifying a country as
“least-developed” for purposes of the GSP.48
Countries Recently Included or Suspended
On June 29, 2012, the President designated Senegal as a least-developed beneficiary developing
country, effective 60 days after the date of the proclamation (or September 27, 2012).49 On March
26, 2012, President Obama suspended GSP benefits for Argentina because “it has not acted in
good faith in enforcing arbitral awards in favor of United States citizens or a corporation,
partnership, or association that is 50% or more beneficially owned by United States.50 In the
42 19 U.S.C. § 2462(c). Ibid., p. 20.
43 19 U.S.C. § 2462(d).
44 19 U.S.C. §2462(d)(3).
45 19 U.S.C. § 2464.
46 19 U.S.C. § 2462(a)(2).
47 19 U.S.C. § 2462(c)(2).
48 See 71 F.R. 43543.
49 Ibid.
50 Proclamation 8788 of March 26, 2012, 77 Federal Register 18899, March 29, 2012.
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March 26th proclamation, the President also designated the Republic of South Sudan as a least-
developed beneficiary developing country under the GSP.51
Products
The Trade Act of 1974 authorizes the President to designate certain imports as eligible for duty-
free treatment under the GSP after receiving advice from the United States International Trade
Commission (USITC).52 “Import sensitive” products specifically excluded from preferential
treatment are most textiles and apparel goods; watches; footwear and other accessories; most
electronics, steel, and glass products; and certain agricultural products subject to tariff-rate
quotas.53 The lists of eligible products and the list of beneficiary developing countries are
reviewed and revised annually by the GSP Subcommittee.54 Any modifications to these lists
usually take effect on July 1 of the following calendar year.55
In terms of product coverage, more than 3,500 products are currently eligible for duty-free
treatment, and about 1,500 additional articles originating in LDBDCs may receive similar
treatment (see Table A-2). Leading imports in 2011 under the GSP program included silver
jewelry and parts; aluminum alloy plates, sheet, and strip, car and truck tires; and petroleum
products, especially crude oil.56
Table 1. Dutiable and Duty-Free Tariff Lines in Harmonized Tariff
Schedule of the United States by Product Category
Total Tariff
MFN Duty-
Duty-free
Additional Duty-
HTS Product
Lines in
free Tariff
Duty-free
under GSP
free under other
Category
Category
Lines
under GSP
for LDC
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, and
1,320 257 176
30 223
footwear
Glassware, precious
388 144 177
51 6
metals and stones,
jewelry
51 Ibid.
52 19 U.S.C. § 2463(a)(1).
53 19 U.S.C. § 2463(b).
54 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.
55 USTR Guidebook, p. 8.
56USTR Guidebook and Table A-2, Appendix A.
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Total Tariff
MFN Duty-
Duty-free
Additional Duty-
HTS Product
Lines in
free Tariff
Duty-free
under GSP
free under other
Category
Category
Lines
under GSP
for LDC
trade preferences
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. International Trade: U.S. Trade Preference Programs Provide Important
Benefits, But a More Integrated Approach Would Better Ensure that Programs Meet Shared Goals. GAO 08-443,
March 2008.
Competitive Need Limits
The law establishes “competitive need limits” (CNLs) that require the President to automatically
suspend GSP treatment for BDCs (LDBDCs and sub-Saharan beneficiaries are exempt) if imports
of a product from a single country reach a specified threshold value ($155 million in 2012 and
$160 million in 2013), or if 50% or more of total U.S. imports of a product entering under the
preference come from a single country.57
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 USITC 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.58 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.59
Other Waivers
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” (not to exceed 20.5 million in 2011 and $21
57 19 U.S.C. § 2463(c)(2)(A). See also USTR Guidebook, p. 11.
58 19 U.S.C. § 2463(d).
59 19 U.S.C. § 2463(d)(2).
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million in 2012),60 or if the GSP-eligible article was not produced in the United States on January
1, 1995 (known as a 504(d) waiver).61
Rules of Origin
Eligible goods under the U.S. GSP program must meet certain rules of origin (ROO)
requirements in order to qualify for duty-free treatment. First, duty-free entry is only allowed if
the article is imported directly from the beneficiary country into the United States. Second, 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.62
Annual Review
The U.S. GSP program is subject to annual review by the GSP Subcommittee of the Trade Policy
Staff Committee (TPSC), a body chaired by the Office of the U.S. Trade Representative (USTR),
and including representatives from the Departments of Agriculture, Commerce, the Interior,
Labor, State, and the Treasury.63 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 BDCs’ and LDBDCs’ 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 USITC for the purpose of providing
advice concerning any possible modifications to the GSP.64
2011 Annual Review Results
On Thursday, July 12, 2012, the USTR announced the results of the 2011 Annual GSP Review
“with respect to: (1) products considered for addition to the list of eligible products for GSP; (2)
decisions related to competitive need limitations (CNLs), including petitions for waivers of CNLs
and revocation of previous CNL waivers; (3) redesignation of products previously excluded from
GSP eligibility for certain countries; and (4) petitions to modify the GSP status of certain GSP
beneficiary countries because of country practices.”65 The President announced the results of the
Annual Review in Proclamation 8840 of June 29, 2012:66 A summary of the results follows:
60 19 U.S.C. § 2463(c)(2)(F).
61 19 U.S.C. § 2463(c)(2)(E).
62 19 U.S.C. § 2463(a).
63 Regulations for implementation of the GSP program were issued by the Office of the United States Trade
Representatives at 15 C.F.R. §2007. Provisions for the GSP Annual Review are set out at 15 C.F.R. §2007.2(c)-(h).
64 19 U.S.C. § 1332(g), 19 U.S.C. § 2463.
65 77 Federal Register 41209.
