U.S. Trade Preference Programs Face Uncertain Future

SPECIAL
OFFICE OF TRADE NEGOTIATIONS

… for trade matters
OTN Update
February 7, 2011

T he Fu tu re o f U.S. T rade Pre fe re nce
Prog rams Remains Unc e rtain
The Andean Trade Promotion and Drug Eradication One of the reasons that the proposal did not attract
Act (ATPDEA) as well as the Generalized System of Congressional consensus is that the GSP program
Preferences (GSP), two of six of the U.S.’s trade in particular had attracted negative attention from
preference programs for developing countries, face an influential private sector interests groups. The latter
uncertain future. While both preference programs were have insisted that the GSP program presents a
scheduled to expire on December 31 2010, only the threat to American Jobs and can further hurt the
ATPDEA was allotted a short-term extension until economy – a politically weighted argument that
February 12, 2011. The failure to renew an extension would not go unheeded in the current U.S. financial
for the GSP has meant that the advantages to the climate. Specifically, Senator Jeff Sessions, the
beneficiaries of merchandise trade under this program republican representative of Alabama, was not in
have been suspended. As the deadline of the ATPDEA favour of the extension of the GSP as proposed
extension draws near, it is also unclear at this time how under the Levin Bill because it granted duty-free
the ATPDEA or the GSP for that matter will be treated access to certain sleeping bags from Bangladesh
thereafter. that compete with a product made by one of his
constituent companies Exxel Outdoors, which
At one stage, a proposal was drafted within the US assembles sleeping bags in Alabama. In order to
House of Representatives to extend both the GSP and protect the interests of his constituent, Senator
the ATPDEA until June 30 2012. This proposal was Sessions had pressed for an amendment to the Bill
articulated in the omnibus trade bill H.R 6517, also and ultimately the preference that would exclude
known as the Levin Bill, which passed in the House on certain types of Bangladeshi sleeping bags from
December 15 2010 but floundered in the Senate. the GSP.

OTN UPDATE is the flagship electronic trade newsletter of the Office of Trade Negotiations (OTN), formerly the Caribbean Regional Negotiating Machinery
(CRNM). Published in English, it is a rich source of probing research on and detailed analyses of international trade policy issues and developments
germane to the Caribbean. Prepared by the Information Unit of the OTN, the newsletter focuses on the OTN, trade negotiation issues within its mandate
and related activities. Its intention is to provide impetus for feedback by and awareness amongst a variety of stakeholders, as regards trade policy
developments of currency and importance to the Caribbean.
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2

From a policy perspective, any Congressional United States. As designed, the program extends
permeability to the pressure exuded by Exxel can have income support and training for U.S workers.
a destabilising effect on the future of the trade However, the benefits under the TAA were set to
preference programs in the long term as any company expire at the beginning of January 2011. Under the
which feels itself disadvantaged may seek to proposed Levin Bill, the extension of the GSP, the
continuously develop exceptions under these programs ATPDEA and the TAA were placed together as a
that would protect its market interests. package.

On the other hand, the objection by Senator Sessions, Along with the ATPDEA, an extension was secured
illustrates a perennial conflict between trade for the TAA until February 12, 2011 as part of a
preference programs and the competing interest of package deal. At this time, disparate views on the
indigenous U.S. firms. While the preference programs TAA are also stymieing further progress necessary
can engender economic development in developing to secure a more permanent arrangement for both
countries, in order to continue to be politically saleable, the ATPDEA and the TAA. For example, while
they would need to be perceived to be consistent with some members of Congress may be willing to
American policy goals. In recent times, one of those extend the ATPDEA, they have refused to advance
policy goals, which has been acutely politically an extension for the TAA unless the U.S. -
sensitive, has been the creation of jobs for U.S. Columbia free trade agreement (FTA), which has
workers within the U.S. While there is a perception been regarded as problematic for the Obama
that the GSP and other trade preference programs Administration, is advanced.
displace American jobs, the displacement potential of
trade preference programs is quite minimal as many of The lapse of the GSP and the indefinite status of
the countries that export to the U.S. under the GSP the ATPDEA beyond February 12, 2011 have
program are least-developing countries (LDCs) and the created some disturbances amongst the US
products imported into the U.S from LDCs account for business sector as well as for beneficiary
less than 1% of total U.S non-oil imports. 1 developing countries. For American businesses, in
particular, small businesses that rely on the
Where adjustment costs exist as a result of the trade importation of products under these programs, the
preference programs, such costs can be mitigated in loss of preferential access under these programs
part through the Trade Adjustment Assistance (TAA) could imperil their competitiveness. On the other
program, which is designed to help trade-affected hand, without the preference programs, many of
workers who have lost their jobs as a result of the export sectors from the beneficiary developing
increased imports or shifts in production out of the countries would experience challenges in remaining
competitive in the U.S market and in remaining
viable.
1
See Trade Preference Program Reform: Questions and Responses With respect to the GSP, this is not the first time
for Congressional Staff, Center for Global Development. Available at
http://www.cgdev.org/doc/Trade/CGD_Trade_Preference_Reform_ that a lapse has occurred. International headlines
Congressional_%20Q_and_A.pdf have reflected that the mood even in beneficiary

