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
Act (ATPDEA) as well as the Generalized System of
Preferences (GSP), two of six of the U.S.’s trade
preference programs for developing countries, face an
uncertain future. While both preference programs were
scheduled to expire on December 31 2010, only the
ATPDEA was allotted a short-term extension until
February 12, 2011. The failure to renew an extension
for the GSP has meant that the advantages to the
beneficiaries of merchandise trade under this program
have been suspended. As the deadline of the ATPDEA
extension draws near, it is also unclear at this time how
the ATPDEA or the GSP for that matter will be treated
thereafter.
At one stage, a proposal was drafted within the US
House of Representatives to extend both the GSP and
the ATPDEA until June 30 2012. This proposal was
articulated in the omnibus trade bill H.R 6517, also
known as the Levin Bill, which passed in the House on
December 15 2010 but floundered in the Senate.
One of the reasons that the proposal did not attract
Congressional consensus is that the GSP program
in particular had attracted negative attention from
influential private sector interests groups. The latter
have insisted that the GSP program presents a
threat to American Jobs and can further hurt the
economy – a politically weighted argument that
would not go unheeded in the current U.S. financial
climate. Specifically, Senator Jeff Sessions, the
republican representative of Alabama, was not in
favour of the extension of the GSP as proposed
under the Levin Bill because it granted duty-free
access to certain sleeping bags from Bangladesh
that compete with a product made by one of his
constituent companies Exxel Outdoors, which
assembles sleeping bags in Alabama. In order to
protect the interests of his constituent, Senator
Sessions had pressed for an amendment to the Bill
and ultimately the preference that would exclude
certain types of Bangladeshi sleeping bags from
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.
http://www.crnm.org
 2

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

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

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.
http://www.crnm.org
 3
countries is that of ‘business as usual’ following the
expiration of the program on December 31 2010.2 It
appears that the expectation is that, following
precedent, at some point the GSP will be reauthorized
retroactively and that all duties paid will be
reimbursed. However, it is not certain at this time that
should the GSP be renewed that it will be
implemented retroactively. 3
Even with the hope of retroactive renewal of the GSP,
the lapse of the preferences would make it difficult for
producers in beneficiary countries as well as US
importers to plan ahead for the long term. In the case
of ATPDEA, the scenarios would be similar and the
unpredictability of the fate of the program could
undermine the credibility of the program as an
effective trade tool.
Reform of Preference
Programs still pending
Notwithstanding the above details, the future of the
trade preference programs will be linked to their
reform. Apart from the annual review process which is
undertaken for trade preference programs, the
performance, operation and potential reform of the
preference programs have been the subject of
debate. The debate has largely focused on an
examination of how GSP operates in relation to the
Andean Trade Preference Act, the African Growth
2
See “It’s ‘business as usual’ for RP exporters amid US GSP renewal”
U.S. News Las Vegas, January 13, 2011. Available at
http://www.usnewslasvegas.com/business/its‐business‐as‐usual‐
for‐rp‐exporters‐amid‐us‐gsp‐renewal/
3
See GSP Expiration: Frequently Asked Questions. Available at
http://www.ustr.gov/about‐us/press‐office/fact‐
sheets/2010/december/gsp‐expiration‐frequently‐asked‐questions
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.
http://www.crnm.org
Opportunity Act, and the Caribbean Basin
Economic Recovery Act.
The debate has so far been concentrated on
identifying certain principles upon which the reform
or improvement of the programs should be based.
For example, taken together, the US preference
programs create a complex system of differing
rules of origin and product exclusions that make it
challenging for beneficiary countries and importers
to navigate. There is also a plethora of eligibility
criteria requirements which differ across the
programs and in some cases include
conditionalities which are archaic and bear no
relevance to current geo-political or economic
considerations. It has been proposed that
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
beneficiary countries more meaningful and render
the preference programs system more transparent
and more attractive to importers.
It has also been proposed that the preference
programs should have firm graduation provisions
that would impel beneficiary countries to engage in
a more reciprocal trading relationship when such
countries have attained a certain level of
development. However, with respect to graduation,
finding appropriate optimal benchmarks for
graduation would be an important consideration to
ensure that beneficiaries are not graduated based
on the performance of isolated indicators.
Moreover, the ability of a former beneficiary country
to participate in a reciprocal trade arrangement
would depend on a number of variables including
the institutional capacity of that country to enable
the implementation of reciprocal commitments.
 4

There is some political support from a range of
interest groups for the reform of the trade
preferences and it is likely that the openness of
Congress to the reauthorization of such preferences
for longer time frames would be linked to some extent
to the completion of this reform process to the
satisfaction of the divergent interest groups.
However, the preference reform agenda has been
suspended indefinitely because Congressional
supporters have been expending all energies in
frenzied attempts to revive the GSP and to obtain an
extension for the ATPDEA.
countries until 2014, it is uncertain how the further
renewal of the program’s waiver will be considered
by the WTO membership thereafter. The reform of
the preference programs has been especially
concerned with improving the programs as a
development tool for least developed countries.
Within CARICOM, Haiti is the only LDC and efforts
have been revamped to assist Haiti with its
economic recovery through the HOPE II preference
program. However, the World Bank classification of
CARICOM countries as middle income and high
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

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

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.
http://www.crnm.org
 5

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

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.
http://www.crnm.org