U.S. Trade Preferences

1. Generalized System of Preferences (GSP)

The GSP is a special arrangement by developed nations, agreed to under the United Na­tions, to provide special treatment for imports from developing nations to encourage their economic growth. Under the GSP, tariff exemptions and reductions are provided by indus­trialized countries on a specified range of commodities exported from developing nations. The GSP scheme was first implemented in the United States in 1976 when the government specified some 2,700 articles that were to receive duty-free treatment if imported from 140 designated developing nations. The scheme has been extended since, with certain modifica­tions and limitations.

Imports from eligible countries are subject to tariff exemptions or reductions if:

1. The merchandise is destined for the United States without contingency for diversion at the time of exportation.
2. The cost or value of materials produced in the beneficiary country and/or the direct cost of processing performed is no less than 35 percent of the appraised value of the goods.
3. The United Nations Conference on Trade and Development certificate of origin is pre­pared and signed by the exporter and filed with the entry of the goods.

There are two important limitations to the application of the GSP. First, the U.S. presi­dent is required to suspend GSP eligibility on imports of specific articles from a particular country when that country has supplied more than $155 million in value of the article during the previous calendar year (for 2012) or more than 50 percent of the value of U.S. imports. Since the $155 million limitation was based on the GDP of 2012, appropriate adjustments are made in light of the GDP for the current year. Such limitations do not apply to an eligible least-developed country. Second, the provision of GSP is restricted for the more advanced developing nations. For example, many products from countries such as Israel, Korea, Sin­gapore, and Taiwan were removed from GSP duty-free treatment.

Certain articles are prohibited by law from receiving GSP treatment. These include most textiles and apparel articles, watches, footwear, handbags, luggage, flat goods, work gloves, and leather apparel. In addition, the GSP statute precludes eligibility for import-sensitive steel, glass, and electronic articles. The GSP scheme saved beneficiary countries (128 coun­tries in 2011) import duties of $700 million (2011) on total GSP imports estimated at $18.5 billion (U.S.). Top beneficiaries of the U.S. GSP include India, Thailand, Brazil, Indonesia, South Africa, the Philippines, Turkey, and Russia.

2. The Caribbean Basin Initiative (CBI)

The CBI is a program intended to provide duty-free entry of goods from designated Carib­bean and Central American nations to the United States. The program was implemented in 1984 and has no expiration date. For CBI duty-free treatment, the merchandise must be wholly produced or substantially transformed in the beneficiary country, be destined for the United States without contingency for diversion at the time of exportation, and meet the 35 percent value-added requirement similar to that required in the GSP scheme. Value attributable to Puerto Rico, the U.S. Virgin Islands, and U.S. Customs and Border Protection territory may be counted toward the 35 percent value-added requirement. In the latter case, the attributable value is counted only up to a maximum of 15 percent of the appraised value of the imported article.

The United States-Caribbean Basin Trade Partnership Act (CBTPA, 2000) expands the trade benefits currently available to Caribbean and Central American countries under the CBI. Except for textile and apparel articles, the CBTPA allows tariff treatment similar to that accorded NAFTA signatories for goods excluded from the CBI program (watches, footwear, petroleum products, and so on). Apparel articles assembled in one or more CBTPA ben­eficiary countries from U.S. or regional fabric or yarn are eligible for duty- and quota-free treatment when they enter the United States.

The trade benefits under CBTPA are expected to continue in effect until September 2020 or the date on which a free-trade agreement is concluded between the U.S. and beneficiary countries.

3. The Andean Trade Preference (ATP)

This program was enacted in 1991 in order to provide duty-free treatment for imports of merchandise from designated beneficiary countries (Bolivia, Colombia, Ecuador, and Peru) to the United States. The eligibility requirements are similar to those for the CBI. The ATP expired in 2001 and was renewed as part of the Trade Act of 2002. The new program, The Andean Trade Promotion and Drug Eradication Act, provides the same benefits as the ATP. It, however, extends the program by 700 additional products.

A similar arrangement was also made with Marshall Islands and the Federated States of Micronesia in 1989 and has no expiration date.

4. The African Growth and Opportunity Act (AGOA) (2000)

AGOA was signed into law in May 2000. It is intended to offer beneficiary countries from sub-Saharan Africa duty-free treatment on more than 1,800 items that are exported to the United States. This is in addition to the standard GSP list of approximately 4,600 items. The program also provides duty and quota exemptions to member countries on their exports of textile and apparel products to the U.S. market.

AGOA benefits are extended to countries that are GSP eligible under the existing criteria. Beneficiary countries are also exempted from competitive need limitations, that is, prefer­ential treatment is not suspended if a country is competitive in the production of the item.

As of June 2011, thirty-seven of the forty-eight sub-Saharan countries were designated as AGOA beneficiaries. AGOA was amended in 2002 and 2004. The latest revision (AGOA III of 2004) extends preferential treatment for beneficiary countries until 2015.

In 2011, more than 93 percent of U.S. imports from AGOA-eligible countries entered duty free (under AGOA, GSP, or zero-duty most-favored-nation rates) (Table 16.2).

Source: Seyoum Belay (2014), Export-import theory, practices, and procedures, Routledge; 3rd edition.