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Trade Preferences for Developing Countries and the WTO

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Abstract:

World Trade Organization (WTO) Members must grant immediate and unconditional most-favored-nation (MFN) treatment to the products of other Members with respect to tariffs and other trade-related measures. Programs such as the Generalized System of Preferences (GSP), under which developed countries grant preferential tariff rates to developing country products, are facially inconsistent with this obligation because they accord goods of some countries more favorable tariff treatment than that accorded to goods of other WTO Members. Because such programs have been viewed as trade-expanding, however, Contracting Parties to the General Agreement on Tariffs and Trade (GATT) provided a legal basis for one-way tariff preferences and certain other preferential arrangements in a 1979 decision known as the Enabling Clause. In 2004, the WTO Appellate Body ruled that the Clause allows developed countries to offer different treatment to developing countries in a GSP program, but only if identical treatment is available to all similarly situated GSP beneficiaries. Where WTO Members' preference programs have provided expanded benefits, Members, including the United States, have in many instances obtained WTO waivers. With the GSP and Andean preference programs expiring at the end of 2006, Congress enacted legislation late in the 109th Congress (P.L. 109-432) extending the GSP for two years and extending Andean preferences until June 30, 2007, with conditional extension thereafter. The new statute also extends a third-country fabric provision in the African Growth and Opportunity Act and expands textile benefits for Haiti. As the GSP and Andean programs are now set to expire within the next two years, Congress may consider these programs as well as other preference proposals in the 110th Congress. This report will be updated.