66 77 Federal Register 39885, July 5, 2012. See also Results of the 2011 GSP Annual Review.
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• Adding additional products to the GSP
- A decision was deferred on a petition to add reclosable polyethylene pinch-seal
bags (included in Harmonized Tariff Schedule (HTS) subheading 3923.21.00.30)
to the list of GSP-eligible products. According to a USITC report on the possible
impact of adding these products, there were two U.S. manufacturers that opposed
the addition.67
- Seven HTS categories of cotton fiber products were added to the list of eligible
products for least-developed beneficiary developing countries. The USITC stated
that there were no comments received either in support of, or in opposition to,
addition of these products to the GSP list.68
• Waivers
- Four petitions for new CNL waivers were granted, including (1) certain
chemicals used in germicides or wood preservatives from the Philippines;69 (2)
certain perfume/room deodorizing preparations from India;70 (3) seamless
vulcanized rubber gloves from Thailand;71 and (4) parts for air conditioning
machines from Thailand.72
- CNL waivers on radial tires bus and truck tires (HTS 4011.20.10) and silver
jewelry from Thailand (HTS 7113.11.50) were revoked, as well as a waiver on
wool hand-hooked carpets from India (HTS 5703.10.20).
- Products newly subject to CNLs included certain aluminum products (HTS
7601.10.30 and 7606.12.30) from Venezuela and Indonesia, and vehicle parts
from India (HTS 8708.30.50).
- Over 50 de minimis waivers were granted.
• Redesignation of products as GSP-eligible:
- A petition for redesignation of Kola nuts (HTS 0802.70.20) from Cote d’Ivoire
was granted. About 150 other redesignation petitions were denied.
• Country Practice Petitions
- Two petitions for investigations of GSP eligibility based on worker rights
practices were accepted regarding country practices in Iraq and Fiji. A worker
rights investigation on practices in Sri Lanka was closed without a modification
67 U.S. International Trade Commission, Advice Concerning Possible Modifications to the U.S. Generalized System of
Preferences, 2011 Review of Additions and Competitive Need Limitation Waivers, Investigation No. 332-529, USITC
Publication 4327, May 2012.
68 Ibid. Products included were those in HTS subheadings 5201.00.22, 5201.00.24, 5201.00.34, 5202.91.00,
5203.00.05, 5203.00.10, and 5203.00.50.
69 HTS 2921.2960, Other acyclic monoamines and their derivatives (normally a duty rate of 6.5% ad valorem would
apply).
70 HTS 3307.41.00, “Agarbatti” and other odiferous preparations which operate by burning, to perfume or deodorize
rooms or used during religious rites (normally a duty rate of 2.4% ad valorem would apply).
71 HTS 4015.19.10, Seamless gloves of vulcanized rubber other than hard rubber, other than surgical or medical gloves
(normally a duty rate of 3.0% ad valorem would apply).
72 HTS 8415.90.80, Parts for air conditioning machines, not otherwise specified or indicated (normally a duty rate of
1.4% ad valorem would apply).
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of GSP benefits. Worker rights investigations on country practices in Bangladesh,
Niger, Philippines, Uzbekistan, and Georgia were continued.
- Two petitions for investigations of GSP eligibility based on intellectual property
rights (IPR) practices were accepted regarding country practices in Ukraine and
Indonesia. IPR investigations on country practices in Lebanon, Russia, and
Uzbekistan were ongoing and will be continued.
- A decision on whether to accept a petition for investigation of GSP eligibility
based on expropriation country practices in Russia was deferred.
• Country Eligibility
- Gibraltar and the Turks and Caicos Islands were determined to be no longer
eligible for GSP benefits because they were found to have become “high income”
countries (see “Graduation” below).
- Senegal was determined to be a least-developed beneficiary developing country
for purposes of the GSP.
2012 Annual Review
On July 30, 2012, the USTR announced the initiation of the 2012 Annual GSP Product and
Country Practices Review. All petitions to modify the eligibility status of goods or to review the
GSP status of beneficiaries are due by October 5, 2012.73
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.74 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 the BDC
is determined to be a “high income country” (as defined by official International Bank for
Reconstruction and Development statistics), or as a result of a review of the BDC’s advances in
economic development and trade competitiveness.75 On December 20, 2012, the President
determined that St. Kitts and Nevis had become a “high income country” and terminated its GSP
beneficiary status as of January 1, 2014.76 The President made the same determination on June
29, 2012, with respect to Gibraltar and the Turks and Caicos (also effective January 1, 2014).77
Thus, these countries were mandatorily graduated from the GSP program.
Countries also become ineligible for GSP benefits if they formally enter into a bilateral trading
relationship with another developed country.78 Bulgaria and Romania were the last countries to
73 77 Federal Register 44704.
74 In this case, the discretionary eligibility criteria under 19 U.S.C. § 2462(c)(2) applies.
75 19 U.S.C. § 2462(e).
76 Proclamation 8921 of December 20, 2012, 77 Federal Register 76799, December 28, 2012.
77 Proclamation 8840 of June 29, 2012, 77 Federal Register 39885, July 5, 2012.
78 Although not specifically stated in the statute, the United States has generally removed countries from GSP eligibility
that sign FTAs with the United States as well.
