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Generalized System of Preferences: Background and Renewal Debate

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Publication Date: September 2008

Publisher(s): Library of Congress. Congressional Research Service

Series: RL33663

Topic: Trade (Commercial treaties and agreements)

Abstract:

The Generalized System of Preferences (GSP) provides duty-free tariff treatment to certain products imported from designated developing countries. The United States, the European Union, and other developed countries implemented such programs in the in the 1970s in order to promote economic growth in developing countries by stimulating their exports. The U.S. program (as established by Title V of the Trade Act of 1974) was extended until December 31, 2008, in section 8002 of P.L. 109-432 for all GSP beneficiary countries not covered by the African Growth and Opportunity Acceleration Act of 2004 (P.L.108-274, extended GSP benefits for AGOA beneficiary countries through September 30, 2015).

Other bills introduced in the 109th Congress to renew the preference include H.R. 6346 and H.R. 6142 (Thomas), H.R. 6076 (Rangel), H.R. 5070 (Rangel), S. 3933 (Inhofe), and S. 3904 (Baucus). S. 191 (Smith) sought to extend AGOA-type benefits to certain Asian and Pacific least-developed countries, including an extension of GSP for these countries alone. Since Congress extended the GSP until December 2008, its further extension will continue to be a legislative issue in the 110th Congress. In addition, the Trade Subcommittee of the House Ways and Means Committee has included an evaluation of trade preference programs, including the GSP, as part of its oversight plan for the 110th Congress. In the 109th Congress, renewal of the preference was controversial, due, in part, to the impasse in multilateral trade talks in the World Trade Organization Doha Development Agenda (DDA) and the concerns of some regarding the inclusion of certain more advanced developing countries such as India and Brazil in the program.

The Bush Administration favored GSP renewal, but also appears willing to continue to review and modify the program in order to respond to congressional concerns. To that end, the USTR and other administration officials are examining whether to limit, suspend, or withdraw the eligibility of 13 major GSP beneficiaries based on certain criteria. The USTR is also reviewing all 83 current waivers of automatic competitive need limits (triggered by import volumes) to see if any waivers should be withdrawn. In addition, petitions for new waivers are being considered as part of the annual 2006 review of the GSP program.

This report presents, first, a brief history, economic rationale, and legal background leading to the establishment of the Generalized System of Preferences. A brief comparison of GSP programs worldwide, especially as they compare to the U.S. system, is also presented. Second, the U.S. implementation of the GSP is discussed, along with the present debate surrounding its renewal and legislative developments to date. Third, an analysis of the U.S. program's effectiveness and the positions of various stakeholders are presented. Fourth, possible implications of the expiration of the U.S. program and other possible options for Congress are discussed. This report will be updated as events warrant.

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