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countries is that of ‘business as usual’ following the Opportunity Act, and the Caribbean Basin
expiration of the program on December 31 2010.2 It Economic Recovery Act.
appears that the expectation is that, following
precedent, at some point the GSP will be reauthorized The debate has so far been concentrated on
retroactively and that all duties paid will be identifying certain principles upon which the reform
reimbursed. However, it is not certain at this time that or improvement of the programs should be based.
should the GSP be renewed that it will be For example, taken together, the US preference
implemented retroactively. 3 programs create a complex system of differing
rules of origin and product exclusions that make it
Even with the hope of retroactive renewal of the GSP, challenging for beneficiary countries and importers
the lapse of the preferences would make it difficult for to navigate. There is also a plethora of eligibility
producers in beneficiary countries as well as US criteria requirements which differ across the
importers to plan ahead for the long term. In the case programs and in some cases include
of ATPDEA, the scenarios would be similar and the conditionalities which are archaic and bear no
unpredictability of the fate of the program could relevance to current geo-political or economic
undermine the credibility of the program as an considerations. It has been proposed that
effective trade tool. increased flexibility, simplification and
harmonization of the programs’ rules of origin,
product coverage and eligibility criteria are crucial
elements that would make the market access of the
Reform of Preference beneficiary countries more meaningful and render
Programs still pending the preference programs system more transparent
and more attractive to importers.
Notwithstanding the above details, the future of the
trade preference programs will be linked to their It has also been proposed that the preference
reform. Apart from the annual review process which is programs should have firm graduation provisions
undertaken for trade preference programs, the that would impel beneficiary countries to engage in
performance, operation and potential reform of the a more reciprocal trading relationship when such
preference programs have been the subject of countries have attained a certain level of
debate. The debate has largely focused on an development. However, with respect to graduation,
examination of how GSP operates in relation to the finding appropriate optimal benchmarks for
Andean Trade Preference Act, the African Growth graduation would be an important consideration to
ensure that beneficiaries are not graduated based
2
on the performance of isolated indicators.
See “It’s ‘business as usual’ for RP exporters amid US GSP renewal”
U.S. News Las Vegas, January 13, 2011. Available at Moreover, the ability of a former beneficiary country
http://www.usnewslasvegas.com/business/its‐business‐as‐usual‐ to participate in a reciprocal trade arrangement
for‐rp‐exporters‐amid‐us‐gsp‐renewal/
would depend on a number of variables including
3
See GSP Expiration: Frequently Asked Questions. Available at
http://www.ustr.gov/about‐us/press‐office/fact‐
the institutional capacity of that country to enable
sheets/2010/december/gsp‐expiration‐frequently‐asked‐questions the implementation of reciprocal commitments.