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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).79
Legislation
Prior to 2006, GSP renewal was generally considered non-controversial. At times 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 2002.80 Since its renewal in December 2006, however, the
extension of the GSP program and other trade preferences has continued to be a matter of some
debate. For example, Some in Congress have asserted that certain “more advanced” developing
countries (such as Brazil and India) are receiving GSP benefits to the exclusion of lesser-
developed countries. The consideration of Vietnam as a potential GSP beneficiary―initially
proposed by the Bush Administration—has also been a matter of debate for some in Congress,
largely due to concerns over the country’s record on worker rights.81
112th Congress GSP Extension
The GSP program was extended through July 31, 2013, in P.L. 112-40. The GSP extension was
introduced in H.R. 2832, the Trade Adjustment Assistance Extension Act of 2011, on September
6, 2011, and passed in the House under suspension of the rules on September 7. The measure
passed the Senate, with an amendment, on September 22, 2011. The House subsequently passed
H.R. 2832, as amended, on October 12. The President signed the legislation enacting the GSP on
October 21, 2011. GSP trade benefits became effective 15 days after the date of enactment, or on
November 5, 2011.
The GSP program was also retroactively extended to eligible merchandise that entered the United
States between the expiration date, December 31, 2010, and the date the GSP renewal entered into
force. Therefore, importers of GSP-eligible products may seek reimbursement for tariffs paid
during the laps of GSP coverage. On October 23, 2011, U.S. Customs and Border Protection
(CBP) issued instructions for claiming refunds of duties paid on GSP-eligible merchandise.82
Other 112th Congress Legislation
Other GSP-related bills in the 112th Congress included section 201 of S. 308, the “Trade
Extenders Act of 2011” (introduced February 8, 2011), which sought, among other things, to
79 72 F.R. 459. USTR officially announced the graduation of Bulgaria and Romania on January 22, 2007 (72 Federal
Register 2717).
80 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 B-1. The 2006 renewal
(until December 2008) was the first time since 1993 that the program had not been allowed to lapse prior to renewal.
81 CRS Report RL34702, Potential Trade Effects of Adding Vietnam to the Generalized System of Preferences
Program, by Vivian C. Jones and Michael F. Martin.
82 U.S. Customs and Border Protection, Renewal of the Generalized System of Preferences, Memorandum,
http://www.cbp.gov/linkhandler/cgov/trade/trade_programs/international_agreements/special_trade_programs/
gsp_gen_system/mem_gsp.ctt/mem_gsp.pdf.
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renew GSP until June 30, 2012, and to apply the preference retroactively from the date of
enactment to the previous expiration date (December 31, 2010). Section 202 would have
specified that certain sleeping bags are not eligible to receive GSP preferences. This section was
included, reportedly, in response to opposition regarding certain sleeping bags being imported
duty-free from Bangladesh under GSP.83 Bills with similar provisions were H.R. 622, H.R. 913,
S. 221, and S. 433.
Effectiveness of GSP
The statutory goals of the GSP are (1) to promote the development of developing countries; (2) to
promote trade, rather than aid, as a more efficient way of promoting economic development; (3)
to stimulate U.S. exports in developing country markets; and (4) to promote trade liberalization in
developing countries.84 It is difficult to assess whether or not the program alone has achieved
these goals, however, because the GSP is only one of many such foreign aid initiatives used 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 20 years, total U.S. imports from all GSP beneficiaries have increased dramatically,
from $150 billion in 2000 to a peak of $365 billion in 2008 (see Figure 1). The general growth
trend in total imports over the time series could indicate, in very broad terms, that the GSP and
other preferential programs have helped create some export-driven growth in developing
countries. In 2009, total imports from all GSP beneficiaries dropped to $236 billion—most likely
due to the global economic recession—but rebounded once again to $366 billion in 2011. Total
imports entering duty-free under the GSP preference also increased markedly from $17 billion in
1996 to $32 billion in 2008. In 2009, the value of goods entering under GSP fell to about $20
billion, and recovered slightly in 2010 to $23 billion. The 2011 drop in imports under GSP to
about $19 billion was most likely due to the lapse in GSP authorization in 2011.
However, the percentage of goods entering the United States duty-free under the GSP program,
relative to total U.S. imports from BDCs (includes products that were imported under MFN
rates), has remained relatively flat—at around 10% of total imports annually for all GSP
beneficiaries combined. This could be due, in part, to the presence of the automatic competitive
83 “Preference Reform Will Take Backseat to Renewal of ATPDEA, GSP,” Inside U.S. Trade, January 20, 2011. the
issue of sleeping bags’ GSP status was finally settled by the TPSC, when it determined in the 2010 Annual Review that
GSP would no longer apply to sleeping bags in the applicable HTS subheading.
84 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 effects on U.S.
producers and workers and compliance with GATT obligations.
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need limits (CNLs) on GSP-eligible products originating in non-LDC beneficiaries, combined
with the mandatory graduation requirement for all beneficiaries that have become “high income”
countries.
Figure 1. U.S. Imports from GSP Countries
400
350
300
250
s
n
200
illio
$ B
150
100
50
0
97
00
03
04
6
07
10
11
19
1998 1999 20
2001 2002 20
20
2005 200
20
2008 2009 20
20
Total U.S. Imports Under GSP
Total U.S. Imports from GSP Beneficiaries
Source: ITC Trade Dataweb.
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.85 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%.86
Therefore, for individual industries in developing countries, the positive impact of the GSP could
be seen as quite significant.
85 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.
86 Ibid.
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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. Exporters in these industries were able to
expand their international reach through GSP programs. However, some countries could also be
encouraged by preferential programs to develop industry sectors where they would otherwise
never be able to compete, thus diverting resources from other industries that might actually
become competitive over time (trade diversion).87
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 Doha Development Round, 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 might have tended to keep
in place trade policies that may, in fact, impede their long-term growth. Moreover, these
preferences could become an impediment to negotiations as developing countries seek ways of
maintaining them.88
For this reason, some economists prefer multilateral, nondiscriminatory tariff cuts because
preferential tariff programs, such as the GSP, can lead to inefficient production and trade
patterns.89 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
U.S. imports under the GSP program in 2011 represented about $19 billion (or about 1%) in
comparison to total imports of about $2.2 trillion (imports for consumption, customs value). This
might indicate that the overall effects of GSP on the U.S. economy are quite small. In addition,
while U.S. imports from GSP countries has grown rapidly, the rate of increase of imports actually
entering under the GSP program has, in the past 10 years, been relatively flat (see Figure 1). This
factor could indicate 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 cost estimate for
H.R. 4284 (became P.L. 111-124), the GSP program would cost the United States $980 million in
2012 and $503 million in 2013 in foregone tariff revenues.90
In addition, most U.S. producers of import-competing products are largely protected from severe
economic impact. First, certain products, such as most textile and apparel products, are
87 OECD. “Making Open Markets Work for Development.” Policy Brief, October 2005, p. 2.
88 Patrick Low, Roberta Piermartini, and Jurgen Richtering, Multilateral Solutions to the Erosion of Non-Reciprocal
Preferences in NAMA, World Trade Organization, Economic Research and Statistics Division, Working Paper ERSD-
2005-05, October 2005. R. E. Baldwin and T. Murray, “MFN Tariff Reductions and Developing Country Trade
Benefits Under the GSP,” The Economic Journal, vol. 87, no. 345 (March 1977), pp. 30-46.
89 Bernard Herz and Marco Wagner, The Dark Side of the Generalized System of Preferences, German Council of
Economic Experts, Working Paper 02/2010, February 2010, p. 27.
90 Congressional Budget Office, H.R. 2832, An Act to Extend the Generalized System of Preferences, and for Other
Purposes, Cost Estimate, October 6, 2011, http://www.cbo.gov/sites/default/files/cbofiles/attachments/hr2832.pdf.
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designated “import sensitive” and therefore most are ineligible for duty-free treatment. Second,
“competitive need limits” (discussed in more detail above) are triggered when imports of a
product from a single country reach a specified threshold value or when 50% of total U.S. imports
of a product come from a single country.91 Third, U.S. producers may petition the USTR that GSP
treatment granted to eligible articles be withdrawn.92 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.
Some U.S. manufacturers and importers also 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.93 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 some 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.94 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.95 Some of these policy makers reportedly favor continued
progress in bilateral or multilateral negotiations in lieu of extending automatic, nonreciprocal
91 19 U.S.C. §2463(c).
92 15 C.F.R. 2007.0(b).
93 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%).
94 Women in International Trade (WIIT) event, “The Value of Attending a World Trade Organization Ministerial
Conference,” January 20, 2006.
95 “Sen. Grassley Warns Brazil, India, on GSP; Stops Short of Predicting Graduation,” Inside U.S. Trade, May 19,
2006.
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benefits such as the GSP. Others have also charged that some of the more advanced BDCs have
obstructed multilateral trade talks, especially in the WTO Doha Round.
Some Members are reportedly 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.96 Other Members assert that extension and expansion of these programs
“will send a signal to developing countries that we will stand with them as they grow.”97
Erosion of Preferential Margins
Developing countries have expressed concern about the overall progressive erosion98 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.99 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.100
One example of present concern of preference erosion is the aforementioned group of business
and NGO groups that have proposed providing duty-free, quota-free (DFQF) U.S. market access
to all least-developed countries. However, many sub-Saharan African countries have expressed
concern that an approach like this could place them in direct competition for U.S. market share
with countries like Bangladesh, thus diluting the value of the preferential treatment that they
receive through the African Growth and Opportunity Act (AGOA).101
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.102 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”
96 Washington International Trade Association (WITA) event. “The 2006 Congressional Trade Agenda,” February 15,
2006.
97 “Rangel Bill Would Extend Trade Benefits for Developing Countries,” Press Release, March 30, 2006.
98 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%.
99 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).
100 Sanchez Arnau, Juan C. The Generalized System of Preferences and the World Trade Organization, London:
Cameron May, Ltd., 2002, p. 282.
101 Alliance to End Hunger, et al. Letter to House Ways and Means and Senate Finance Chairs and Ranking Members,
April 22, 2009.
102 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.
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the world’s poorest populations), a better approach might be to “assist them in addressing the
constraints that really underlie their sluggish trade and growth performance.”103
Under-Utilization of GSP
Some who oppose the GSP program say that the proportionately small amount of trade entering
under the GSP means that the program is underused, and therefore 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.
Others have suggested that the GSP may not be used by some countries because they are
unfamiliar with the program, because some BDC governments do a poor job of promoting the
existence of available opportunities under the preference, because of 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 a combination of all of these factors.104 One option for
addressing these factors is assistance through U.S. trade capacity building efforts.
Trade as Foreign Assistance
No other U.S. preference program is more broadly based or encompasses as many countries as
the GSP. As a result, the GSP program is supported by many observers who believe that it is an
effective, low-cost means of providing economic assistance 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.105
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.
One example of support for GSP renewal occurred in April 2009, when a coalition of non-
governmental organizations (NGOs) working to reduce world poverty and U.S. businesses
interested in including developing countries in their sourcing plans, urged USTR Ron Kirk to
“seek timely renewal of expiring preference programs for those countries found to fulfill each
program’s eligibility criteria and to initiate review and reform of existing U.S. preference
programs.”106 The coalition mentioned that preference programs, like GSP, help to spur much-
needed economic development and opportunity, and that quick renewal could help cushion
beneficiary countries from the economic impact brought about by declines in trade flows during
the global economic crisis.107 The coalition also spoke to the effectiveness of preference programs
103 OECD study, p. 27.
104 U.S. General Accountability Office. International Trade: U.S. Trade Preference Programs Provide Important
Benefits, But a More Integrated Approach Would Better Ensure that Programs Meet Shared Goals. GAO 08-443,
March 2008., pp.33-35 (Hereinafter, 2008 GAO Report).