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There is some political support from a range of countries until 2014, it is uncertain how the further
interest groups for the reform of the trade renewal of the program’s waiver will be considered
preferences and it is likely that the openness of by the WTO membership thereafter. The reform of
Congress to the reauthorization of such preferences the preference programs has been especially
for longer time frames would be linked to some extent concerned with improving the programs as a
to the completion of this reform process to the development tool for least developed countries.
satisfaction of the divergent interest groups. Within CARICOM, Haiti is the only LDC and efforts
However, the preference reform agenda has been have been revamped to assist Haiti with its
suspended indefinitely because Congressional economic recovery through the HOPE II preference
supporters have been expending all energies in program. However, the World Bank classification of
frenzied attempts to revive the GSP and to obtain an CARICOM countries as middle income and high
extension for the ATPDEA. income countries may not readily convince all WTO
members that the region’s development needs
served by the trade preference program should
outweigh their own concerns related to their
perception that US unilateral preferential trade
regimes with the Caribbean, and other countries
present unfair competition to their local producers.

The future of the Doha Round of negotiations may
also have an impact. For some developed and
The Implications for CARICOM developing countries, further tolerance of U.S trade
preference programs may be contingent upon the
The successful reform of the programs could extent to which the final deal of the Doha
enhance the overall credibility of the programs as negotiations will be in sync with their own interests.
trade development tools for developing countries. At the same time, from the U.S perspective, there
This boost to credibility could also assist U.S. may be an underlying concern that the accessibility
consensus building amongst WTO members which of its preference programs to advanced developing
will be necessary to obtain WTO waivers for most of countries has the potential to compromise its
the programs. However, increasingly, WTO members interests in the Doha round. The idea is that
have been showing decreased tolerance for unilateral unilateral access to the U.S. market may not be
preferential programs. For example, prior to the providing an incentive for advanced developing
renewal of the Caribbean Basin Economic Recovery countries to make further market access
Act (CBERA) WTO waiver in March 2009, attempts concessions to developed countries such as the
by the U.S. to secure a waiver were blocked because U.S.4
of objections raised by a number of WTO members.
4
See Opening Statement of Senator Chuck Grassley Hearing, “U.S.
While the renewal of CBERA’s waiver has secured Preference Programs: Options for Reform” Tuesday, March 9, 2010.
unilateral market access for Caribbean beneficiary Available at
http://finance.senate.gov/imo/media/doc/prg030910.pdf

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However, this is not to suggest that, should the own experience with the CBI programs to
U.S. reconsider the extension of its preference determine the extent to which such arrangements
programs to secure its negotiating leverage in the fulfil its own needs and continue to be relevant to its
multilateral arena, the Caribbean will be the target. evolving trade and economic policy.
Market interests aside, the Caribbean’s economic
stability is still relevant to U.S geo-politics and
security policy objectives. For this reason, the
protection of its trade relationship with its
Caribbean neighbours is still important to U.S *********
objectives. The importance of the Caribbean-U.S.
relationship was illustrated by the actions of
Congress following the January 2010 earthquake
which devastated the Republic of Haiti. The U.S.
Congress promptly sought to implement measures
that would support Haiti’s economic recovery. To
revitalize one of Haiti’s key industries, the apparel
industry, Congress enacted the Haiti Economic Lift
Program (HELP) Act in May 2010. This key
Federal legislation not only secured preferences for
Haiti by extending the Haitian Hemispheric
Opportunity through Partnership Engagement Act
(HOPE Act) but it also extended preferences for all
of the beneficiaries of the Caribbean Basin Trade
Partnership Act (CBTPA) until 30 September 2020.

While that extension is advantageous for the
CARICOM region, it is uncertain that the U.S will
seek indefinitely to treat its trading relationship with
CARICOM under the rubric of unilateralism rather
than reciprocity.

In planning its longer-term economic and trading
relationship with the U.S., the CARICOM region will
have to consider the current challenges being
5
experienced within the U.S Congress to preserve Some CARICOM CBI beneficiary countries have also utilized the
preferences under the GSP. For further reading see “Eighth Report
the authorization of the preference programs, to Congress on the Operation of the Caribbean Basin Economic
Recovery Act”, Office of the United States Trade Representative,
particularly with regard to the GSP, and the December 31, 2009. Available at
reluctance of WTO members to facilitate WTO http://www.pdfchaser.com/Eighth‐Report‐to‐Congress‐on‐the‐
Operation‐of‐the‐Caribbean‐Basin‐....html#
waivers. 5 The region will also need to reflect on its

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U.S. Trade Preference Programs Face Uncertain Future

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