105 September 21, 2006 DC Bar meeting.
106 Letter to United States Trade Representative Ron Kirk on renewal of trade preferences, signed by representatives of
the Alliance to End Hunger, the American Apparel and Footwear Association, the Business Roundtable, and other
business groups and NGOs, April 22, 2009.
107 Ibid.
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in helping to address development challenges while taking into account the needs of U.S.
companies and workers.108
Conditionality of Preferences
Some supporters of the GSP and other non-reciprocal preferences assert that the conditions
required (such as worker rights and intellectual property requirements) for GSP qualification
provide the United States with international political leverage that can be used to preserve U.S.
foreign and commercial interests.109 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 GSP 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.110
Some U.S. intellectual property industry representatives, worker rights groups, and other
constituencies oppose what they perceive to be the U.S. administration’s 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, Russia, and
Venezuela in spite of intellectual property rights violations.111 This domestic opposition may
indicate that, at times, the GSP as a tool is of limited usefulness. According to the USTR,
however, U.S. officials favor working with beneficiary countries during country practice reviews
to actively address compliance issues before removing a 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.112
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.”113 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.114
108 Ibid.
109 The Coalition for GSP. The U.S. Generalized System of Preferences Program: An Integral Part of the U.S.
Economy. January 1997, p. 3.
110 September 6, 2006 public comment letter to USTR from ActionAid International USA.
111 “Grassley Throws Up Obstacle to Trade-Preference Renewal.” Congress Daily, September 18, 2006.
112 United States Government 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.
113 “U.S. Retailers, Importers Push for GSP Renewal Despite Opposition,” Inside U.S. Trade, May 5, 2006.
114 Discussion with officials of the Joint Industry Group, August 18, 2006.
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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.115 For example, in 2010, Exxel Outdoors, a U.S. company that
manufactures certain non-down sleeping bags, petitioned for their removal from GSP eligibility,
claiming that their business operations were being harmed by imports of duty-free sleeping bags
from Bangladesh under the GSP program.116 These sleeping bag categories were ultimately
removed from GSP duty-free treatment in January 2012.117 However, results of U.S.
manufacturers have not always been successful. 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.118
Conclusion and Options for Congress
The U.S. GSP program, as established by Title V of the Trade Act of 1974 was last extended
through July 31, 2013, in P.L. 112-40, for all GSP beneficiary countries not covered by the
African Growth and Opportunity Act (AGOA).119 Therefore, Congress may once again consider
its extension during the 113th 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, therefore, whether or not the GSP program is renewed
with respect to other countries, GSP benefits will continue to be extended to all AGOA countries
until that date.120
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 paragraph 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.
115 19 U.S.C. § 2463(c).
116 “Sleeping Bags Removed from GSP after USTR Administrative Review,” Inside U.S. Trade, January 5, 2012.
117 77 Federal Register 1549, January 10, 2012.
118 “Administration Decides to Keep Russian GSP Benefits for Titanium,” Inside U.S. Trade, July 9, 2004.
119 As of January 1, 2012, there are 38 AGOA beneficiaries.
120 19 U.S.C. §2466b, as amended by Section 7 of the AGOA Acceleration Act of 2004 (P.L. 108-274).
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Allow GSP To Expire
The GSP statute will automatically expire for all beneficiary developing countries (except for
AGOA-eligible countries) on July 31, 2013.121 No legislative action would be required if
Congress were to allow the expiration of GSP for beneficiary developing countries not otherwise
granted GSP benefits through other preferential programs (such as AGOA).
Some in Congress assert that if the GSP were not renewed, it could spur positive movement in
multilateral negotiations, such as the now-stalled DDA. This position was presented during the
2006 renewal debate by then-House Ways and Means Chairman Representative Bill Thomas and
then-Senate Finance Committee Chairman Senator Charles Grassley.122 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.”123
Other observers indicate, however, that if GSP were allowed to expire, or be otherwise modified
through country graduation or limitations on CNL waivers, these actions might also weaken the
hand of U.S. negotiators because GSP 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 unless more reciprocal concessions for improved market access are made for U.S.
products. They say that 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.
These observers say that 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 domestic and international parties may
now file petitions requesting the USTR to review the GSP status of BDCs based on the eligibility
criteria in the statute (e.g., worker rights practices). If the GSP program were no longer in effect,
these avenues of encouraging certain developing country practices would no longer be
available.124
Additionally, some domestic manufacturers, such as the U.S. automobile industry, could be
additionally impacted by GSP expiration or modification, due to dependence on duty-free (thus
lower-cost) manufacturing inputs imported under the preference, such as brake parts, vehicle
transmissions, and tires. Smaller businesses could be disproportionately affected because they are
less able to adjust to increased costs of factors of production. On the other hand, some U.S.
manufacturers of import-competing products might, at least marginally, benefit.
121 19 U.S.C. § 2465.
122 “Thomas Urges USTR to Shift from Lagging Doha Round Completing FTAs,” Inside U.S. Trade, April 7, 2006.
123 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.
124 15 C.F.R. 2007.0(b).
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Scrap GSP in Favor of Free-Trade Agreements or Regional
Trading Arrangements
Some Members of 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 WTO 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 free-trade or regional-
trade agreement negotiations because they are ill-equipped to implement the additional standards
that accompany a comprehensive U.S. free trade agreement.125 For example, some countries such
as South Africa and other countries in the South African Customs Union (SACU) have been
unsuccessful in the past when negotiating such agreements with the United States due to their
inability to conform to 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 the benefits apply only to least-developed
beneficiaries. Since many African least-developed beneficiaries126 will continue to receive the
GSP preference until mid-2015 under AGOA, an LDC-only GSP extension, if applied in mid-
2013,at least in the short term, would apply to the following LDCs: Afghanistan, Bangladesh,
Bhutan, Cambodia, Central African Republic, Guinea-Bissau, Haiti,127 Kiribati, Madagascar,
125 Vamvakidis, Ahtanasios, “Regional Trade Agreements or Broad Liberalization: Which Path Leads to Faster
Growth?” IMF Staff Papers, Vol. 46:1, March 1999, p. 42.
126 These least-developed African countries are: Angola, Benin, Burkina Faso, Burundi, Chad, Comoros, Congo
(Kinshasa), Djibouti, Ethiopia, The Gambia, Guinea, Lesotho, Liberia, Malawi, Mauritania, Mozambique, Niger,
Rwanda, Sao Tome and Principe, Senegal, Sierra Leone, South Sudan, Tanzania, Togo, Uganda, and Zambia.
127 Haiti was recently provided additional preference benefits through the Haiti Economic Lift Act of 2010 (P.L. 111-
171). See CRS Report RL34687, The Haitian Economy and the HOPE Act, by J. F. Hornbeck.
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Nepal, Samoa, The Solomon Islands, Somalia, Tuvalu, Vanuatu, and Yemen.128 Of these
countries, three, Nepal, Samoa, and Yemen, would likely benefit more than the others, because
they are the only least developed beneficiaries in the group that currently export goods under GSP
that account for more than 7% of their total imports to the United States. Therefore, if the GSP
program were to be renewed and extended to LDCs only (absent any other modifications), these
three countries, at least initially, would be the primary beneficiaries. Arguably, U.S. efforts
through trade capacity building could help other LDCs take greater advantage of the preference.
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. Some of these options would have the effect of narrowing the application of
the GSP program, while others would expand it.
Restrict Application of Preferences
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 operations (currently 35%)129
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).130
128 The Central African Republic, Guinea-Bissau, Madagascar, Mali, and Somalia are not designated as beneficiary
sub-Saharan African countries in 2013, but retain their GSP eligibility.
129 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 designated association of countries. 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)).
130 19 U.S.C. §2463(c).
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• 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. Thus, BDCs
sometimes have no predictable way of knowing before shipment whether certain
foreign components can be included as part of the 35% domestic content.131
• Eliminate competitive need limitations or raise the thresholds that trigger them.
• Ensure uniform application of country practice requirements, or eliminate them.
131 2008 GAO Report, p. 55.
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Appendix A. Trade Statistics
Table A-1. Leading U.S. Product Imports Under GSP, 2010
Value of Imports
Under GSP (actual U.S.
HTS
MFN Tariff Rate
Description
$)
27090020
10.5 cents/bbl
Petroleum oils and oils from bituminous
$4,696,304,004
minerals, crude, testing 25 degrees A.P.I. or
more
27090010
5.25 cents/bbl
Petroleum oils and oils from bituminous
$736,731,150
minerals, crude, testing under 25 degrees
A.P.I.
71131150
5%
Silver articles of jewelry and parts thereof,
$598,381,383
not elsewhere specified or indicated, valued
over $18 per dozen pieces or parts
40111010
4%
New pneumatic radial tires, of rubber, of a
$494,605,939
kind used on motor cars (including station
wagons and racing cars)
76061230
3%
Aluminum al oy, plates/sheets/strip, w/thick. $398,345,686
o/0.2mm, rectangular (incl. sq), not clad
72024100
1.9%
Ferrochromium containing by weight more
$376,940,924
than 4% of carbon
72023000 3.9%
Ferrosilicon
manganese
$247,137,897
40112010
4%
New pneumatic radial tires, of rubber, of a
$230,404,109
kind used on buses or trucks
21069099
6.4%
Food preparations not elsewhere specified
$217,386,372
or included, not canned or frozen
71131929
5.5%
Gold necklaces and neck chains (o/than of
$205,974,798
rope or mixed links)
72022150
1.5%
Ferrosilicon containing by weight more
$197,786,992
than 55% but not more than 80% of silicon,
not otherwise specified or indicated
40151910
3%
Seamless gloves of vulcanized rubber other
$186,540,232
than hard rubber, other than surgical or
medical gloves
17011110 1.4606¢/kg
less Cane sugar, raw, in solid form, not
$185,649,026
0.020668¢/kg for
containing added flavoring or coloring
each degree under
matter, not otherwise specified or
100 degrees (and
indicated, described in additional U.S. note
fractions of a degree
5 (Chapter 17) and provisional
in proportion) but
not less than
0.943854¢/kg
71131950
5.5%
Precious metal (other than silver) articles
$160,490,974
of jewelry and parts thereof, whether or
not plated or clad with precious metal, not
elsewhere specified or indicated
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Value of Imports
Under GSP (actual U.S.
HTS
MFN Tariff Rate
Description
$)
68029900
6.5%
Monumental or building stone and arts
$145,900,293
thereof, not otherwise specified or
indicated, further worked than simply
cut/sawn, not otherwise specified or
indicated
Source: USITC Trade Dataweb, http://dataweb.usitc.gov, and Harmonized Tariff Schedule, 2009.
Notes: Imports for consumption, actual U.S. dollars. Tariff rates are ad valorem unless otherwise specified.
Table A-2. Leading Product Imports Under GSP, 2011
Value of Imports
Under GSP (actual U.S.
HTS
MFN Tariff Rate
Description
$)
71131150
5%
Silver articles of jewelry and parts thereof,
$665,294,807
not elsewhere specified or indicated, valued
over $18 per dozen pieces or parts
76061230
3%
Aluminum al oy, plates/sheets/strip, with
$492,083,242
thickness over 0.2mm, rectangular
(including square), not clad
40111010
4%
New pneumatic radial tires, of rubber, of a
$409,181,627
kind used on motor cars (including station
wagons and racing cars)
40112010
4%
New pneumatic radial tires, of rubber, of a
$386,108,113
kind used on buses or trucks
72024100
1.9%
Ferrochromium containing by weight more
$386,025,268
than 4% of carbon
27090020
10.5 cents/bbl
Petroleum oils and oils from bituminous
$345,610,422
minerals, crude, testing 25 degrees A.P.I. or
more
72023000 3.9%
Ferrosilicon
manganese
$278,647,336
17011110 1.4606¢/kg
less Cane sugar, raw, in solid form, without
$273,562,956
0.020668¢/kg for
added flavoring or coloring, subject to
each degree under
additional U.S. note 5 to Chapter 17
100 degrees (and
fractions of a degree
in proportion) but
not less than
0.943854¢/kg
21069099
6.4%
Food preparations not elsewhere specified
$259,827,557
or indicated, not canned or frozen
40151910
3%
Seamless gloves of vulcanized rubber other
$224,215,926
than hard rubber, other than surgical or
medical gloves
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Value of Imports
Under GSP (actual U.S.
HTS
MFN Tariff Rate
Description
$)
69091950
5.8%
Ceramic wares for laboratory, chemical or
$203,297,127
other technical uses (other than of
porcelain or china), not elsewhere specified
or indicated
84099991
2.5%
Parts, not elsewhere specified or indicated,
used solely or principally with the engines
of heading 8408, for vehicles of heading
$156,178,555
8701.20, 8702, 8703, 8704
79011100
1.5%
Zinc (other than al oy), unwrought,
$154,406,565
containing over 99.99% by weight of zinc
87083050
2.5%
Parts & accessories of motor vehicles of
$145,209,650
8701, not elsewhere specified or indicated,
and 8702-8705, brakes and servo-brakes &
parts thereof
Source: USITC Trade Dataweb, http://dataweb.usitc.gov, and Harmonized Tariff Schedule, 2012.
Notes: Imports for consumption, actual U.S. dollars. Tariff rates are ad valorem unless otherwise specified. The
GSP was not renewed until October 21, 2011. The program was renewed retroactively for all those entries
made between January 1, 2011 and November 5, 2011 (the 15th day after enactment of the Act, the day the GSP
renewal entered into force). Countries were given 180 days after enactment to apply for the preference to be
granted retroactively (until April 28, 2012) on shipments to the United States. Therefore, the figures for 2011
may be incomplete.
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Table A-3. Leading GSP Beneficiaries and Total, 2010
Beneficiary Developing
GSP Duty-Free Imports
Rank
Country
($ millions)
Total Imports ($ millions)
1 Thailand
$3,612
$22,653
2 Angola
$3,544
$11,779
3 India
$3,482
$29,614
4 Brazil
$2,124
$23,402
5 Indonesia
$1,856
$16,330
6 Equatorial
Guinea
$1,275
$2,324
7 South
Africa
$1,200
$8,199
8 Philippines
$913
$7,958
9 Turkey
$793
$4,180
10 Russia
$578
$25,199
11 Argentina
$529
$3,739
12
Chad
$454
$2,038
13 Congo
(DROC)
$247
$435
14 Pakistan
$165
$3,491
15 Colombia
$159
$15,673
Imports from Top 15 Beneficiaries
$21,585
$43,027
Total Imports from all Beneficiaries
$22,554
$303,178
Source: USITC Trade Dataweb, http://dataweb.usitc.gov.
Table A-4. Leading GSP Beneficiaries, 2011
Beneficiary Developing
GSP Duty-Free Imports
Rank
Country
($ millions)
Total Imports ($ millions)
1 India
$3,736
36,003
2 Thailand
$3,720
24,687
3 Brazil
$2,059
30,368
4 Indonesia
$1,965
19,064
5 South
Africa
$1,333
9,473
6 Philippines
$1,134
9,112
7 Turkey
$895
5,185
8 Russia
$575
33,610
9 Argentina
$477
4,525
10 Colombia
$384
22,391
11 Angola
$300
13,756
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Beneficiary Developing
GSP Duty-Free Imports
Rank
Country
($ millions)
Total Imports ($ millions)
12 Yemen
$156
$536
13 Ecuador
$147
$9,500
14 Sri
Lanka
$135
$2,080
15 Namibia
$134
$436
Imports from Top 15 GSP Beneficiaries
$17,150
$220,726
Total Imports from al GSP Beneficiaries
$18,539
$365,902
Source: USITC Trade Dataweb, http://dataweb.usitc.gov, and Harmonized Tariff Schedule, 2012.
Notes: Imports for consumption, actual U.S. dollars. Tariff rates are ad valorem unless otherwise specified. The
GSP was not renewed until October 21, 2011. The program was renewed retroactively for all those entries
made between January 1, 2011, and November 5, 2011 (the 15th day after enactment of the Act, the day the GSP
renewal entered into force). Countries were given 180 days after enactment to apply for the preference to be
granted retroactively (until April 28, 2012) on shipments to the United States. Therefore, the figures for 2011
may be incomplete.
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Appendix B. GSP Implementation and Renewal
Table B-1. GSP Implementation and Renewal, 1974-2013
Public Law
Effective Date
Date Expired
Notes
P.L. 93-618, Title V,
January 2, 1975
January 2, 1985
Statute original y enacted.
Trade Act of 1974
P.L. 98-573, Title V,
October 30, 1984
July 4, 1993
Substantial y amended and
Trade and Tariff Act of 1984
restated.
P.L. 103-66, Section 13802
August 10, 1993
September 30, 1994
Extended retroactively from
(in Omnibus Budget
July 5, 1993 to August 10,
Reconciliation Act, 1993)
1993. Also struck out
reference to “Union of Soviet
Socialist Republics”
P.L. 103-465, Section 601
December 8, 1994
July 31, 1995
Extended retroactively from
Uruguay Round Agreements Act
September 30, 1994 to
December 8, 1994. No other
amendments to provision.
P.L. 104-188, Subtitle J,
October 1, 1996 (for
May 31, 1997
Substantial y amended and
Section 1952
GSP renewal only)
restated. Extended
GSP Renewal Act of 1996 (in
retroactively from August 1,
Small Business Job Protection
1995 to October 1, 1996.
Act of 1996)
P.L. 105-34, Subtitle H,
August 5, 1997
June 30, 1998
Extended retroactively from
Section 981
May 31, 1997 to August 5,
(in Taxpayer Relief Act of 1997)
1997. No other amendments
to provision.
P.L. 105-277, Subtitle B,
October 21, 1998
June 30, 1999
Extended retroactively from
Section 101
July 1, 1998 to October 21,
(in Omnibus Consolidated and
1998. No other amendments
Emergency Supplemental
to provision.
Appropriations, 1999)
P.L. 106-170, Section 508,
December 17, 1999
September 30, 2001
Extended retroactively from
(in Ticket to Work and Work
July 1, 1999 to December 17,
Incentives Act of 1999)
1999. No other amendments
to provision.
P.L. 107-210, Division D, Title
August 6, 2002
December 31, 2006
Extended retroactively from
XLI
September 30, 2001, to August
Trade Act of 2002
6, 2002. Amended to (1)
include requirement that BDCs
take steps to support efforts of
United States to combat
terrorism and (2) further define
the term “internationally
recognized worker rights.”
P.L. 109-432, Title VIII
December 31, 2006
December 31, 2008
Extended before program
lapse.
P.L. 110-436, Section 4
October 16, 2008
December 31, 2009
Extended before program
lapse.
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Public Law
Effective Date
Date Expired
Notes
P.L. 111-124
December 28, 2009
December 31, 2010
Extended before program
lapse.
P.L. 112-40
November 5, 2011
July 31, 2013
Extended retroactively from
December 31, 2010 to
November 5, 2011.
Source: CRS analysis using the Legislative Information System (LIS).
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Appendix C. GSP Beneficiary Countries
Table C-1.Beneficiary Developing Countries and Regions for Purposes of the
Generalizes System of Preferences
as of January 2013
Independent Countries
AfghanistanA+ Ecuador
Macedonia,
Former
Senegal
Yugoslav Republic of
Albania Egypt MadagascarA+ Serbia
Algeria Eritrea MalawiA+ Seychelles
AngolaA+ Ethiopia A+ Maldives Sierra
LeoneA+
Armenia Fiji
MaliA+ Solomon
Islands A+
Azerbaijan Gabon
MauritaniaA+ SomaliaA+
BangladeshA+ Gambia,
TheA+ Mauritius
South
Africa
Belize Georgia
Moldova
South
Sudan A+
BeninA+ Ghana Mongolia Sri
Lanka
BhutanA+ Grenada Montenegro
Suriname
BoliviaJ GuineaA+ MozambiqueA+ Swaziland
Bosnia and Hercegovina
Guinea-BissauA+ Namibia
TanzaniaA+
Botswana Guyana NepalA+ Thailand
Brazil HaitiA+ NigerA+ Timor-Leste A+
Burkina FasoA+ India
Nigeria
TogoA+
BurundiA+ Indonesia Pakistan Tonga
CambodiaA+ Iraq
Panama
Tunisia
Cameroon
Jamaica
Papua New Guinea
Turkey
Cape Verde
Jordan
Paraguay
TuvaluA+
Central African RepublicA+ Kazakhstan
Philippines
UgandaA+
ChadA+ Kenya Russia Ukraine
ComorosA+ KiribatiA+ RwandaA+ Uruguay
Congo (Brazzaville)
Kosovo
St. Kitts and Nevis
Uzbekistan
Congo (Kinshasa) A+ Kyrgyzstan
Saint
Lucia
VanuatuA+
Cote d’Ivoire
Lebanon
Saint Vincent and the
Venezuela
Grenadines
DjiboutiA+ LesothoA+ SamoaA+
Republic of YemenA+
Dominica
LiberiaA+
Sao Tome and PrincipeA+ ZambiaA+
Zimbabwe
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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
Western
Sahara
Associations of Countries (treated as one country)
Member Countries of the
Qualifying Member Countries of Qualifying Member Countries of
Cartagena Agreement (Andean
the Association of South East
the Caribbean Common Market
Group)
Asian Nations (ASEAN)
(CARICOM)
Bolivia
Cambodia
Belize
Ecuador
Indonesia
Dominica
Venezuela
Philippines
Grenada
Thailand
Guyana
Jamaica
Montserrat
St. Kitts and Nevis
Saint Lucia
Saint Vincent and the Grenadines
Member Countries of the West
Qualifying Member Countries of
African Economic and Monetary
the Southern Africa
Union (WAEMU)
Development Community
Benin
(SADC)
Burkina Faso
Botswana
Cote d’Ivoire
Mauritius
Guinea-Bissau
Tanzania
Mali
Niger
Senegal
Togo
Qualifying Member Countries of
the South Asian Association for
Regional Cooperation (SAARC)
Afghanistan Bangladesh
Bhutan
India
Nepal
Pakistan
Sri Lanka
Source: Harmonized Tariff Schedule, January 2013.
Notes: A+ indicates Least-Developed Countries.
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Author Contact Information
Vivian C. Jones
Specialist in International Trade and Finance
vcjones@crs.loc.gov, 7-7823
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